Fringe Benefits

Fringe Benefits in hrm Objectives, Principles, Types and Importance

Table of Contents:-

Meaning of Fringe Benefits in hrm

Fringe Benefits in hrm are also popularly known as employee benefits. This is a supplemental compensation which is paid by an employer to his employee, apart from his direct wages and incentives

These are granted as assistance or additional facilities to employees by the employer either: 

(a) voluntarily or 

(b) as a legal requirement or 

(c) as a part of a collectively negotiated agreement. 

Definition of Fringe Benefits in hrm

According to William B. Werther et al., “Fringe benefits embrace a broad range of benefits and services that employees receive as part of their total compensation packages”.

According to Cockmar, “Fringe benefits are those benefits which are provided by an employer to or for the benefit of an employee and which are not in the form of wages, salaries and time-related payments”.

According to Gary Dessler, “Fringe benefits are defined as indirect financial and non-financial payments employees receive for continuing their employment with the organization”.

Objectives of Fringe Benefits in hrm

Fringe benefits are granted to achieve the following objectives:

1) To Attract the Most Talented Job-Seekers

An organization that offers fringe benefits to its employees enjoys an excellent reputation in the job market and places itself in a prestigious position to attract the best talents.

2) To Boost the Motivation of Employees

Organisations use fringe benefits as one of the techniques to boost the morale of employees and motivate them to work sincerely. Also, a satisfied employee is a loyal employee. Loyalty builds long-term relationships between an employer and employee, which helps to reduce attrition rates. 

3) To Provide Taxation Benefit

Usually, fringe benefits are non-taxable earnings in the hands of employees. This is a benefit in addition to all other basic benefits.

4) To Improve Management-Labour Relations

Fringe benefits act as a compensatory mechanism to reduce dissatisfaction among workers regarding basic wages and incentives, thus resulting in improved relationships between management and employees. 

5) To Promote Companionship among Employees

As fringe benefits are granted to all employees without being linked to work performance, they promote companionship among employees.

6) To Act as Assurance of Concern

Fringe benefits assure employees that the management is concerned about their needs and difficulties.

7) To Reduce HR Cost

Since some of the fringe benefits (like the same gift to all, transportation and canteen facility) are distributed collectively to all employees, the volume of the material or services involved in these benefits would substantially bring down the cost because of acquiring these products or services in bulk. 

Objectives of Fringe Benefits

Principles of Fringe Benefits in hrm

Distribution of fringe benefits should be based on the following principles:

1) Fringe benefits must be truly beneficial to employees. Employees do not appreciate superficial fringe benefits. 

2)  Fringe benefits must be provided out of sincere concern for the welfare of employees. No compulsion should be felt by the management nor should the management have the feeling of superiority as a donor.

3) The benefits should justify their costs.

4) The administration of fringe benefits must be well-planned and should consider everyone.

5) Concerns of employees should be respected as far as possible, and the negotiating capacity of the labour union should also be taken into consideration.

6) It should be possible to estimate the cost of the benefits, and adequate finance should be made available. 

7) The benefit must be as broad-based as possible, i.e., it should apply to as many employees as possible. 

8) Employees should be well-informed about using the benefits to maximum advantage. For example, if it is in monetary form, employees should be educated on how to invest wisely or how to use sensibly and not misuse the money received.

Types of Fringe Benefits in hrm

1) Payment for Time not Worked

This category includes the following: 

i) Paid Holidays

The Factories Act, of 1948, specifies that an adult worker shall have a weekly paid holiday, most probably on Sunday. A worker who is deprived of weekly holidays is eligible for the number of days equal to the number of holidays he is deprived of in the same month. Some organisations give two paid holidays in a week.

ii) Shift Premium

Organisations working in the second and third shifts, compensate by paying a premium to the workers who have worked the ‘odd hours’ shift. 

iii) Holiday Pay

Workers who have worked on paid holidays are paid double the rate of normal salary.

iv) Paid Vacation

Workers who have worked for 240 days in a calendar year, in the mining, manufacturing and plantations sectors, are entitled to paid vacation at the rate of one day for every 20 days worked in the case of adult workers; and at the rate of one day for every 15 days worked in case of minors.

