PGPHR 3rd Semester Assignment

Compensation Management
Paper Code: MBA -308

1. Prepare a salary slip of an employee in MS Excel.

xyzpvtltd
barbil
Pay Slip for Aug-21

Name of the Employee kabir khan UAN OR09C5784619

Employee ID 147865 PF No ORBNG003455720000006524
Designation worker ESI No 31–00–123456–000–0001
Department cleaning Bank Name sbi
DOJ 07-Jul-21 Bank A/C No 548786548
Gross Wage 21000
Total Working Days 30 Paid Days 30
LOP days 0 Leaves Taken

Earnings Deductions
Basic Wage ₹9450 EPF ₹1134
HRA ₹3780 ESI/Health Insurance ₹158
Conveyance Allowances ₹1600 Professional Tax ₹0
Medical Allowances ₹1250 Loan Recovery ₹0
Other Allowances ₹4920
Total Earnings ₹21000 Total Deductions ₹1292
Net Salary ₹19709
twenty one thousand kabir khan

faiz ali khan kabir khan

Employer Signature Employee Signature

2. Describe the process of computation of taxable income under the Income Tax Act. What are the
advantages of ESOP?

To file your income tax return (ITR), you first need to collect all the information required to file it. The
next important step is to compute your total taxable income. After this, final tax payable or refundable is
calculated by applying the applicable tax rates in force and then deducting taxes already paid by way of
TDS/TCS or Advance tax from the tax due amount arrived at.

Here's a step-by-step guide on how to calculate one's total taxable income:

As per the income tax laws, a person can have a total of 5 sources of income which are: Income from
Salary, Income from House Property, Income from Business or Profession, Income from Capital Gains,
Income from Other Sources. All income of a tax-assesses has to be categorized as one of the above.

Income from Salary

You can compute income from your salary using the TDS certificate in Form 16 issued by your
employer. This is to be done as follows:
*Collect your salary slips and Form 16 for the financial year. - Now add all your emoluments like (Basic
salary, DA, TA, DA on TA, HRA, all other allowances, and reimbursements) which will be mentioned in
your salary slips and Form 16 (Part B).

Add the Bonus (TVP- Ex gratia) received in the FY for which income is being computed

*The total will be termed as your gross salary.

* Deduct the following from your gross salary:

An exempted portion of HRA, - Transport Allowance (maximum exemption can be up to Rs19200 per
annum) - All reimbursements subject to the furnishing of actual bills i.r.o expenditure incurred (Medical
reimbursement can be maximum up to Rs 15000)

* The result will be your net income from salary.

Note: From FY 18-19, deduction in respect of transport allowance of Rs19,200 per annum and medical
reimbursement of Rs 15000 per year have been withdrawn.

Income from House Property (HP)

Income from house property mainly consists of rental income received by the assesses from the house
that he has let out. In case, assesses has only one house and that too is self-occupied by him, then also he
will be required to compute his income from house property. ( which will be nil or a negative value in
most cases

The assesses must consider the following points while computing his income from House Property. -
Compute the Gross Annual Value (GAV) of your let out HP as follows:

* Compute the Fair Market Value (expected rent from a similar property) and Municipal Valuation
(valuation as per municipal authorities). Take the higher value of the two. This higher value is termed as
Expected rent.

* Compare the Actual rent received/Receivable for the year with the expected rent and the higher value
will be the GAV of the house.

Income from Capital Gains

Computing income from capital gains involves some effort depending on the number and complexity of
transactions. You might need an expert to calculate the same depending upon the nature and number of
transactions. Broadly, income from capital gains is computed as follows:

* Compute your Long-term capital gains (LTCG) from the sale of all capital assets. - Compute your
Short-term capital gains (STCG) from the sale of all capital assets. - Claim the deductions u/s 54, 54G,
54EC, etc. if any.

Income from Business/Profession

Calculating the taxable income arising from gains from the Business/ Profession might be a challenging
task. In case, the business or professional setup is not on a big scale and does not involve complex
transactions, then income from Business/Profession can be computed by the assessee himself/herself but
in most cases, it is beneficial to take the advice of an expert(like a chartered accountant) to do this. .
There several provisions under the Income Tax Act which deal with the allowance/disallowances of
various expenditures and incomes. Other concepts like AMT, Book Profits, and Presumptive incomes are
also applicable while computing gains from a Business/Profession.
 For a simple business, the assessee can compute his taxable business income in the following manner:

*Take the Net Profit mentioned in the Books of Accounts as the base value.

