Traditional Pay Vs CTC Concept

Dear All,
Presently, I am working in a renowned public Sector Co as a HR man. Recently my Company has decided to withdraw all our traditional existing facilities for the officers such as petrol coupan for car & its maintenance cost reimbursement (tax free), cost of purchasing spectacles for family, driver charges,telephone & electric bill reimbursement and etc and instead of that the Co.will provide us the total money of the above including taxes as Mgt allowance in payslip by which the CTC will show better.Now those who are the joinning the Co they are happy with this CTC concept but most of the old employees became demotivated & accepted this not as a monetary benefit but as a cultural shock. I just want your opinion, which is better? Are we loosing or gaining?
subhra.

Dear Subhra,

The measure that has been taken by the management of your company is not good as per my views, although there may be varied views and some may accept it as welcome step as per the individual conception. The major factor behind withdrawing all the fringe benefits and giving equivalent amount to add in the CTC is to avoid the tax liability of the FBT (Fringe Benefit Tax) which was introduced last year by the income tax department. If company provides fringe benefits (like your company was providing) it has to pay fringe benefit tax over its value. So to avoid this liability the value of these fringe benefits has been converted into fixed salary component. By taking this step the tax liability has been diverted to the employees because now the employees will no more be able to get the those tax exemptions.

Yes ofcourse this makes the appointment letter look more attractive and makes the new joinee happy but those who were getting tax benefits earlier will ofcourse get dissatisfied as they now have to pay more tax.

SO THE COMPANY IS GAINER AND EMPLOYEES ARE LOOSER IN THIS CASE

Amit Goyal

Dear Amit.
Yes, the Co.is saving FBT but that amount is negligible compared to our payble tax on those account which they have also added with our total pay. So, FBT is not the criteria. Fact is to show the pay structure lucrative & to attract 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 same as now you are showing. Remember the CTC has not changed. Its the same. I think the motive behind is FBT.
Amit Goyal

Dear
the CTC concept which your company has introduced with the introduction of MGmt. Allow. is not bad rather good move, we as an HR professional have to change our stretegy parallaly with the external change as introduction of FBT.
I personally feel its a good move and because of old employees demotivation you can not stop a change which is warranted with compare to external environment is changing.
Thanks
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 organisation at all.
Jeroo