FBP
FBP module - Concepts and Usage
FBP stands for Flexible Benefit Plan. FBP is a way of structuring the salary of an employee. In FBP, an employee is given the option to decide which components he wants to take and how much he wants to take under each component.
Let us take an example. Normally companies would pay employees under Basic, DA, HRA, Conveyance, etc. HRA is beneficial for people who stay in rented accommodation. If an employee owns the house, then the HRA paid would be entirely taxable. So the employee will pay more tax. Instead, he may want to take more LTA or a Interest subsidy, etc.
In the normal way, employees could not do this, as the structure was fixed. To address this, companies came out with a Flexi option. Here they ask the employee what are the heads under which he wants to take. He makes a choice and tell the companies the heads he wants.
The components that an employee can take his 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 employee. Until he claims, the money will be with the company.
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 called as FBP Year. Some companies have an FBP year that is not from 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 would specify the amount of money he wants to take under each 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. It is done during the beginning of the year.
A revised Plan can also be specified whenever there is a change in salary.
Apart from this, depending on the policy of the company, an employee can change his plan during any month of the year.
Theoretically speaking, there can be a maximum of 12 Plans in a month.
This process (of specifying the amount) the amount under each component, is called as allocating or Allocation. The amount of money specified under each component is called as Allocation Amount or Full Allocation. This is always an annual amount i.e. the employee will always declare the amount that he will take for the full year.
If an employee has joined before the current FBP year, then he will be paid the entire Basket total. In case he has joined during the FBP year, he will be paid a pro-rata of the FBP amount depending on the Joining Date.
An employee will allocate the amounts under various components. If there is some amount that is not allocated, then this is moved to a component called Residual Component. Some people also call this as a Balancing figure or Special Allowance, etc.
Each plan will have a date from which it is applicable. This is called as an Effective Date. If the Effective Date is from the current month, then no arrears need to be computed and paid. If it is from a previous month, then arrears need to be computed and paid.
The date on which the Plan is created is called as Plan Date
As specified above,
In terms of payout, the amounts allocated under monthly components are paid automatically to the employee through his pay slip.
For amounts allocated under Claim components, the employee will need to make a claim. (Similar to a Reimbursement Claim). The Claim amount can either be paid through the pay slip or through a Reimbursement Pay slip.
The amounts that are not claimed by the employee are paid to the employee at the end of the year under the head Unclaimed Component. As this is a payment without any bills, this is taxed completely.
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