* Add back all the deductions that are disallowed under the income tax act (Refer Section 37, 14) which
you have already availed in the P&L account maintained as a part of books of accounts.

* Subtract the expenditures that are allowed as per the provisions of income tax laws (Refer section 32,
35, 36).

It is always better to take the help of a chartered accountant, as the calculations tend to change with each
case. Income from Other sources

All the incomes that cannot be classified in the heads of income mentioned above will be considered as
income from other sources. It generally consists of Interest Income, Dividend Income, Gifts (were
taxable) etc. These figures are to be collected by categorizing all the credit entries in your savings
account passbook/statements. In case of accrued income such as interest earned on cumulative fixed
deposits which will not reflect in your savings account as credit entries, you can obtain interest
certificates from the institution where you have placed the FD. You will need interest certificates only in
case tax has not been deducted at source from the accrued income because in the case of TDS a TDS
certificate will be issued to you.

* Saving account credit entries (except inter-account transfers) are to be categorized under the above-
mentioned five heads of income. In this manner, compute your annual income from other sources like
Interest income, Dividend income, family pension, Lottery income, income from race horses, etc.
Interest income typically includes interest from fixed deposits, recurring deposits, savings accounts,
bonds, debentures etc. Dividend income typically comes from mutual fund schemes where you have
opted for the dividend option and equity shares. Most people would have only these two kinds of income
from other sources

* Subtract the deductions available under Income Tax act for which you are eligible. Set Off of Current
year losses and set off of brought forward losses. After computing income under each head of income,
you might see losses reflecting under some heads of income. The income tax laws allow the assessee to
set off the losses under one head of income from income under the same head or other heads of income
too.

Gross Total Income

It is the sum of income from all 5 heads after setting off the losses under the relevant heads of income. It
is worth noting that Gross total income is to be categorized in 2 parts i.e., one which is to be taxed at
normal slab rates (NORMAL INCOME) and other which is subject to tax at specific rates.

For this purpose, following are not considered as normal income:

* Short Term capital Gains on which Securities Transaction Tax has been paid (taxed at 15 percent)

* Long term capital gains except for those exempted under section 10(38) (Taxed at 20 percent)

(From FY 18-19, no capital gains are exempt under section 10(38) and will be taxed at 10 percent.)

* Casual income like lottery income, income from horse racing (taxed at 30 percent)

Five Advantages of Employee Stock Ownership Plans (ESOPs)

 In the past decade, employee stock ownership plans (ESOPs) have steadily been increasing in popularity
as public knowledge increases and the traditional methods of exit strategy have faded away. Historically,
it was commonplace for a company owner to pass on the ownership of their business to their child or
another heir. But in recent years, younger generations either do not want to or cannot take on the mantle
of the family business. This has led business owners to seek out alternative exit strategies that do not
involve mergers or acquisitions, which is how ESOPs came to the forefront.
The benefits of adopting an ESOP are multi-pronged, being advantageous for both owners and
employees. The following are five advantages to consider:

1. Increased Productivity

Most ESOPs we work with are in industries that recognize strong employee loyalty but low 401(k)
participation. Because an ESOP gives employees a share of the company, individual employees will
directly benefit from the success of a company and will feel a sense of ownership. This can lead to an
increase in productivity and an overall performance improvement for companies with employee stock
plans. When employees have a financial stake in the business, their overall morale and trust in the
company may increase.

2. Alternate Exit Strategy for Aging Owners

As mentioned above, the tradition of passing down family businesses is currently not as common.
Additionally, as COVID-19 slowed down merger and acquisition (M&A) activity, business owners
looking to retire had fewer options. In setting up an ESOP, owners will not have to sell their company to
a third party; they can trust that it will be owned by the employees. Their information can also remain
private and not shared with prospective buyers.

Owners who choose to remain involved with a business for a while also have the option of contributing
shares to an ESOP over time rather than all at once.

3. Tax Advantages ESOP structures allows for multiple tax advantages. For C-corporations, contributions
made to ESOPs are tax-deductible, and for S-corporations, the portioned owned by the ESOP is tax-
exempt. Employees are not taxed on the contributions received. Similar to a standard

retirement account, individual employees only have to pay tax on the ESOP when they ultimately
withdraw the money after retiring. Additionally, stock contributions are tax-deductible as are
contributions used to repay the ESOP loans.