2) Employee Security

A feeling of any type of insecurity disturbs the peace of mind and contentment of any individual. It is therefore in the interest of any organisation to ensure security for its employees and their families, both physical and job security. Fringe benefits provided to an employee with a confirmed job induce a feeling of job security in an employee. Also, a confirmed job means the employee has a long-term source of income, which gives a feeling of a secure life. There are provisions in Indian laws, which provide income security to employees such as the Payment of Wages Act, of 1936, the Minimum Wages Act, of 1948, and the Payment of Bonus Act, of 1965.

The Industrial Disputes Act, of 1947, provides for the payment of compensation in case of lay-off and retrenchment, as follows:

i) Lay-Off Compensation

There are instances when management is forced by circumstances to lay off employees. In instances of layoff, employees are entitled to a layoff compensation at the rate of 50% of the total basic wage and dearness allowance for the period of their lay-off, excluding the number of weekly holidays in that period. Payment of lay-off compensation is usually paid up to 45 days in a year. 

ii) Retrenchment Compensation

Non-seasonal industrial establishments employing 50 or more workers must give one month’s notice or one month’s wages to all the workers who are retrenched after one year of continuous service. This compensation is paid at the rate of 15 days’ wage for every completed year of service, with a maximum of 45 days’ wages in a year. Workers are entitled to compensation even in case of closing down of the organisation. 

3) Safety and Health Provisions

The safety and health of employees are of utmost importance, not only for an organisation but also for the country because human resources are the backbone of the economic activity of a nation. It is therefore vital to protect employees against accidents and conditions detrimental to health, as both are harmful factors that affect the productive capacity of the affected employees. 

In India, the Factories Act, of 1948, stipulates certain requisites regarding working conditions to provide a safe working environment. The provisions in this Act are meant to promote the health and safety of employees. Provisions meant to safeguard health relate to overall cleanliness, proper ventilation and temperature, proper disposal of wastes and effluents, protection from dust and fumes, artificial humidification, safe drinking water, adequate latrines and urinals in proper working conditions, and adequate lighting. 

Provisions regarding safety include precautions while working near or on high-voltage supply equipment, precautions against dust, explosive/inflammable material, dangerous fumes and gases, fencing of machinery, precautions while working near or on machinery in motion, devices for disconnecting power, prevention of injury from hoists, lifts, chains and ropes in motion, revolving machinery, avoiding lifting excessive weight to prevent spinal injuries. In addition, there are provisions regarding emergency-action equipment in case of fire; availability of power according to required specifications; and safety of plant and machinery.

4) Welfare and Recreational Facilities

General and recreational facilities provided are as follows: 

i) Housing

A roof over the head is one of the vital requirements for human beings to survive. Lack of adequate housing is a cause of great stress and worry for employees, which adversely affects their work. Therefore, many organisations build quarters near the plant/office for their employees and charge a nominal rent. Some organisations provide and/or arrange for housing loans for employees at nominal interest rates.

ii) Canteen

This facility is of great interest to both the management and employees. The availability of good, fresh food at the workplace at affordable rates is important for employees. Section 46 of the Factories Act, of 1948, imposes a statutory obligation for employers to provide canteens in factories employing more than 250 workers. Most organisations (even those with less than 250 workers) have voluntarily provided canteen facilities. Meals are made available to employees at subsidised rates in these canteens.

iii) Consumer Societies

Organisations with their premises and staff quarters located at places far away from the market facilitate the setting up of consumer items stores in the employees’ colonies. Such stores are managed by societies and ensure the availability of consumer goods at reasonable prices.

iv) Credit Societies

These are cooperative credit societies that are formed to make employees self-dependent in matters of loan requirements, instead of being compelled to borrow from moneylenders at high interest rates. Such societies are formed to ensure the careful use of money among employees.

