Fringe benefits refer to those benefits and services that are extended by the employer to his/her employees over and above their wages and salaries, such as housing, transportation, subsidized meals, medical care, paid holidays, and the like.
According to D. Belcher, “Fringe benefits are any wage cost not directly connected with the employees’ productive effort, performance, service, or sacrifice.”
Learn about:- 1. Introduction to Fringe Benefits 2. Meaning and Definitions of Fringe Benefits 3. Objectives 4. Features 5. Steps 6. Types and Kinds 7. Principles 8. Problems and Limitations.
Fringe Benefits: Meaning, Objectives, Features, Types, Principles, Kinds, Steps, Problems and Limitations
Fringe Benefits – Introduction
Management is concerned with attracting and retaining employees whose performance meets organisational requirements. While incentives are given to specific employees, fringe benefits are available to all the employees depending upon their membership in the organisation. The term “fringe benefits” refers to the extra benefits given to the employees in addition to wages or salary.
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The benefits were known as ‘fringe’ benefits since they were relatively insignificant or fringe components ‘of compensation. The fringe benefits have become important components of compensation package. Several terms such as welfare expenses, wage supplements, perquisites, extra wages, hidden payroll, and social charges are used to denote fringe benefits. It is a benefit which supplements the employee’s wages and build up a positive corporate image.
Belcher defines fringe benefits as “any wage cost not directly connected with the employee’s productive effort, performance, service or sacrifice”.
Fringe benefits include pension, gratuity, health insurance, bonus, paid holidays, medical reimbursement, vacations, sick leave, annual leave, maternity leave etc.
Fringe benefits are indirect compensations as they are usually extended as a condition of employment and are not directly related to performance. The word ‘Fringe’ are not appreciated by management practitioners on the ground that now-a-days benefits and services constitute substantial labour cost for any organization.
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They are no longer Fringe cost or laws. They are important to management, employees and Unions alike. Nearly every organization in our country provides benefits and services to its employees. These Fringes continue to grow in their importance, several reasons accounts for their trend.
Firstly, they represent increased earnings to the employees. In fact, employees prefer it to direct Income because direct income puts tax incidence on them. Most benefits are not taxed and thus add to employee’s advantage. Secondly, some benefits like Group Insurance, health Insurance are generally purchased by employer at Group rates, which are typically lower than those which employees would have to pay individually. This is economically good for employees and thirdly, companies find it easy to explain to the shareholders that such benefits are a part of social responsibility towards employees.
Fourthly, more that salary structure and financial arrangements, there is a need to attract and retain competent employees. As employee joins the organization and stay with it only if it guarantees fringe benefits with direct pay. Fifthly, Fringe benefits help built up a good corporate image. Schemes like Houses, educational institutions, recreational activities bring benefit to society at large. All the facilities have wider dimensions than immediate gain to employees.
They, any organization, with introduction of fringe benefits, seek to enhance employee morale, remain cost effective and introduce changes without much resistance.
Fringe Benefits – Meaning and Definitions
Fringe benefits refer to those benefits and services that are extended by the employer to his/her employees over and above their wages and salaries, such as housing, transportation, subsidized meals, medical care, paid holidays, and the like.
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As fringe benefits are provided over and above the regular wages and salaries and augment the earnings of the employees, they are also known as supplementary compensation. Although called fringe benefits (i.e., benefits staying in the margins and not occupying position of importance), these benefits are no longer ‘fringes’ Rather, they are so important that they form an integral part of the compensation package of an organization.
Nearly every organization provides these benefits to its employees and their importance continues to grow. Although these benefits do cost a lot of expenditure to organizations, they, however, provide social security and psychological support to the employees.
Organizations often find themselves in a difficult situation where working on employee benefits and services. Yielding to the pressure of labour unions, employees, in difference to social trends, companies have added newer fringes to the list. Organizations have seldom established objectives, systematic plans, and standards to determine the appropriateness of the programs. Thus, this patch work of benefits and services has caused several problems.
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Fringe benefit is a benefit which is additional to the employees’ ordinary wages and which is value to the employee and his family. The materiality of fringe benefits increases the retirement benefits.
According to D. Belcher, “Fringe benefits are any wage cost not directly connected with the employees’ productive effort, performance, service, or sacrifice.”
According to the Industrial Relations and Wage Terms, “Fringe benefits supplement to wages received by workers at a cost to the employers. The term encompasses the number of benefits —paid vacations, pension, health insurance plans etc. which usually add up to the something more than the fringe and is sometimes applied to practice that may constitute a dubious benefit for workers.”