4. Attracting Top Talent and Employee Retention

Frequently, employees who stay less than two years at a company will forfeit their shares. An employee
that stays four years may receive 40 percent of their shares upon leaving. This vesting process, or period
of time an employee must work with a company to be entitled to receive their share payout, motivates
employees to stay with a company as long as possible to earn the highest payout if and when they decide
to leave. Having an opportunity to have a share in a company can be an attractive bonus for top talent
seeking new job opportunities, as it provides a secure retirement plan.

5. No Change in Governance

When an owner steps back from their business with an ESOP in place, they will not have to worry about
the disruption typically caused by a change in governance. This allows the company to maintain
relationships with long-term suppliers, distributors and clients while also keeping management on board.
Having the consistency of employee ownership, without the changes typically associated with new
ownership, can also enhance employee loyalty to the company.
3. Discuss the factors affecting demand and supply of Labour in the Business Organisation with example.

In order to file your income tax return (ITR), you first need to collect all the information required to file
it. The next important step is to compute your total taxable income. After this, final tax payable or
refundable is calculated by applying the applicable tax rates in force and then deducting taxes already
paid by way of TDS/TCS or Advance tax from the tax due amount arrived at.
Here's a step-by-step guide on how to calculate one's total taxable income:
As per the income tax laws, a person can have a total of 5 sources of income which are: Income from
salary, Income from House Property, Income from Business or Profession, Income from Capital Gains,
Income from Other sources. All income of a tax-assesses has to be categorized as one of the above.
Income from Salary
You can compute income from your salary using the TDS certificate in Form 16 issued by your
employer. This is to be done as follows:
* Collect your salary slips and Form 16 for the financial year. - Now add all your emoluments like (Basic
salary, DA, TA, DA on TA, HRA, all other allowances, and reimbursements) which will be mentioned in
your salary slips and Form 16 (Part B).
Add the Bonus (TVP- Ex gratia) received in the FY for which income is being computed
*The total will be termed as your gross salary.
* Deduct the following from your gross salary:
Exempted portion of HRA, - Transport Allowance (maximum exemption can be up to Rs19200 per
annum) - All reimbursements subject to the furnishing of actual bills i.r.o expenditure incurred (Medical
reimbursement can be maximum up to Rs 15000)
* The result will be your net income from salary.
Note: From FY 18-19, deduction in respect of transport allowance of Rs19,200 per annum and medical
reimbursement of Rs 15000 per year have been withdrawn.
Income from House Property (HP)
Income from house property mainly consists of rental income received by the assesses from the house
that he has let out. In case, assesses has only one house and that too is self-occupied by him, then also he
will be required to compute his income from house property.( which will be nil or a negative value in
most cases
The assesses must consider following points while computing his income from House Property. -
Compute the Gross Annual Value (GAV) of your let out HP as follows:
* Compute the Fair Market Value (expected rent from similar property) and Municipal Valuation
(valuation as per municipal authorities). Take the higher value of the two. This higher value is termed as
Expected rent.
* Compare the Actual rent received/Receivable for the year with the expected rent and the higher value
will be the GAV of the house.
Income from Capital Gains
Computing income from capital gains involves some effort depending on the number and complexity of
transactions. You might need an expert to calculate the same depending upon the nature and number of
transactions. Broadly, income from capital gains is computed as follows:
* Compute your Long-term capital gains (LTCG) from sale of all capital assets. - Compute your Short-
term capital gains (STCG) from sale of all capital Assets. - Claim the deductions u/s 54, 54G, 54EC etc.
if any.
Income from Business/Profession
Calculating the taxable income arising from gains from Business/ Profession might be a challenging
task. In case, the business or professional set up is not on a big scale and does not involve complex
transactions, then income from Business/Profession can be computed by the assessee himself/herself but
in most cases, it is beneficial to take the advice of an expert(like a chartered accountant) to do this. .
There several provisions under the Income Tax Act which deal with the allowance/disallowances of
various expenditures and incomes. Other concepts like AMT, Book Profits, and Presumptive incomes are
also applicable while computing gains from a Business/Profession.
For a simple business, the assessee can compute his taxable business income in the following manner:
*Take the Net Profit mentioned in the Books of Accounts as the base value.
* Add back all the deductions that are disallowed under the income tax act (Refer Section 37, 14) which
 you have already availed in the P&L account maintained as a part of books of accounts.
* Subtract the expenditures that are allowed as per the provisions of income tax laws (Refer section 32,
35, 36).
It is always better to take the help of a chartered accountant, as the calculations tend to change with each
case. Income from Other sources
All the incomes that cannot be classified in the heads of income mentioned above will be considered as
income from other sources. It generally consists of Interest Income, Dividend income, Gifts (where
taxable) etc. These figures are to be collected by categorizing all the credit entries in your savings
account passbook/statements. In case of accrued income such as interest earned on cumulative fixed
deposits which will not reflect in your savings account as credit entries, you can obtain interest
certificates from the institution where you have placed the FD. You will need interest certificates only in
case tax has not been deducted at source from the accrued income because in case of TDS a TDS
certificate will be issued to you.
* Saving account credit entries (except inter-account transfers) are to be categorized under the above
mentioned five heads of income. In this manner, compute your annual income from other sources like
Interest income, Dividend income, family pension, Lottery income, income from race horses etc. Interest
income typically includes interest from fixed deposits, recurring deposits, savings accounts, bonds,
debentures etc. Dividend income typically comes from mutual fund schemes where you have opted for
the dividend option and equity shares. Most people would have only these two kinds of income from
other sources
* Subtract the deductions available under Income Tax act for which you are eligible. Set Off of Current
year losses and set off of brought forward losses. After computing income under each head of income,
you might see losses reflecting under some heads of income. The income tax laws allow the assessee to
set off the losses under one head of income from income under the same head or other heads of income
too.
Gross Total Income
It is the sum of income from all 5 heads after setting off the losses under the relevant heads of income. It
is worth noting that Gross total income is to be categorized in 2 parts i.e., one which is to be taxed at
normal slab rates (NORMAL INCOME) and other which is subject to tax at specific rates.

