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Fringe benefits have been in vogue in industry since long time. Edwin B. Flippo writes, “Employee fringe benefits can be compared to the mythological animal that immediately grew two heads when one was chopped off there seems no end to the number, variety and adaptations of such benefits programmes.” Some of fringe benefits have become “statutory. These are non-wage benefits offered by the employer to the employees. They represent “a substantial cost-expense to the employer and a cost saving to the employee,” It can be noted that the money value of fringe benefits may usually account for around 40% if not more of the employee remuneration in many large organisations.
The term ‘fringe benefits’ refers to the extra benefits provided to employees in addition to the normal compensation paid in the form of wage or salary. Edwin Flippo writes, “In the broadest sense, such “fringes” include all expenditures designed to benefit employees over and above. regular base pay and direct variable compensation related to output.” Belcher describes these benefits as “any wage cost not directly connected with employees productive effort, performance, service or sacrifice.” The Glossary of Current Industrial Relations and Wage Terms has defined fringe benefits as “Supplements to wages received by workers at a cost to employers. The term encompasses a number of benefits-paid vacation, pension, health and insurance plans, etc.-which usually add up to something more than a “fringe,” and is sometimes applied to a practice that may constitute a dubious benefit for workers.”
Many years ago, benefits and services were insignificant part of compensation. But now situation has changed, as these have, more or less, became important components of a comprehensive compensation package offered by employers. Most organisations in India have been extending fringe benefits to their employees. The need and importance of fringe benefits can be explained under the following headings :
1. To Retain the Employees: The primary need of fringe benefit type of compensation is to retain the employees in the organisation on a long term basis.
2. To Motivate Performance: Employees prefer fringe benefits to pay-hike, as these motivate employees to give their best to the organisation. These serve to motivate employees to higher productivity. These improve morale and work as an effective advertisement.
3. Employee Demands: Due to rising price index and cost of living, employees demand more and varied types of fringe benefits. They also desire fringe benefits rather than pay hike because of reduction in tax burden on the part of employees.
4. As a Social Security: Employer has to provide various benefits like safety measures, accident compensation, medical facilities, etc. with a view to provide security to his employees against various contingencies.
5. To Improve Human Relations: Human relations are maintained when the employees are satisfied economically and psychologically. Fringe benefits satisfy the worker’s economic, social and psychological needs. Most of the benefits minimise economic problems of the employee. Consumer stores, credit facilities, recreational facilities, etc. satisfy the worker’s social needs, whereas retirement benefits satisfy many psychological problems of the employee,
6. Trade Union Demands: Trade unions also compete with other for getting more and newer varieties of fringe benefits to their members.
7. Statutory Requirements: Since 1950s a series of social legislations incorporated a wide variety of fringe benefits. Certain benefits have become statutory. The Factories Act stipulated a number of facilities like canteen, rest sheds, creches, etc. in the premises. The Maternity Benefits Act provides for special leave with pay.
8. Hazards of Industrial Life : Industrial jobs are risky to employee health and safety. They may lead to occupational diseases, accidents, and loss of limb or life. To protect employees from industrial hazards, certain provisions of services and benefits have been incorporated in laws. These benefits also provide for the normal health care of employees and their families. Some large organisations have their own hospitals. Some companies extend post-retirement health care benefits to their employees.
9. Tax Considerations : Tax considerations also induce employees and organisations to develop new types of fringe benefits. The company tries to provide for tax-free benefits to enable the employees to have maximum value for a given remuneration package, without the company having to incur extra costs.
10. To Maintain Body and Mind: The importance of leaves, holidays and various services for rest and recuperation to maintain agile body and creative mind is also understood. In view of these, firms are not only providing for paid leaves of different kinds but also granting facilities for leave travel.
11. Skill Shortage: Despite unemployment, there is skill shortage. Organisations continuously face problems in attracting and retaining right people. Hence, a variety of incentives and benefits are being offered to attract competent and efficient work force.
12. Other Points
a. Fringe benefits help build up a good corporate image.
b. They boost the real earnings of the employees and give them extra spending money.
c. They create a favourable attitude towards the particular job and company.
d. They maintain and increase the material welfare of employees.
e. They reduce the physical and mental strain of workers.
f. They increase productivity
g. They develop a sense of belongingness to the organisation.