According to Cockman, “Employee benefits are those benefits which are supplied by an employer to or for the benefit of an employee and which are not in the form of wages, salaries and time rated payments.”
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Employees working in an organization are given some extra benefits in addition to their basic wages and salaries. These extra benefits are called Fringe benefits or employee benefits. These benefits are provided over and above their basic wages and salaries and these are non-wages or supplemental benefits that employees receive in addition to their regular wages and salaries. These may be given in the form of Provident fund, Gratuity, Medical care, Accident relief, Paid holidays etc.
According to Cockman, “employee benefits are those benefits which are supplied by an employer to or for the benefits of an employee and which are not in the form of wages, salaries and time rated payments”.
International Labor Organization (ILO) has described fringe benefits as follows, “Wages are often augmented by special cash benefits, by the provision of medical and other services or by payment in kind that form part of the wage for expenditure on the goods and services.
In addition, workers commonly receive such benefits as holidays with pay, low cost meals, low rent housing etc. Such additions to the wage proper are sometimes referred to as fringe benefits. Benefits that have relation to employment or wages should not be regarded as fringe benefits even though they may constitute a significant part to the worker’s total income.”
Fringe Benefits – Main Objectives
Broadly speaking, fringe benefits are instrumental in accomplishing certain social, human relations and macroeconomic goals.
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The main objectives of fringe benefits may be as follows:
1. To meet the needs of employees and safeguard them against certain hazards of life, particularly the ones which an individual, especially of small means, cannot himself provide for
2. To attract and retain employees
3. To earn gratitude and loyalty of the employees
4. To remain competitive in the market with regard to the provisions of fringe benefits
5. To boost the image of the organisation
6. To seek meaningful cooperation of employees in production process
7. To infuse confidence, motivate and boost morale of the employees
8. To reduce rate of absenteeism and labour turnover
9. To reduce the influence of trade unions
10. To reduce statutory interference
11. To improve human and industrial relations
12. To promote employee welfare and provide qualitative work environment.
Some Other Objectives of Fringe Benefits:
1. To attract and retain people.
2. To increase and improve employee morale and create positive image a bout the organisation.
3. To encourage employees to take more interest and initiative in the work.
4. To meet employee needs and protect them against certain risks in life.
5. To keep in line with the benefits offered by similar organisations.
6. To build up a good corporate image and become a preferred employer among job-seekers.
Fringe Benefits – 14 Main Features
1. Fringe benefit is indirect compensation as they are not directly related to performance but extended as the conditions of employment.
2. They are paid to the employees based on their membership in the organization.
3. They are helpful in raising the standard of living of employees.
4. Benefits and services are provided to the employees on the basis of genuine interest in the protection and promotion of their well-being.
5. They are supplementary forms of compensation.
6. Fringe benefits must satisfy a real need of an employee. If benefit is not liked by him he will resist to it.
7. Employees are educated to make use of fringe benefits.
8. They may be voluntary or statutory (provident fund is voluntary and transport is statutory benefit).
9. Fringe benefits are supplementary to regular wages or salaries.
10. Fringe-benefits are paid to workers to stimulate their interest in the work and not for specific job.
11. Fringe benefits are extended to all the employees based on their membership in the organization.
12. Fringe benefits help to improve the standard of living of employees.
13. Fringe benefits involve labor cost for the employer and are not meant to improve efficiency of employees.
14. Fringe benefits may be statutory or voluntary. Objectives.
Fringe Benefits – 6 Steps for Administrating Fringe Benefits
Step # 1. Establishing Benefits Objectives:
It is essential for management to define and create objectives for its benefits programmes. In establishing objectives, management may consider several factors e.g. employee preferences for benefits, attendance of employees, length of service, his/her performance, etc. should also be given due consideration. The objective should be such that it is cost effective, complies with legal compulsions, foster external competitiveness and employees needs are met with it.
Step # 2. Assessing Environment:
Before policies are made, it is necessary to assess the economies and socio-cultural environment. Here, government policies, regulations, unions and economic factors should be assessed thoroughly. Economic factors influence benefit decisions in many ways. Employees benefits from tax free fringes but also a proper balance between fringe benefits and direct income.
Step # 3. Assessing Competitiveness:
Market surveys should be able to provide data on various benefits offered by the competitors. This data allows the management to assess the competitiveness of their benefits and costs with those offered by other companies.
Step # 4. Communicating the Benefits to Employees:
Benefit programs need to be communicated to employees through slide presentations, brochures, booklets, employee meetings, etc. Communication helps remove ignorance of employees about their indirect remuneration. They feel good to know that the company does so much for them than just what appears on their monthly pay slips.