For this purpose, following are not considered as normal income:

* Short Term capital Gains on which Securities Transaction Tax has been paid (taxed at 15 percent)
* Long term capital gains except for those exempted under section 10(38) (Taxed at 20 percent)
(From FY 18-19, no capital gains are exempt under section 10(38) and will be taxed at 10 percent.)
* Casual income like lottery income, income from horse racing (taxed at 30 percent)

4. How does an Organisation align Compensation Strategy with its Business and HR strategies.

Many considerations go into creating a go-to-market or business strategy. From brand messaging to
product roadmaps to sales processes, effective business strategies also rely on the input of lots of people
across many departments.

Few departments have a better bird’s-eye view of the entire organization than human resources. HR
professionals can see both why a strategy exists and how it’s developed and implemented. Yet, too often,
HR departments don’t have a seat at the strategy table. Let’s take a look at how HR can help shape
business strategy and bring it to life.

Why HR should get involved with setting corporate strategy!

Today, business moves faster than ever—it’s a platitude, but it’s also never been more true.
Technologies, industries, and consumers themselves are continually evolving in a digitally-driven
market, and companies are continuously shifting their strategic focus to keep pace.

This culture of change has a significant impact on people. Every business decision has a real-life impact,
and HR departments are specially equipped to inform strategy and help employees navigate the resulting
changes.

Consider these reasons why it’s so important for HR to align with business strategy:

 Move in lockstep with the rest of the company: Goals are always more achievable when there is
universal buy-in and alignment across teams.
 Give HR initiatives a strategic focus: In today’s changing economy, there are countless ways to
recruit, train, attract, invest in, and support employees. But it’s impossible to tackle every
initiative all at once. Aligning with business strategy gives HR a strategic focus and helps
prioritize goals.
 Secure the right talent: Good talent is always valuable, but companies may need to invest in
different skill sets or roles at different times. Understanding the strategic goals of the business
will help HR attract and retain the right talent at the right time.

What role human resources plays in strategic planning

So how does HR become part of the broader business decision-making process? How do HR
departments move from a reactive, service-oriented function to a more executive-level, strategic one?

It starts with setting clear objectives for the department and strong values for the entire organization.
Companies with documented values are less likely to ignore the real-life impact of any strategy shifts or
big decisions. Consider these steps as you begin.