The important objectives of fringe benefits are:
1. To promote employees’ welfare and paternalistic attitudes.
2. To create and improve sound industrial relations.
3. To motivate the employees by identifying and satisfying their unsatisfied needs and to improve their morale.
4. To keep in line with the prevailing practices of offering benefits and services which are given by similar concerns.
5. To gain employees’ loyalty and cooperation, encouraging them to greater productive efforts.
6. To provide security to the employees against social risks, like old age benefits and maternity benefits.
7. To provide health care and safety to the employees.
8. To create a sense of belongingness among employees. Hence fringe benefits are called “golden handcuffs.”
9. To meet the requirements of various legislations relating to fringe benefits.
10. To improve and furnish the organisational image in the eyes of the public.
11. To recognise the official trade union’s bargaining strength, because a strong trade union always compels an employer to adopt a sound fringe benefits programme for his employees.
The fringe benefits offered by various organisations may be broadly classified into five categories:
1. Payment for Time not Worked
2. Employee Security
3. Safety and Health
4. Personal Services and Family-Friendly Services (Welfare and Recreational Facilities)
5. Old Age and Retirement Benefits,
In this category, certain number of days are provided for the occasion when the employee simply does not feel like going to work. It may include many reasons for not working for pay. The main benefits of this category are as follows:
a. Hours of Work: The working hours of workers are governed by the legal laws. Section 51 of the Factories Act, 1948 specifies that no adult worker shall be required to work in a factory for more than 48 hours in any week. Section 54 of the Act restricts the working hours to 9 on any day..
b. Paid Holidays: According to the Factories Act, 1948, an adult worker shall have weekly paid holidays. When a worker is deprived of weekly holidays, he is eligible for compensatory holidays. Some firms allow the workers to have two days’ holidays in a week. Generally organisations offer double the normal rate of the salary to those workers, who work during holidays.
c. Shift Premium : Companies operating second and third shifts, pay a premium to the workers who are required to work during the odd hour’s shift.
d. Paid Vacations: Under Factories Act, 1948, workers who worked for 240 days during a calendar year are eligible for paid vacation at the rate of one day for every 20 days worked.
e. Rest Period: Among office jobs and those jobs requiring heavy exertion, certain “break”, popularly known as a ‘Rest Period’ or a ‘Coffee Break’ are allowed during the day. Thus, a worker can get some physical and mental rest.
f. Public Holidays: Certain days in the year are stipulated as paid holidays. In India, Independence Day, Deepawali, Dasara, Holi, Christmas, Gurunanak Jayanti, etc. are gazetted holidays.
g. Sick Leave: This benefit provides an employee pay when he is out of work due to illness. Full pay for a specified number of “permissible” sick days are granted to the employers.
h. Leave of Absence: This covers leave of absence for which pay is provided. Educational leave is given to managers or management trainees during the training period..
i. Other Benefits for Time Not Worked: Some examples of this nature are:
(i) Paid lunch periods
(ii) Wash-up time
(iii) Clothes change time
(iv) Get-ready time
(v) Voting time and jury duty
(vi) Time spent on collective bargaining
(vii) Health-in-the family leave
(viii) Pay for religious holidays
(ix) Reporting pay
(x) Time spent on the redressal of grievances
(xi) Funeral leave
(xii) Sabbatical leave
Many security benefits are given to employees against hazard of retrenchment, lay-off, unemployment, termination, disability or death. An employer provides physical and job security to his employees. When the employee’s services get confirmed, he works with full satisfaction and efficiency. In India, the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, provide income security to the employees. The following benefits are provided with a view to ensure security to the employee and his family members:
a. Severance Pay: This provides a one-time payment when an employee is terminated. This is done on humanitarian ground.
b. Retrenchment Compensation: The Industrial Disputes Act, 1947, provides for the payment of compensation in case of lay-off and retrenchment. The non-seasonal industrial establishments employing 50 or more workers have to give one month’s notice or one month’s wages to all the workers who are retrenched after one year’s continuous service. The compensation is paid at the rate of 15 days wage for every completed year of service with a maximum of 45 days wage in a year.
c. Closing Down of Unit Compensation: Workers are eligible for compensation as stated above even in case of closing down of undertakings.
d. Lay-off Compensation : In case of lay-off, employees are entitled to lay off compensation at the rate equal to 50% of the total of the basic wage and deamess allowance for the period of their lay-off except for weekly holidays. Lay off compensation can normally be paid upto 45 days in an year.
e. Unemployment Insurance : All States have unemployment insurance or compensation laws. These provide for benefits Ia person is unable to work through no fault of his own. Firms aren’t required to let everyone they dismiss receive unemployment benefits-only those released through no fault of their own. Thus, strictly speaking, a worker, fired for chronic lateness cannot legitimately claim benefits. In some industries, such as automating shutdowns to reduce inventories or change machinery are. common, and laid-off or furloughed employees must depend on unemployment insurance. Some companies pay supplemental unemployment benefits. As the name implies, these supplement the employee’s unemployment compensation, and help the person maintain his standard of living for the time he is out of work. They provide benefits over and above state employment compensation for three contingencies: layoffs, reduced workweeks, and relocations.
