How Do You Feel About Switching from Traditional Benefits to CTC in HR?

Dear All,

Presently, I am working in a renowned public sector company as an HR manager. Recently, my company has decided to withdraw all our traditional existing facilities for the officers such as petrol coupons for cars and their maintenance cost reimbursement (tax-free), the cost of purchasing spectacles for the family, driver charges, telephone and electric bill reimbursement, etc. Instead, the company will provide us with the total money of the above, including taxes, as Management allowance in the payslip, by which the CTC will show better. Now, those who are joining the company are happy with this CTC concept, but most of the old employees have become demotivated and accepted this not as a monetary benefit but as a cultural shock. I just want your opinion, which is better? Are we losing or gaining?

Subhra.

Dear Subhra,

The measure that has been taken by the management of your company is not good in my view. Although there may be varied opinions, and some may view it as a welcome step based on individual conception. The major factor behind withdrawing all the fringe benefits and providing an equivalent amount to add to the CTC is to avoid the tax liability of the FBT (Fringe Benefit Tax) introduced last year by the income tax department. If a company provides fringe benefits (as your company was doing), it has to pay fringe benefit tax on their value. To avoid this liability, the value of these fringe benefits has been converted into a fixed salary component. By taking this step, the tax liability has been shifted to the employees, as they will no longer be able to avail those tax exemptions.

Certainly, this change makes the appointment letter look more attractive and can make new joiners happy. However, those who were benefiting from tax advantages previously will naturally be dissatisfied as they will now have to pay more tax.

Therefore, the company gains while the employees lose in this scenario.

Amit Goyal

Dear Amit,

Yes, the company is saving on FBT, but that amount is negligible compared to our payable tax on those accounts, which they have also added to our total pay. So, FBT is not the criteria. The fact is to show the pay structure as lucrative and to attract the new generation.

Subhra

Hi,

You might be right, but if this is just to make the appointment letter more lucrative, the same could have been done by adding all those fringe benefits in the appointment letter and showing the CTC as the same as you are showing now. Remember, the CTC has not changed; it's the same. I think the motive behind it is FBT.

Amit Goyal

Dear all,

Presently, I am working in a renowned public sector company as an HR professional. Recently, my company has decided to withdraw all our traditional existing facilities for the officers, such as petrol coupons for cars and their maintenance cost reimbursement (tax-free), the cost of purchasing spectacles for family members, driver charges, telephone and electric bill reimbursement, and so on. Instead of these benefits, the company will provide us with the total money of the aforementioned benefits, including taxes, as Management allowance in the payslip. This change will make the CTC appear better.

New employees joining the company are pleased with this CTC concept, but many of the old employees have become demotivated and see this change not as a monetary benefit but as a cultural shock. I would like to hear your opinions. Which do you think is better? Are we losing or gaining?

Subhra

Dear [User],

The CTC concept that your company has introduced with the Management Allowance is not bad; it is actually a good move. As HR professionals, we have to adapt our strategies in parallel with external changes, such as the introduction of FBT. I personally believe it is a positive step. The demotivation of old employees should not hinder a change that is necessary due to external environmental factors.

Thank you,
Mohd. Arif Khan

The FBT is not large enough to justify stopping all the reimbursements and converting them into an all-inclusive allowance in the CTC.

Having dealt with compensation issues, it has been proved that the psychological satisfaction in receiving fringe benefits and other reimbursements, which are genuinely felt as necessary to and by the employee, is much more than receiving a lump sum in the salary package even if the net to the employee remains the same.

Those employees who feel 'cheated' will be the first to leave if an offer providing fringe benefits comes along, even though the net remains the same. So the policy of merging all fringe benefits and other reimbursements into a single allowance is really shortsighted and will not help the organization at all.

Jeroo