1. Align and set your HR goals

The main strategic role of HR is to create goals to help meet key business objectives. Goals may vary
depending on the company’s strategic plan, but focusing on HR fundamentals is an excellent place to
start. Here are some areas of HR most commonly affected by broader strategic business shifts.

Organizational structure

The way companies are organized largely depends on their current strategic objectives and growth
stages. If a company is in a high-growth stage, it may have a sales-driven culture with more sales
employees and sales executives in decision-making roles. Mature companies with a retention-focused
strategy may hire more customer success roles.

See 7 types of organizational structures—along with pros and cons for each—to find one that fits your
strategy

Employee compensation

Maybe current business goals are more focused on employee retention or culture-building. Conversely,
perhaps the company needs to cut costs. In either case, compensation structure may be an important
consideration. When HR is aligned and informed on these goals, they can make strategic decisions to
help the organization meet them.

Employee development

Depending on the business goals and immediate initiatives, it may be necessary to train employees on
new skill sets. Some employees may resist additional roles and responsibilities, so the role of HR in
these situations is to both evangelize additional training and ensure teams are developed to keep pace
with shifting needs.
Performance reviews

Clear business strategies are also tied to clear KPIs. With HR aligned on these performance benchmarks,
it can better evaluate employee performance and provide more actionable feedback during review
discussions.

Change management

As a people-focused department, HR often has the best pulse on employee sentiment throughout the
organization. It makes sense, then, that HR can act as effective advocates and change agents in
implementing business strategy, creating a blueprint employee engagement and success. HR departments
can encourage employees to share their feedback on new business strategies or technology investments
to ensure any changes or strategic shifts make sense from an operational perspective.

2. Formulate specific actions to hit those goals

Once you’ve aligned and set goals, it’s time to develop action plans to execute your HR strategic vision.
Focus on developing and improving processes for recruiting, hiring, employee development, and
performance reviews.

When creating an optimized action plan, it’s important to have a clear understanding of your
organization’s current structure and identify any gaps or shortcomings in your processes. Where should
you invest more in recruiting? If budgets are tight, what training or employee development programs
need to be in place to maximize the productivity and effectiveness of your existing talent? How many
sales reps does HR need to hire in a specific territory?

The ability to visualize where every player fits into the larger organization can help HR departments
align employees to business strategy, maximize efficiency, and see data in context to drive better
decisions. Org charts and related visuals can help HR departments optimize organizational structure at
every level and make better people decisions, such as:

Assigning employees where their skills can make the most significant impact
Making informed decisions about pay, equity, and performance
Modeling current and future org structures to determine how best to scale your business

3. Track and measure performance

Historically, the role of HR has lied in the “softer,” people-focused side of the business. However,
people analytics are now the new HR, and HR departments are just as responsible for reporting on the
performance of their initiatives as any other department.

With human resource alignment around data-driven goals, HR leaders can ensure that decision-making
not only aligns with strategic business objectives but also helps drive those goals. HR leaders can
analyze data from sales, marketing, and accounting to break down departmental silos and better align
with overall business goals.

Data-driven human resource alignment

According to a Bersin by Deloitte study, data-driven HR teams are four times more likely to be respected
by their business counterparts, which can result in more input in strategic decision-making. By
combining departmental data and HR data and visualizing it all in a single workspace, HR departments
can better align their decisions to business strategy. Consider the ways these types of people analytics
can impact the broader business:

Employee analytics: Measure the performance of all the HR initiatives in terms of cost, time,
performance, then use a dashboard to track recruiting times, onboarding speed, employee satisfaction,
and employee salaries. This data-driven approach to people management helps HR departments evaluate
pay disparities, track employee retention, identify trends, and see critical employee metrics that will
provide quick insights for better decision-making.

Benefit: Efficient onboarding, improved employee satisfaction, and retention

Talent analytics: Today, effective talent acquisition goes way beyond budget and headcount. HR
departments can rely on algorithmic data to quickly sift through deep pools of qualified applicants to
attract and retain top talent.

Benefit: Identify and attract higher-quality employees and improve workforce planning

Predictive analytics: Set up indicators to see when an employee is at risk of leaving the company. HR
departments can use data to identify risk facts and predict employee churn and how this will affect the
company.

