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Types Of Fringe Benefits Business Essay

Paper Type: Free Essay Subject: Business
Wordcount: 3500 words Published: 1st Jan 2015

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A large unit, manufacturing electrical goods which have been known for its liberal personnel policies and fringe benefits is facing the problem of law productivity and high absenteeism. How should the management improve the organizational climate?


Fringe benefits

Fringe benefits are compensations made to an employee beyond the regular benefit of being paid for their work. Some fringe benefits are fairly standard, such as offering a few days of sick time or paid vacation time. Others can be significantly greater, and more rare. Key executives in large companies might also enjoy fringe benefits like use of time-share condominiums, paid continuing education, use of a company jet, use of a company credit card, discounted or free health club memberships, and a significant amount of paid vacation.


Organizations provide a variety of fringe benefits. The fringe benefits are classified under four heads as given here under: 

1. For Personnel Identification, Participation and Stimulation: 

This category covers the following benefits: anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlor services, housing, income tax aid, counseling, quality bonus, recreational programs, stress counseling, safety measures etc. 

2. For Old Age and Retirement: 

Benefits under this category include: deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling , medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like.

3. For Health Protection: 

Benefits under this head include accident insurance, disability insurance, health insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc.  

4. For Employment Security : 

Benefits under this head include unemployment, insurance, technological adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like. 

The fringe benefits are categorized as follows:

a) Extra Pay for time Worked: This category covers the benefits such as: premium pay, incentive bonus, shift premium, old age insurance, profit sharing, unemployment compensation, Christmas bonus, Diwali or Pooja bonus, food cost subsidy, housing subsidy, recreation.

b) Payment for Time Not worked: Benefits under this category include: sick leave with pay, vacation pay, paid rest and relief time, paid lunch periods, grievance time, bargaining time, travel time etc. 

Retrenchment Compensation:

The Industrial Disputes Act, 1947 provides for the payment of compensation in case of lay-off and retrenchment. The non-seasonal industrial establishments employing 50 or more workers have to give one month’s notice or one month’s wages to all the workers who are retrenched after one year’s continuous service. The compensation is paid at the rate of 15 days wage for every completed year of service with a maximum of 45 days wage in a year. Workers are eligible for compensation as stated above even in case of closing down of undertakings. 

Employee Security

Physical and job security to the employee should also be provided with a view to promoting security to the employee and his family members. The benefit of confirmation of the employee on the job creates a sense of job security. Further a minimum and continuous wage or salary gives a sense of security to the life. 

Safety and Health

Employee’s safety and health should be taken care of in order to protect the employee against accidents, unhealthy working conditions and to protect worker’s capacity. In India, the Factories Act, 1948, stipulated certain requirements regarding working conditions with a view to provide safe working environment. These provisions relate to cleanliness, disposal of waste and effluents, ventilation and temperature, dust and fume, artificial humidification, over-crowding, lighting, drinking water, latrine urinals, and spittoons. Provisions relating to safety measures include fencing of machinery, work on or near machinery in motion, employment of young persons on dangerous machines, striking gear and devices for cutting off power, self-acting machines, easing of new machinery, probation of employment of women and children near cotton openers, hoists and lifts, lifting machines, chains ropes and lifting tackles, revolving machinery, pressure plant, floors, excessive weights, protection of eyes, precautions against dangerous fumes, explosive or inflammable dust, gas etc. Precautions in case of fire, power to require specifications of defective parts of test of stability, safety of buildings and machinery etc.

Lay-off Compensation:

In case of lay-off, employees are entitled to lay-off compensation at the rate to 50% of the total of the basic wage and dearness allowance for the period of their lay-off except for weekly holidays. Lay-off compensation can normally be paid up to 45 days in a year. 


The view point of employers is that fringe benefits form an important part of employee incentives to obtain their loyalty and retaining them. The important objectives of fringe benefits are:

1. To boost up employee morale.

2. To create and improve sound industrial relations.

3. To provide qualitative work environment and work life.

4. To motivate the employees by identifying and satisfying their unsatisfied needs.

5. To protect the health of the employees and to provide safety to the employees against accidents.

6. To provide security to the employees against social risks like old age benefits and maternity benefits.

7. To meet requirements of various legislations relating to fringe benefits.

8.To create a sense of belongingness among employees and to retain them. Hence, fringe benefits are called golden hand-cuffs.

9. To promote employee’s welfare by providing welfare measures like recreation facilities.

Need for Extending Benefits to Employees

(i) Employers too have found that fringe benefits present attractive areas of negotiation when large wage and salary increases are not feasible.

(ii) Rising prices and cost of living has brought about incessant demand for provision of extra benefit to the employees.

(iii) Recognition that fringe benefits are non-taxable rewards has been major stimulus to their expansion.

(iv) As organizations have developed ore elaborate fringe benefits programs for their employees, greater pressure has been placed upon competing organizations to match these benefits in order to attract and keep employees.