v) Counselling

Organisations hire services of professional counsellors to resolve the personal problems of employees. Employees having personal problems can easily approach these counsellors for advice. Such counselling provides mental peace and comfort to employees, thus promoting punctuality and discipline.

vi) Legal Assistance

Organisations provide legal assistance to employees through lawyers employed by the organisation or by hiring the services of external lawyers.

vii) Educational Facilities

Organisations take care of the educational needs of the employees and their family members. Organisations grant easy loans to employees for studying to enhance their qualifications or for the education of their family members. Some organisations establish schools or give funds to nearby schools attended by a large number of children of their staff members. Some organisations also have library facilities. 

viii) Transportation Facilities

Organisations provide pick-and-drop facilities to those employees who are not staying in the quarters of the organisation. This improves punctuality and reduces stress among employees.

ix) Welfare Sections

Some organisations establish welfare sections or departments manned by welfare officers to look into matters related to welfare benefits to enable the effective implementation of welfare schemes initiated by the organisation. This is a one-point contact place and hence employees do not have to run from pillar to post to solve any of their welfare-related problems.

x) Holiday Homes

Some large organisations set up holiday homes in hilly areas or arrange for contract accommodation in health resorts at organisation costs for their employees to unwind, revitalise or just rest and resume their work with recharged zeal and enthusiasm.

xi) Picnics and Parties

Once or twice a year, organisations arrange staff picnics or celebrate birthday parties of employees, festival days; or celebrate a milestone achieved by the organisation. Picnics and parties promote coordination, cooperation and bonding among employees.

xii) Miscellaneous

Small gestures of expression of warmth and good intentions have profound effects. Organisations set up facilities like clubs, gymnasiums and community centres, organise sports activities with awards, offer gifts during festivals and birthdays, and grant leaves travel concessions. 

5) Old Age and Retirement Benefits

These benefits are given to employees to provide financial stability to employees during old age, especially after retirement. The following are such benefits available to employees: 

i) Employees’ Provident Funds (EPFS)

To make it legally mandatory for organisations to follow certain guidelines about old age and retirement benefits, the Employees’ Provident Funds Act was passed in 1952. In the beginning, this Act was made applicable to employees with monthly payments, not exceeding 300 in six major industries. 

However, by the end of the year 1981, with modifications during the intervening period, the Act brought under its purview 172 industries/classes of establishments for the benefit of employees with pay not exceeding 1000. Today the Employees’ Provident Fund and Miscellaneous Provisions Act provide for the establishment of Provident Fund, Family Pension Fund (since 1971) and Deposit-Linked Insurance Fund (since 1976). 

Under this Act, three schemes have been launched and are operative. All these three schemes are administered by the Central Board of Trustees consisting of nominees of the Central and State Governments and organisations of workers and employers. There are various regional and sub-regional offices for the administration of these schemes. The C.P.F. Commissioner is the Chief Executive Officer of the EPF organisation, officiating as Secretary to the Board.

ii) Deposit-linked insurance

The Employees’ Deposit-Linked Insurance Scheme, 1976, provides the following benefit: On the death of an employee (during the service) who is a member of the EPF, the person eligible to receive the PF accumulations will be paid an extra amount equal to the average balance in the PF account of the deceased during the preceding 3 years if such average balance was not below 1,000 at any time during the said period. 10,000 is the maximum amount of benefit payable under this scheme. 

Similar to this scheme is a statutory ‘Provident Fund Scheme’, which also provides pension and ‘group insurance’ benefits; in addition to provident funds to workers in Assam Tea Plantations. A unique feature of this scheme is the decentralised way in which it is administered at the garden level. 

In each tea estate, a Primary Committee with two representatives of employees and workers with the Garden Superintendent or Manager as Chairman is empowered to sanction, and distribute loans, and advances to the members, and settle their accounts.

iii) Gratuity

Gratuity is a reward to an employee for long service with his present employer. This is a retirement benefit that is given to an employee either on retirement or at the time of physical disability, or to the dependents of the deceased employee. 

