What is FBP
FBP or Flexible Benefit Plan is a way of structuring the salary of an employee. With this, employees are given the option to decide which components they want to take and how much they want to take under each component with some predefined checks and balances.
Let us take an example. Normally companies structure compensation by allocating amount under Basic, Dearness Allowance (DA), House Rent Allowance (HRA), Conveyance, etc.
HRA is beneficial for people who stay in a rented accommodation. If an employee owns the house, then the HRA paid would be entirely taxable. Instead of HRA, employee may like to opt for Leave Travel Allowance (LTA). To address this, companies practice a Flexible Benefits option, which allow employer and employee to arrive at a set of components and fixed amount under each of those heads.
Components in FBP
The components that employees can take their salary under, are called as FBP Components. There are two kinds of FBP components i.e. Monthly and Claim/Annual.
- A monthly component is paid by default every month. Typical examples of monthly components are HRA, Conveyance, Vehicle Lease, etc.
- A Claim/Annual item needs to be claimed by the employees. Until they claim, the money will be with the company. Typical examples are Fuel, Telephone, Books/Periodicals Reimbursement, etc.
FBP Total/Flexi Total/Flexi Basket
The total amount of money that an employee can take for the entire year is called as Flexi Total or Flexi Basket or FBP Total or Total FBP.
Year generally refers to a Financial Year i.e. April to March. This is denoted as FBP Year. Some companies follow FBP year other than April to March.
Each FBP component may or may not have an upper limit. These upper limits are called as Entitlements or Limits. Entitlements may be grade based, location based, etc.
An employee can specify the amount of money s/he would like to consider under each FBP component. This is called as a FBP Plan.
Normally, companies would ask employees to declare the amount of salary that they will take under each component, during the beginning of the year or at the time of joining.
FBP Plan Revision
A FBP plan can be revised whenever there is any change in salary, change in company policy etc.
An employee can change his plan during any month of the year based on the FBP policy of the company. Theoretically speaking, there can be a maximum of 12 plans in a year.
This process of specifying the amount under each component is called Allocation.
The amount of money specified under each component is called as Allocation Amount or Full Allocation.
This denotes the amount for the entire FBP year. i.e. the employee will always declare the amount that he will take for the full year. |
When an employee joined before the current FBP year, then he will be paid the FPB total.
In case if an employee joined during the middle of FBP year, he will be paid a pro-rate of the FBP amount depending on the date of joining.
Typically, for an employee, money will be allocated under various FBP components and If there is some balance amount which is not allocated, that will be moved to a component, Residual component ( Some firms may use the term Special Allowance).
FBP Plan Date & Effective Date
The date on which the FBP Plan is created is called as Plan Date.
Each plan will have a date from which it is applicable. This is denoted as Effective Date.
If the Effective Date is from the current month, then no arrears shall be computed and paid and if the effective date is from a previous month, then arrears may be paid.
In terms of payout, the amounts allocated under monthly components are paid automatically to the employee as part of salary.
For amounts allocated under claim components, employee has to make a claim (Similar to a reimbursement request).
The Claim amount can either be paid through the salary or through reimbursement.
The amount which is not claimed by an employee is denoted as Unclaimed.
This shall be paid, end of the FBP year and as this is a payment without any bills, Income Tax would be applied.