(v)Rapid industrialization, increasingly heavy urbanization and the growth of a capitalistic economy have made it difficult for most employees to protect themselves against the adverse impact of these developments. Since it was workers who are responsible for production, it was held that employers should accept responsibility for meeting some of the needs of their employees. As a result, some benefits-and-services programs were adopted by employers

(vi) The growth and strength of trade unions has substantially influenced the growth of company benefits and services.

(vii) The growing volume of labor legislation, particularly social security legislation, made it imperative for employers to share equally with their employees the cost of old age, survivor and disability benefits.

(viii)Labor scarcity and competition for qualified personnel has led to the initiation, evolution and implementation of a number of compensation plans.

(ix)The management has increasingly realized its responsibility towards its employees and has come to the conclusion that the benefits of increase in productivity resulting from increasing industrialization should go, at least partly, to the employees who are responsible for it, so that they may be protected against the insecurity arising from unemployment, sickness, injury and old age. Company benefits-and-services programs are among some of the mechanisms which managers use to supply this security.

Liberal personnel policies

liberal personnel policies” mean that management tolerates unexcused absences and slack work habits of the employee. The employer generally provide relaxation in work schedule.ie

Lunch periods

Work day hours


Leave of Absence

Sick Time Vacation

Personal Leave

Jury Duty

Severe Weather

But sometimes liberal personnel policies and fringe benefits leads the company to face the problem of law productivity and high absenteeism. People will get away with what they can get away with.

Where there is freedom, there is also the fear of violation.

Employees misuses these tolerance from the employer and the fringe benefits provided to them and gets lazy. This misuse of fringe benefits and liberal personnel policies leads to decrease in production and high absenteeism.

Flexi work: Employees typically misuse flexi timings for a staggered schedule to deliver work rather than a flexible number of work hours. They presume that they can decide on the number of hours, but fail to note that they are still expected to clock in the stipulated hours of work stated by the company.

Company policies: At times, some aspects of the organizational policies are written in good faith and it is assumed that employees will make a fair judgment in the interest of the organization. However, sometimes, they are not followed with the right spirit and this could be counterproductive to the objective of why the policy was made in good faith. One such example is in the area of company assets provided to the employee in the form of laptops, company maintained transport, travel allowance, etc. If guidelines are vague, employees tend to comprehend the policies in a way that suits them.

It costs businesses dearly when employees call in sick at the last minute or even worse, when they come to work complaining and dragging their feet. Productivity takes a nosedive along with the morale of their co-workers and managers.

Lower productivity and absenteeism is not a symptom reserved only for the low-pay, low-skilled hourly worker either. Executives are also affected by this.

Symptoms of poor motivation amongst the workforce include high rates of absenteeism and labor turnover, poor timekeeping, high rates of waste, low quality output and an increasing number of disciplinary problems.

For this the management should improve the organizational climate.

I would say management would need to promote a culture of hard work. It could use “carrots” (highly publicized rewards for a “worker of the month” or other things like that).Or it could use “sticks” (punishments for excessive absenteeism or failure to meet work quotas). Preferably, it should use a mixture of these so that the climate gets tougher but workers do not feel completely oppressed. the organization should keep a check that the employees are carrying out their work properly without any miss use of liberal policies and fringe benefits. The workers should be monitored time to time.

Develop a company-wide zero tolerance policy against any type of hostile verbal or physical behaviors from any employee. Included in the policy should be clearly defined actions that the company will take in the event of certain exhibited behaviors. Also included in the policy should be examples of behaviors, such as name-calling, shouting or screaming, harassment and physical contact.

Establish a disciplinary process that is communicated to all employees at the time of hire. Included in the process should be the procedures (methods of handling any behavioral situations), rules (specific guidelines that regulate and restrict certain behaviors) and responsibilities (who enforces the procedures and rules). Policies should be consistent (applied equally), necessary (reflect current company needs), understandable and reasonable (fair and fitting to the behavior). For example, sending an employee home for being five minutes late may be unreasonable. However, unethical behavior (theft, misuse of company funds, falsification of company documents) may warrant a suspension or immediate termination depending on the circumstances.


Having a motivated workforce is vital for most businesses, since it can lead to higher rates of productivity, better quality output, and low rates of absenteeism and labour turnover.

The main factors which affect the motivation of workers are pay levels, job security, promotional prospects, being given responsibilities, working conditions, fringe benefits, participation in decision-making and working in a team.

Motivational Theories

There are two basic theories of motivation; content theories and process theories. Content theories focus on what actually motivates people, they study the needs that must be satisfied in order for the employee to be motivated.

The need is either satisfied by an extrinsic reward (e.g. pay) or an intrinsic reward (e.g. recognition and praise). The Classical (Fayol), the Scientific (Taylor), the Human Relations (Mayo), and the Neo-Human Relations (Maslow, Herzberg, McGregor) schools of management thought are all content theories.