Employee’s safety and health should be taken care of in order to protect the employee against accidents, unhealthy working conditions and to protect worker’s productive capacity. This category includes the following benefits:
a. Safety Measures: In India, the Factories Act, 1948 stipulated certain requirements regarding working conditions with the object to provide safe working environment. These provisions relate to:
(i) Cleanliness, ventilation and temperature;
(ii) Dust, fumes and humidification;
(iii) Disposal of wastes and effluents;
(iv) Overcrowding;
(v) Lighting, drinking water ard spittoons;
(vi) Fencing of machinery;
(vii) Work on or near machinery in motion;
(viii) Employment of young persons on dangerous machines;
(ix) Striking gear and devices for cutting off power;
(x) Self-acting machines and casing of new machinery;
(xi) Prohibition of employment of women and children near cotton openers.hoists and lifts, lifting machines, chains, ropes and lifting tackles:
(xii) Revolving machinery, pressure plants, excessive weight;
(xiii) Protection of eyes;
(xiv) Precautions against dangerous fumes, explosives and inflammable gas, dust etc.;
(xv) Fire, test of defective parts; (xvi) Safety of buildings and machinery etc.
b. Workmen’s Compensation : Provision for the payment of compensation has also been made under Workmen’s Compensation Act, 1923. The Act compels the employer to make payment to a worker in case of an injury or an occupational disease specified the Act. The Act covers the employees whose wages are less than 500 per month. Compensation depends on the nature of injury and monthly wages of employer. Dependents get compensation in case of death of the employee.
c. Health Benefits: Today employers provide various medical services like hospital, clinical and dispensary facilities. Employees State Insurance Act, 1948 deals about the health benefits to be provided. Benefits under this Act include the following:
i. Sickness Benefit: Insured employees can get cash benefits for a maximum of 56 days in a year.\
ii. Maternity Benefit: It is given to insured women employees in the form of maternity leave for 12 weeks. Cash benefit is also given at the rate of 75 paise per day or twice of sickness benefit, whichever is higher.
iii. Disablement Benefit: Employees who become temporarily or permanently disabled due to employment injury or occupational disease are entitled to get the cash benefit.
iv. Dependent’s Benefit: If a person dies as a result of an employment injury, his dependents are entitled to get this type of periodical payment.
v. Medical Benefit: This benefit is provided to an employee or a member of his family in the form of (a) out-patient treatment, dispensary or clinic, (b) home visit by doctor, (c) treatment as in-patient in a hospital.
d. Voluntary Arrangements: Many firms provide health services over and above the legal requirements to their employees. These benefits are given free of cost by setting up hospitals, clinics and dispensaries. These include the following:
(i) Providing health maintenance service
(ii) Emergency care
(iii) On-the-job treatment care
(iv) Health counselling\
(v) Medical supervision in rehabilitation
(vi) Accident and sickness prevention
(vii) Health education programme
(viii) Treatment in employee colonies
(ix) Medical services through local hospitals and doctors
(x) Reimbursement of medical expenses, etc.
Many companies provide various welfare, personal and “family-friendly” benefits. These include the following:
a. Canteens: This employee benefit has gained much attention. Section 46 of the Factories Act, 1948 imposes a statutory obligation on employers to provide canteens in factories employing more than 250 workers. Many firms provide such facility voluntarily. In such canteens, foodstuffs are provided at subsidized rates.
b. Consumer Stores: Many firms have set up the consumer stores in the employees’ colonies which supply all the necessary goods at fair prices.
c. Credit Societies: These societies provide loan facilities at reasonable terms and conditions. Employers also encourage employees to from cooperative credit societies. These societies foster self-help and thrift.
d. Housing: Many organisations provide housing accommodation their employees. With housing facility, employees can improve their efficiency and can become free from worries. Most of the organisations have built quarters nearer to factory. Many firms provide housing loans to their employees to construct houses.
