BENEFITS ADMINISTRATION

Dr. R. Deepa
LIBA
 Benefits Determination Process
Employee benefits are that part of the total compensation package, other than
pay for time worked, provided to employees in whole or in part by employer
payments (e.g., life insurance, pension, workers’ compensation, vacation).

Reason for growth in Employee Benefits

• Wage and Price controls during WWII
• Unions fought to introduce new benefits
• Employer impetus due to concern for employee satisfaction and productivity
• Cost-effectiveness of benefits – Many benefits are non-taxable and group-based
benefits can be obtained at a lower rate
• Government impetus

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Benefits Determination Process Employee Benefits
Other key considerations
• Paternalistic and humanistic considerations

• Statutory requirement – Factories act – stipulated number of working hours, facilities like canteen, rest
sheds, creches etc., in the premises; Maternity benefits
• Concern for security – PF, Gratuity and pension

• Tax Aspects – In order avoid tax, a variety of expenses are reimbursed like house rent,
medical,transport, entertainment, education, interest-free loans, loans at concessional rates

• Utilization of leisure time – Paid leaves like CL, SL, PL/EL for leave travel with reimbursement of travel
expenses

• Competitive considerations – To attract and retain employees like Township, liberal loan facilities,
schools within the township, reimbursement of educational expenses (tuition fees, hostel fees) , club
membership
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Benefit PLANNING, DESIGN AND Employee Benefits
ADMINISTRATION
Benefits Planning and Design:
Key issues to keep in mind :
1. Benefits package must be integrated with compensation component based
on the objective
Example: For reduced turnover, design benefits package that improves with
seniority
2. Conduct benefits survey to assess external competitiveness similar to salary
survey
3. Employee benefits must be cost effective

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Benefit PLANNING, DESIGN AND Employee Benefits
ADMINISTRATION
Benefits Administration:
Key issues to keep in mind :
1. Who should be protected or benefitted?
Dependents, retired personnel, survivors of deceased persons, employees suffering from
disability, employees during layoffs, strikes etc., - in terms of coverage

2. How much choice should employees have among an array of benefits?

Standard benefits plan Vs Flexible benefits plan – Basket / bouquet of benefits popularly called as
the Cafeteria-style / Menu Driven plan
For Healthcare Insurance
Full-defined contribution - Employee covers self, premium paid by company
Tiered Networks – Employer offers a choice of medical plans with varying cost
Menu-driven – Employers allow employees to customize their own healthcare plan
Managed competition – Employer provides a subsidized basic medical plan, with buy-up option
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 Benefit PLANNING, DESIGN AND Employee Benefits
ADMINISTRATION
For Health Savings Accounts –
A fund is created by the employer and employee
and is jointly used to pay the healthcare expenses

Financing benefits (Loans)

1. Non-contributory – Employer bears total cost
2. Contributory – Shared
3. Employee-financed

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 Benefit PLANNING, DESIGN AND Employee Benefits
ADMINISTRATION
Current approaches to offering Fringe Benefits:
Innovation:
Redundancy – skilling, outplacement, Golden-handshake (voluntary retirement)
Redeployment – Upskilling, incentives
Relocation – handling relocation expenses, assisting in lease accommodation,
house loan, school/college admission
Flexibility :
Components in FBP –
1. A monthly component is paid by default every month. Typical examples of
monthly components are HRA, Conveyance, Vehicle Lease, etc.
2. A Claim/Annual item needs to be claimed by the employees called
reimbursement.
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Benefit PLANNING, DESIGN AND Employee Benefits
ADMINISTRATION
Until they claim, the money will be with the company.
Typical examples are Fuel, Telephone, Books/Periodicals
Reimbursement, etc.
3. FBP Year: (April to March). This is denoted as FBP Year.
4. Upper limits are called as Entitlements or Limits. Entitlements may be grade
based, location based, etc.;
Harmonization :
Benefits is a form of harmonization between white collar and blue-collar
employees – Covers working hours, punch in and punch out, transport, catering,
uniform, medical care, educational facilities for children. Brings equity and fair
play

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 Components of wage and benefits Employee Benefits
structure in India - Legislations
Industrial Disputes’ Act 1947 states that Wages means all remuneration
expressed in terms of money – like dearness allowance, value of house
accomodation, travelling concessions, any commission payable on the promotion
of sales or business or both
But does not include-
1. Any bonus
2. Any contribution paid or payable to any pension fund or provident fund
3. Any gratuity payable on the termination of service
Components of wage and benefit structure:
Basic Wage, DA, Allowances

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 Components of wage and
benefits structure in India
Industrial Disputes Act, 1947
• The provision for payment of compensation to the workman on
account of closure or lay off or retrenchment.

• The procedure for prior permission of appropriate Government for

laying off or retrenching the workers or closing down industrial
establishments

• Unfair labour practices on part of an employer or a trade union or

workers.
 Components of wage and Employee Benefits
benefits structure in India
Payment of Wages Act , 1936 regulates payment of wages to employees (direct and indirect).
The act is intended to be a remedy against unauthorized deductions made by employer and/or unjustified delay
in payment of wages.