Process theories, do not concern the needs which must be satisfied in order to achieve motivation, but instead they are concerned with the thought-processes that influence workers’ behavior. There are two such theories:

Equity theory:

This states that each worker will wish to receive a remuneration package (equal to their pay plus fringe benefits) in return for their efforts. Each worker will only be motivated if their remuneration package is seen to be fair (or equitable) in relation to the remuneration packages received by the other workers for their efforts.

Expectancy theory:

This states that workers will only act when they have a reasonable expectation that their work will lead to the desired outcome. If they believe that they possess the ability and skill to achieve the goal, then their level of effort will be great and they will be motivated.

Financial Methods

There are many different methods of payment that a business can choose from, each of which can have different effects on the level of motivation of the workforce. The main methods are:

1. Piece-rate schemes.

This payment method involves the employee receiving an amount of money per unit (or per ‘piece’) that he produces. Therefore his pay is directly linked to his productivity level.

However, it is possible that in order to boost his earnings, an employee may reduce the quality and craftsmanship per unit, so that he can produce more output in a given period of time.

2. Time-rate (‘flat rate’) schemes.

This payment method involves the employee receiving a basic rate of pay per time period that he works (e.g. £5 per hour, £50 per day, £400 per week). The pay is not related to output or productivity.

Any time that the employee works above the agreed number of hours per week may make him eligible for overtime payments, often at ‘time and a half’ (e.g. £7.50 per hour instead of £5 per hour).

3. Commission.

This is a common method of payment for salesmen (e.g. insurance, double-glazing, telesales). The employee receives a very small percentage (say 0.5%) of the value of the goods that he manages to sell in a period of time.

4. Profit sharing.

This involves each employee receiving a share of the profit of the business each year, effectively representing an annual pay rise. It aims to increase the levels of effort, motivation and productivity of each employee, since their annual pay-award will be related to the profitability of the business.

However, if the business makes low profits (or even a loss) then this is likely to have a detrimental effect on the level of motivation of the employees.


5. Performance-related pay (PRP).

This is a method of giving pay rises on an individual basis, related to the employee achieving a number of targets over the past year. This is common with managerial and professional workers.

6. Share ownership.

A common form of payment in many PLCs is what is termed ‘share options’. This basically involves each employee receiving a part of each month’s salary in the form of shares (usually at a discounted price).

This forms a profitable savings-plan for the employee, and he can sell them after a given period of time. This should motivate the employees to work harder and increase their efforts, since the share price will rise as the company becomes more profitable, therefore increasing the capital gain on their shares.

Many of these different methods of pay are likely to be supplemented by fringe benefits (or ‘perks’) such as private health schemes, pension schemes, subsidised meals, discounts on holidays and travel, cheap mortgages and loans, company cars and discounts when buying the company’s products. The total package of pay plus fringe benefits is known as the remuneration package.

Non-Financial Methods

There is no universal rule for motivating employees, and there are many methods which are used by different managers to achieve the goal of a motivated and satisfied workforce. These include:

Empowerment. This involves a manager giving his subordinates a degree of power over their work (i.e. it enables the subordinates to be fairly autonomous and to decide for themselves the best way to approach a problem).

Delegation. This occurs when managers pass a degree of authority down the hierarchy to their subordinates.

Job enrichment. This is a method of motivating employees by giving them more responsibilities and the opportunity to use their initiative.

Job enlargement. This involves increasing the number of tasks which are involved in performing a particular job, in order to motivate and multi-skill the employees.

Works council. This is a type of worker participation and it consists of regular discussions between managers and representatives of the workforce over such issues as how the business can improve its processes and procedures (in production or marketing, for example).

Job rotation. This involves the employees performing a number of different tasks in turn, in order to increase the variety of their job and, therefore, lead to higher levels of motivation.

Team working. This is the opposite production technique to an assembly-line which uses an extreme division of labour. Team working involves a number of employees combining to produce a product, with each employee specializing in a few tasks. Cell production is an example of team working.

Quality circles. This is a group of workers that meets at regular intervals in order to identify any problems with quality within production, consider alternative solutions to these problems, and then recommend to management the solution that they believe will be the most successful.

Worker participation. This refers to the participation of workers in the decision-making process, asking them for their ideas and suggestions.

Worker-directors. These are workforce representatives who participate in the meetings held by the board of directors. Worker-directors are not very common in the UK, since employers often believe that they can slow down the decision-making process, as well as ‘leaking’ confidential information to employees.

Symptoms of poor motivation amongst the workforce include high rates of absenteeism and labour turnover, poor timekeeping, high rates of waste, low quality output and an increasing number of disciplinary problems.

When a poor level of motivation exists in a workforce, then the management should:

1. Ensure that pay levels are fair.

2 Develop a strong corporate culture and team-spirit..

3. Give praise and recognition to employees for their efforts and achievements.

4. Introduce decision-making at lower levels in the organization.

5 Ensure that communication flows are effective and that the relevant messages get to the relevant personnel.

6. . Design more challenging jobs.


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