Gratuity is payable to all employees who have rendered a minimum continuous service of five years with the present employer. It is payable to an employee on his superannuation or retirement or death or disablement due to accident or disease.

The Payment of Gratuity Act, 1972, applies to the establishments in the whole nation, and provides for a scheme of compulsory payment of gratuity by the managements of railways, factories, oil fields, mines, plantations, shops and other establishments employing 10 or more persons, to their employees drawing monthly wages not exceeding 1,600 per month. 

The Act stipulates that the gratuity payable to an employee shall be at the rate of 15 days’ wage for every completed year of service or part thereof more than six months. Here wage means the average of the basic pay last drawn by the employee. The maximum amount of gratuity payable to an employee shall not exceed 20 months’ wage.

iv) Medical Benefits

This benefit is provided by some large organisations to their retired employees and their family members. Medical services for employees are provided under the Employees’ State Insurance Scheme (ESIS). The Employees’ State Insurance Act, of 1948, has provisions for certain benefits to employees in case of sickness, employment injury and maternity. Initially, the Act has been made applicable to all non-seasonal factories. 

Later, it was extended partly or wholly to any establishment or class of establishments. Labour employed directly, including the clerical staff, is covered by this Act; however, members of the armed forces and any person whose salary in the aggregate exceeds 500 a month are not covered under this Act. 

Under this Act, those insured under the scheme are entitled to receive medical aid; benefits in cases of disablement, sickness and maternity, etc. These benefits establish lifelong relationships between the organisation and its employees, extending even up to the post-retirement phase of life.

v) Pension Benefits

These benefits are covered under the Employees’ Family Pension Scheme, 1971, and are as follows: 

a) Family Pension: Pension is given to the family of a deceased member of the fund, at the following rates:

  • 12% of pay subject to a maximum of 150 p.m. to the family of a member whose pay (on which contribution to EPF is received) is ₹800 and above. 
  • 15% of pay subject to a maximum of 796 p.m. and a minimum of 60 p.m. to the family of a member whose pay is 200 p.m. and above but below 7800. 
  • 30% of pay subject to a minimum of 760 p.m. to the family of a member whose pay is 200 p.m.

b) Retirement Benefits: This benefit is in the form of a lump sum given, subject to a maximum of 74,000 payable to a member on his normal retirement subject to certain rules and regulations. 

c) Life Insurance Benefits: This benefit is in the form of a lump sum subject to a maximum of rs 2,000 payable in the case of the death of a member.

d) Withdrawal Benefits: It is in the form of a lumpsum amount payable to the member on leaving the service before his retirement age, subject to the fulfilment of certain conditions.

Importance of Fringe Benefits in hrm 

The following factors highlight the importance of fringe benefits:

1) Financial Security for Workers: Fringe benefits directly or indirectly help the employees to be financially sound, e.g., medical assistance, consumer societies and legal and educational assistance. Such benefits result in substantial savings, which can be invested for financial security after retirement.

2) Reduction in Attrition Rate: Fringe benefits induce long-term commitment on the part of workers. This results in a reduction in training and recruitment costs. Fringe benefits are decisive factors that have a bearing on the employee’s decision to leave or continue with their employer.

3) Enhancement of Productivity: Fringe benefits improve motivation, take care of the health of employees, help employees to relax mentally and physically with schemes like holiday homes and sports, and impart many other benefits. 

Employees with healthy minds and bodies and a feeling of security are highly efficient and perform better in terms of quantity and quality. Motivated workers are enthused to enhance their skills and knowledge. All these factors have a positive effect on productivity.

4) Create Trust and Warmth in Employer-Employee Relationship: Fringe benefits make employees feel that their needs are taken care of by the employer. Rewards for good performance assure employees that their work is being recognised by the employer. All in all, a spirit of mutual trust prevails between the employer and employees.

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