e. Transportation : Many companies provide conveyance facility to their employees, from their residence to the place of work and back by having their company buses.
f. Legal Aid : Companies also provide counsel and guidance to employees on legal matters. Companies have their own lawyers.
g. Employee Counselling: Companies also provide counselling service to the employee regarding their personal problems. It is provided by professional counsellors.
h. Educational Facilities: This benefit is provided to the employees and to their family members. It includes reimbursement of tuition fees, school. facility, hostels, providing grants-in-aid to the other schools. Companies also provide library facilities.
i. Welfare Works: Many companies provide all types of welfare facilities at work centers. They appoint welfare officers to provide the welfare benefits.
j. Holiday Homes: Some companies establish holiday homes at a number of hill stations, health resorts. They charge very low prices for accommodations. They try to create a salubrious environment.
k. Parties and Picnics: Companies organise various parties and picnics for their employees to develop a sense of association, belongingness, openness and freedom among employees.
l. Child Care: It comprises the facilities of nurseries, and day care centers for children.
m. Eating Facilities: These include the provision of company restaurants, cafeterias, lunch rooms, vending machines and fully or partially subsidised food.
n. Purchasing Services: These include company-operated stores and discounts on company products and services.
o. Social and Cultural Programmes: Some companies provide the facilities of athletics, social clubs, beauty parlours, orchestras, entertainment programmes, libraries and reading rooms.
p. Miscellaneous : Organisations also provide other benefits like organising games, sports with awards, setting up to clubs, community service activities, Christmas gifts, Diwali, Pongal and Pooja gifts, birthday gifts, leave travel concession, annual awards, productivity and performance awards, etc.
Industrial life is also one of the reasons for breaking joint family system. Employees face many problems in old age and at the time of retirement due to lower wages, high living cost and increasing aspirations. As such, employers provide some benefits to the employees during old age with a object to secure them after retirement. These benefits include the following:
a. Provident Fund: This benefit increases economic welfare of the employees. The Employee’s Provident Fund Act and Family Pension Fund and Deposit Linked Insurance Act, 1952 make provision of Provident Fund for employees in factories. This benefit assists employers during post retirement life. This creates security against social risks. Both the employee and employer contribute to the fund. After 15 years of membership, the employees are eligible for 100% of the contributions with interest. The organisations make payment of Provident Fund amount with interest to the employees on retirement or to their dependents in case of death.
b. Pension: The Government has provided for a scheme of Employees Pension Scheme and Life Insurance benefits for the employees of various establishments to which the Act is applicable. Employee’s Family Pension Scheme, 1971, provides for a Family Pension to the family of deceased employee as per the following rates:
| Pay for Month | Rate |
| Rs. 800 or more
More than Rs. 200 but less than Rs. 800.
Rs. 200 or less. |
12% of the basic subject to a maximum of Rs. 150 as monthly pension.
15% of the basic subject to a maximum of Rs. 96 and a minimum of Rs. 60 as monthly pension.
30% of the basic subject to a minimum of Rs. 60 as monthly pension. |
This scheme also provides for the payment of a lump sum amount of *4,000 to an employee on his retirement as retirement benefit and a lump sum amount of 2,000 in the event of death of an employee as life insurance benefits.
c. Deposit Linked Insurance: This scheme was introduced in 1976 under the P.F. Act, 1952. It provides that if a member of the Employees Provident Fund dies while in service, his dependents will be paid an additional amount equal to the average balance during the last three years in his account. (The amount should not be less than 1000 at any point of time). Under the employee’s deposit linked insurance scheme, 1976 the maximum amount of benefits payable under the deposit linked insurance is 10,000.
d. Gratuity : Gratuity is a reward to an employee for his long service with his present firm. It is payable to all the employees who render a minimum continuous service of five years with the present employer.
The Payment of Gratuity Act, 1972, is applicable to the establishments in the entire country. The act provides for a scheme of compulsory payment of gratuity by the managements of factories, plantations, mines, oil fields, railways, shops and other establishments employing 10 or more persons to their employees, drawing the monthly wages up to 1,600 per month.
The gratuity payable shall be at the rate of 15 days wage for every: completed year of service. Here the wage means the average of the basic pay last drawn by the employee. The maximum amount of gratuity shall not exceed 20 months’ wage.
e. Medical Benefit: Some big organisations provide medical benefits to their retired employees and their family members. This facility creates a feeling of permanent attachment with the concern even when the employees are no longer in service.
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