Regular Pay
Payment should be made before the 7th day of a month where the number of workers is less than 1000 and 10th
day otherwise. The wage-period shall not exceed 1 month.
The Act is applicable only to employees drawing wages not exceeding Rs. 6500 a month

Deduction from Wages

Employer is allowed to effect only authorized deductions, as specified in the Act.
This include fines (Section 8), absence from duty (Section 9), Damages or loss (Section 10), deduction for
services (amenities ) given to employer (Section 11) recovery of advances and loans (Section 12, 13) and
payment to cooperative society and insurance (Section 13).
 Components of wage and
benefits structure in India
The Minimum Wages Act, 1948
• The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labour law that
sets the minimum wages that must be paid to skilled and unskilled labours.

• The Indian Constitution has defined a 'living wage' that is the level of income for a worker
which will ensure a basic standard of living including good health, dignity, comfort,
education and provide for any contingency

• Fair wage is that level of wage that not just maintains a level of employment but seeks to
increase it keeping in perspective the industry's capacity to pay.
 Components of wage and benefits Employee Benefits
structure in India
Workmen’s Compensation Act 1923 – It is a form of insurance providing wage
replacement and medical benefits to employees injured in the course of employment in
exchange for mandatory relinquishment of the employee's right to sue their employer for
the tort of negligence.

Death. The Workmen Compensation Act mandates the employer to pay a compensation
amount equal to 50% of monthly wages (maximum monthly wage ceiling of Rs. 8000) of
the deceased employee multiplied by the relevant factor, or a sum of Rs. 140,000,
whichever is higher.
In case of permanent disability – 60% of monthly wages

Workers' Comp benefits usually fall into four categories: medical treatment, disability,
vocational rehabilitation, and death and funeral services.

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 Social Security benefits - PF Employee Benefits

The Employees' Provident Fund and Miscellaneous Provisions Act, 1952

• Enacted with the main objective of protecting the interest of the employees
after their retirement and their dependents after death of the employee.

• Contributing to EPF is mandatory for the employees who have a basic salary
plus dearness allowance is up to Rs.15,000. Others – voluntary contribution

• 12% Employee contribution – EPF account

• 12% (12% of basic + DA+ special allowance) Employer contribution – 8.33%
EPS (Employee pension scheme and 3.67% EPF account

• In its ruling on 28 February, 2019, the Supreme Court has held that
'allowances', paid by employer to its employees, will be included in the
scope of 'basic wages' and hence subject to Provident Fund contributions.
 Social Security benefits - ESI Employee Benefits

• The ESI Act 1948, was promulgated to negate the financial distress of
workers in times of sickness, maternity, temporary or permanent
disablement, occupational disease or death due to employment injury
– resulting in loss of wages or earning capacity-total or partial

• 1st July'2019 onwards, the new rate for employer contribution will be
3.25% and for employee contribution it will be 0.75%

• Aiming to increase the country's formal workforce, the government

had raised the wage ceiling in December 2016 to Rs 21,000
 Social Security benefits – Employee Benefits
Maternity Benefits
Maternity Benefits Act 1961
• Women employed in any establishment, whether directly or through
any agency are eligible to claim maternity benefits. The employee
should have worked for her employer at least 80 days in the last 12
months

• The maximum period for which any woman shall be entitled to

maternity benefit shall be 26 weeks in all whether taken before or
after childbirth. (Maternity benefit amendment act, 2017)

• Full paid absence from work

 Social Security benefits - Gratuity Employee Benefits

Payment of Gratuity Act, 1972 / Payment of Gratuity (Amendment)

Act, 2018
• The maximum limit of Gratuity payable is 20 lakhs (amended)

• Gratuity is dependent upon the total number of years served in the

company and the last drawn salary. Then, Gratuity = A*B*15/26 ; 15
being wages for 15 days and 26 being the days of the month

• Employee is eligible to receive gratuity, once he has completed at least

5 years of continuous service.
 Social security benefits Employee Benfits

• National Pension System (NPS)

Under Swavalamban Scheme- External website that opens in a new window, the government
will contribute a sum of Rs.1,000 to each eligible NPS subscriber who contributes a minimum
of Rs.1,000 and maximum Rs.12,000 per annum.

A citizen of India between the age of 18 and 60 years as on the date of submission of his /
her application, who belongs to the unorganized sector or is not in a regular employment of
the Central or a state government, or an autonomous body/ public sector undertaking of the
Central or state government

Employees covered under EPS will not be covered

 Social Security benefits Employee Benefits

Personal Accident Insurance

• Accidents of all magnitudes are covered by the policy.
• In case the insured expires due to an accident, the nominee can claim the sum
assured.
• Personal accident policy typically covers accidental death, total permanent
disability, partial disability, some insurers cover hospitalization expenses and loss
of income too.
• PA +Health - Apollo Munich, Bajaj Allianz, ICICI Lombard, Max Bupa, TATA AIG
• Health – Start Health, Future Generali, National Insurance, Iffco Tokio, New India
Assurance, Royal Sundaram, Cholamandalam MS, Bharati Axa, Shriram General
Insurance
Components of A BENEFITS PLAN Employee Benefits

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