What is rfb in salary?

A brief description on RFB: The RFB is an annual component for a given financial year that you can claim any time during the year, as often as claiming parts of it once a month or even once right at the end of the financial year. As quoted by Quora User, Flexible Benefit plan (FBP) is that portion of salary that can be received as against different expenses, to primarily save on income tax. In short, the RFB amount represents the 'value' of the salary packaging payments made during the year. How could employees avail Tax Exemption for the Flexible benefit components? You can reduce your taxable salary and avail of tax exemption. Typically salary is divided into three parts—earnings, perks/exemptions and deductions.

A Flexible Benefits Plan (FBP) is part of an employee’s salary that gives them more control of which CTC components they want to opt-in for and how much under each component. These help employees reduce their tax liabilities significantly.

With a growing focus on employee experience,  companies these days are mindful of the efforts and expenses incurred by employees and use flexible benefits for personalising the salary structure and maintaining an employee-friendly culture.

Before we dig deeper into the hows and whys of the FBP component in salary, let’s cover the basics.

A Flexible Benefit Plan is termed ‘flexible’ because the company can fix or regulate packages as per Govt compliances, company norms, and the employee’s position. Although the organisation/HR generally allocates salary components, companies should also consult employees when allocating FBP in salaries. The modifications are, however, protected by checks and balances to prevent its misuse.

The income tax department considers meals and non-alcoholic beverages offered by the company during office time as a benefit for the employee.

The company may issue food bills such as meal or grocery coupons (Sodexo coupons or meal vouchers) to its employees ranging from Rs 2200 to Rs 3000. Such bills are is tax-free for the employees and can be reimbursed.

Employees commuting to work every day means significant travel time and daily costs. Hence, it’s only understandable for them to expect the employer covers the expenses in some quantity.

Some employers compensate for the travel expenses. The expense in the FBP is capped by the employer and may differ from company to company.

The FBP facilitates covering the expenses of employees related to conveyance in the following cases:

Employers understand the need for mobile connections/internet service to fulfil official tasks. Therefore, most companies include postpaid mobile service bills and broadband connection bills as part of the flexible benefits plan in the salary.

Tax saving: Easy restructuring helps employees reduce their tax burden. For example, food bills, mobile phone bills, and travel allowance are not taxable. Factoring in these components can help the employee separate this on the payslip from their basic salary on which tax is calculated.

In fact, employers can help save up to Rs. 40,000 in taxes for their employees. It’s a win-win for both the employers, as it helps them build an employee-first culture, and for employees since it becomes an avenue to save more tax.

Better financial control & planning: When employees know that the company offers compensation for certain expenses as part of the monthly salary, they can plan their budget and expenditures for the entire year better.

Employee retention: Implementing FBP displays the company’s employee-friendly sentiment. The flexibility factor makes the employee feel valued and boosts employee retention.

Better recruitment: Companies stand the chance of attracting better talent when they offer compensation with various flexible benefits.

Increases productivity: By offering a range of choices for FBP in salary, employers make a healthy and happy workforce, leading to higher productivity.

Mutual Exclusion Policy: Under this policy, the employer and the employee may mutually decide what components are supposed to be excluded from the FBP.

Quantity-based policy: It governs all components whose specific base value is declared by the employer. The employee may have the option of deciding the quantity of the component based on the base value.

Opt-in Policy: As the name suggests, by implementing an Opt-in policy, the components are declared ‘opt-in’ by the employer, and the employee cannot modify the amount for that component as the employer has chosen to make that a fixed pay.

Dependent policy: This is when one component is declared as dependent on another component. Hence, when the employee makes an FBP declaration, they must do so for both components.

All in all, the FBP component of salary is no longer something even small organisations can ignore.

Now, you must be wondering if it’s that important, then why aren’t startups so keen on offering them?

Two words. Operational hassle.

The typical process of opting for flexible benefits, their declaration, and validation involves below painful steps:

For Employees

Employers

Due to all these operational hassles and complexities involved, some organisations don’t consider offering Flexi benefits to their employees.

Zaggle offers a multi-user expense account with which employees can save more on taxes, up to Rs. 40,000! It offers a multi-wallet card for meeting employee reimbursements across tax exemption and expense categories like Meal, Reward, Fuel, Telecom/Broadband, Travel, and Expense.

By partnering with Zaggle, RazorpayX Payroll has become the first HR & payroll software to introduce a completely automated Flexi benefits experience via cards with our software.

Salary packaging is an arrangement between you and your employer that enables you to reduce your taxable salary, and as a result, pay less income tax.

This benefit is restricted to certain occupations such as medical professionals and is also dependent on your employer.

Even though salary packaging allows you to save on your income tax, there are certain calculations where salary packaging needs to be added back to your income; (such as HECS/HELP, Centrelink benefits, Medicare Levy and other Government Entitlements/Benefits) and therefore salary packaging still needs to be reported in your annual income tax return.

It is shown on your Income Statement (previously known as your PAYG Summary) as a Reportable Fringe Benefit (RFB).

The RFB amount listed on your Income Statement doesn’t match the amount that you salary packaged with your employer. This is because the RFB shown on your income statement is the grossed-up taxable value of the reportable benefits provided.

The grossed-up taxable value of a benefit reflects the gross salary that an employee would have to earn to purchase the benefit from after-tax dollars.

In short, the RFB amount represents the ‘value’ of the salary packaging payments made during the year.

The gross up rate for 2018, 2019 and 2020 FBT year (1 April to 31 March) is 1.8868.

Melissa salary packaged the Living Expenses cap of $9,010 and the Meal/Entertainment Benefits cap of $2,650. The grossed-up value that would appear on her Income Statement would be $22,000.

This is calculated as follows:

The RFB amount shown on your income statement for an income year (1 July to 30 June) is the grossed-up taxable value of the reportable benefits provided in the previous FBT year (1 April to 31 March).

For example, the RFB amount on your Income Statement for the year ending 30 June 2019 would be the grossed-up taxable value of salary packaged income provided between 1 April 2018 to 31 March 2019.

Please see the graph below.

What happens if you cease employment between 1 April and 30 June?

If you have received salary packaging benefits during this time, your employer must show the RFB amount on your Income Statement for the income tax year ending on 30 June in the following year.

For example, if you stopped working on 1 May 2019, the RFB amount on your Income Statement from your former employer for the year ending 30 June 2020, would be for the salary packaged amounts received between 1 April 2019 – 1 May 2019.

Thus, you may have an Income Statement with an RFB amount listed from a former employer even though you won’t have received any salary or wages from them in that financial year.

Please see the graph below.

To get all the advice you need on salary packaging as well as any other financial advice, book your no-obligation initial consultation or call 1800 376 376.

Also Read Top 5 tips for Salary Packaging in your intern year