Principles of Fringe Benifits

The following principles must govern the administration of fringe benefits :

  1. Benefits and services need to be provided to the employees on the basis of a genuine interest in the protection and promotion of their well-being. The management should not feel that the fringes are trust upon  them. Nor should the management feel that they are providing the benefits as a matter of charity.

       2. The benefit need to satisfy a real need. Employees resist or are indifferent to any benefits which is not liked by them.

       3. The benefits need to be cost-effective.

       4. The benefit needs to be as broad-based as possible.

      5.  The wishes of employees as expressed by their union representatives and the bargaining power of the union need to be considered.

      6.  Employees need to be educated to make use of the benefits.

Administration of Fringe Benefits

Organizations fumble while administering employee benefits and services. Yielding to the pressure of unions, employees, demand or in deference to  social response trends, companies have added newer benefits and services to the list, which is already lengthy. Organizations have seldom established objectives, systematic plans, and standards determine the appropriateness of the programs. This patchwork of benefits and services has caused several problems.

These problems can be avoided if the following lines are taken while administration indirect remuneration. The steps are :

  1. Establishing benefit objective.
  1. Assessing environment factors.
  1. Assessing competitiveness : How should our benefits compare to our competitors.
  1. Communication benefit information.
  1. Controlling benefit costs and evaluation.

Establishing benefits objectives  : It is essential for the management to establish objectives for its benefits programs. In establishing objectives, the management may consider several factors. One such consideration is employee preference for benefits.personnel/HR outcomes-attendance, length of service, and performance-should also receive due attention in the objective-setting process.

Typically benefits accomplish four objectives :

  • Fostering external competitiveness
  • Increasing cost effectiveness
  • Meeting individual employee needs and performance
  • Complying with legal compulsions. Whatever the objectives, they must reflect the organization’s ability to pay.

Assessing Environment : External as well as internal factors influence a company’s indirect remuneration proframe. Among the external factors are included such aspects as government policies and regulations, unions, and economic factors. The major government policies which influence employee benefits and services are wage regulations, tax policies, and specific benefits laws. In addition to government policies, unions are  a dominant force to improve benefits and services. When labor unions and the management sit for a wage negotiation, benefits, and services figure prominently in their discussion reached invariably covers indirect remuneration to the advantage of the employees. Economic factor influence benefit decisions in conflicting ways. Struggling to achieve competitive prices for their products and services, ,managers look to reduce, or at least curtail, increasing in labor costs. As direct remuneration constitutes a major chunk of labor costs, benefits and services receive top priority in the cost-reduction drive.

Assessing  Competitiveness : More often than not, organizations offer benefits to match or outstrip those offered by competitors. How to ascertain the competitors benefits packages? These are assessed through market surveys conducted by professional associations and consultants. These surveys provide data on the various benefits offered, their coverage, eligibility and costs. The data allow employers to assess the competitiveness of their benefits and costs, with those offered by others.

Communicating the Benefits : Benefits programs need to be communicated to employees through booklets, brochures, slide presentations, and regular employee meetings. An effective technique is to use employee calendars which communicate the total remuneration components. Each month of the calendar shows a company employee receiving a benefit.

Evaluation and Control:  one way of assessing the usefulness of fringes is to ascertain how far the advantages claimed in favor of indirect monetary schemes have really benefited the employees.

Effect on costs: Cost of fringe benefits is a reliable test of their effectiveness. Employee benefits costs can be computed on the following lines:

  • Total cost of benefits annually for all employees
  • Cost per employee per year
  • Percentage to annual payroll
  • Cost per employee per hour

The data thus found may be examined in the following manner :

  • Examine the internal cost to the company of all benefits and services by pay roll classification, by profit Centre.
  • Compare the company’s costs for benefits with external norms.
  • Prepare a report for the decision-maker, contrasting steps 1 and 2, and high lighting major variances.
  • Analyze the  costs of the program to employees. Determine what each employee is paying for benefits, totally and by benefit.
  • Analyze how satisfied the individual is with the employer’s program as compared to the competitor’s program.

HR-Professionals 12 Compensation 12


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