Step # 5. Control Cost of Benefits:
The next step is to have analysis of total cost of benefit to employees. The organization has to analyse how satisfied the employees are with such programs and their usefulness. If they are going out of budget, cut them. If employees are indifferent to such programs reduce the expenses on them.
Step # 6. Evaluate Benefits:
Here the answers to some questions need to be found, (a) Have the earnings of employees improved? (b) Have the benefits been able to retain them? (c) Have industrial relations improved? (d) Has the morale of employees improved? If the answers to these questions are assessed, the effectiveness of fringe benefits will be clear. If all answers are positive, the company should carry on with the programs but if the feed- , back is negative, the HR department has to redefine benefits, objectives and program.
Fringe Benefits – Types and Kinds of Fringe Benefits
Employee benefits and services include a set of Fringe staring from accident compensation plans to paid holidays.
To hold the benefit as fringe, the following criteria need to be fulfilled:
1. It should be quantifiable in terms of money.
2. The amount of benefit is not predetermined generally.
3. No contract, indicating when the sum is payable, should exist.
Going by the above criteria, many laws are put in different categories of fringes. This list is not conclusive and only suggestive.
List of Benefits Allowed by Companies:
1. Legally Required Payments:
a. Old age, disability, health insurance (Social Security).
b. Workers compensation/retrenchment compensation.
c. Unemployment compensation.
2. Deferred Benefits:
a. Pension plans
b. Group life and health insurance
c. Child care leave, maternity leave, sick leave
d. Tuition aid benefits
e. Severance pay
3. Payment for Time not Worked:
a. Earned leave for holidays
b. Leave for vacation
Other Fringes:
a. Car subsidy given by company
b. Uniform/tool expenses given by company
c. Employee meal allowance
d. Discount on employee’s goods and services.
Kinds:
Fringe benefits given to employees may be voluntary or statutory. Some of the voluntary benefits may include educational facilities, transportation facilities, housing facilities, subsidized lunch or refreshment, recreational facilities, consumer co-operative society, childcare etc.
US chamber of commerce has classified employee benefits into five categories which are given below:
1. Legally Required Payments:
(i) Old-age pension
(ii) Disability pension
(iii) Unemployment pension
(iv) Workers co-operation.
2. Contingent and Deferred Payments:
(i) Pension plan
(ii) Group life insurance
(iii) Maternity leave.
3. Payment for Time not Worked:
(i) Vacation
(ii) Holiday
(iii) Voting pay allowance.
Other Benefits:
(i) Travelling allowance
(ii) Company car and subsidies
(iii) Moving expenses
(iv) Uniform and tool expenses
(v) Employee meal allowance
(vi) Discount on employees goods and services
(vii) Child care facility.
Fringe Benefits – 6 Principles that Govern the Administration of the Fringe Benefits
The following principles must govern the administration of the fringe benefits:
(1) Fringe benefits should be provided to employees on the basis of a genuine interest in the protection and promotion of their well-being. The management should not feel that these fringes are thrust upon them. Nor should the management feel that they are providing the benefits as a matter of any charity.
(2) The benefits should actually satisfy a real need. Employee resist or are indifferent to any benefits which are not liked by them.
(3) The benefits should be cost effective and as broad based as possible.
(4) These benefits need to be given only after a sound planning has been made to give them.
(5) Employees need to be educated about these benefits so that they can make use of them.
(6) Employees representative and trade union representative should be ask to express their wishes before these fringes can be planned for employees.
Fringe Benefits – Problems and Limitations of Fringes Benefits
(a) The main problem in indirect benefits is lack of employee participation. Once the programme is designed by company, employees have no discretion. The uniformity of benefits like pension plans, maternity leave etc., fails to recognize work force diversity. Uniformity leads to administrative economies but, when employees receive what they do not want, these economies become questionable.
(b) Managers too do not feel interested in them as they are rarely consulted. Besides, they do not want to confront union pressures.
(c) Trade unions also get a certain feeling of alienation as the benefits are likely to erode their base.
(d) Many employees are unaware of their benefit packages, most of them are not even aware of what they are entitled to. The result is that the lack of knowledge on the part of employees does not give benefits to them but adds to employers costs.
(e) Employee confusion can lead to complaints and dissatisfactions about their fringe benefits packages, particularly when employees do not have to contribute financially.
Limitations of Fringe Benefits and Services:
1. Very often, employees feel that the benefits and services provided are their rights. In reality, this is not so.
2. The administration of benefits and services add to labour cost and involves lot of paperwork.
3. Average and poor performance continue to stick to the job and are not interested in improving performance.
4. The HR manager may overlook other important functions as he is pre-occupied with” administration of benefits and services.