Benefit: Better retention and employee planning

Invest in better people planning

Modern human resources departments manage much more than hiring, onboarding, and benefits.
Aligning HR with business strategy can boost employee satisfaction and performance, ensure teams are
aligned to help the business achieve its strategic objectives, and increase their influence and decision-
making power across the organization.

Employee compensation represents one of an organization’s biggest and most crucial investments. With
the right compensation structure in place, an organization can hire and retain great talent to drive
profitable business. On the other hand, a poor compensation structure can lead to a talent crisis or trouble
maintaining profitability.

Unlike so many other elements of business or HR, executive compensation is not simply a matter of best
practices. While industry benchmarks are an important part of the formula, any compensation strategy
should focus on the unique needs, goals, strengths, and culture of the organization.

That means designing a strong approach to compensation requires a great deal of thought, planning, and
self-knowledge. Recently, Launchways hosted a free one-hour webinar focused on how organizations
can align their compensation structure to their company’s size, strategy, and culture.

Looking forward, we’ll explore some of the main ideas from the webinar, including:
• The value of planning and alignment when it comes to executive compensation
• Creating alignment with a business’ cultural and philosophical values in mind
• Leveraging equity effectively as part of a compensation strategy
• Creating a bonus structure that’s scaled to your business

The Power of Planning and Alignment

Executive compensation would probably be a lot easier if all businesses were the same, but the
incredible variety of industries, business types, and corporate cultures in the marketplace means that one-
size most certainly does not fit all.

In order to succeed in such a wide-open game, organizations must articulate a clear, well-thought-out
strategy to guide their approach to talent acquisition and retention that’s built on a deep understanding of
what their business is, where they are today, where they’d like to go, and what they need to do to get
there. By focusing on compensation strategy conceptually and not just hiring and compensating
employees one-off, businesses can create a more cohesive culture that’s aligned with business goals.
For example, in the case of startups, many key players (especially executives) are often brought onto a
team one at a time. This creates a flexible situation in which many early-stage companies create a variety
of different salary points, equity offers, and bonus packages on an ad hoc basis to fit employees as they
hire.

While that model works well for some startups and may be tempting in the short term, it can be
disastrous as a basis for a long-term compensation structure for several reasons. First of all, planning
compensation one employee at a time makes it easy to lose the forest for the trees. That means that, after
several years of hiring, employees throughout the company could command salaries and benefits
packages that have little to do with their current value to the organization and better reflect how
desperate the company was for talent at the time of hire.

Additionally, working on a case-by-case basis without a well-structured, well-aligned plan in place can
wind up producing a pay scale that feels unfair and demotivating for workers just a year or two in. The
more transparency and logical explanation an organization can provide about how compensation works,
the more likely they are to connect with discerning talent.

When a business builds a consistent, richly-planned, well-articulated compensation structure, it tells the
workforce, “Everybody here is valuable, and we are in this together.” By planning a consistent approach
to compensation from the outset, organizations can create a well-scaled core team with a healthy culture
that’s positioned to drive both innovation and profit.

Planning with Values and Goals in Mind

If self-knowledge is the key to compensation alignment, the next logical question is, “What kind of self-
knowledge do we need?” The short answer to that question is “as much as possible,” but let’s take a
moment to think about some specific questions businesses’ should ask themselves about their
organizational values and goals as they build a compensation strategy.

Revenue vs. Profit vs. Innovation – The way leaders are compensated must directly reflect their ability to
drive business success. With that said, there a variety of different ways to quantify that success
depending on a business’ size, position in the marketplace, and growth targets.

A strong approach to executive compensation must identify key growth indicators or KPIs and ensure
individual success is aligned with company success. That means compensation strategies may shift as the
organization evolves, but only in mindful ways that reflect the work at hand and upcoming goals.

Individual vs. Team Performance – Some businesses are about achieving results no matter what and
elevating the difference-makers who got there when others couldn’t; other organizations emphasize
collective or team-based success. Each scenario requires a specific approach to compensation, and a lack
of philosophical alignment only sets everybody up to fail.

Make no mistake, incentivizing individual achievement or teamwork will directly and strongly shape
workplace culture, which reinforces the importance of planning with organizational goals and values in
mind before designing compensation packages out of thin air. Both models can be successful in different
scenarios, but once again, it’s a matter of industry, goals, and organizational self-knowledge.

Short- vs. Long-term Performance – It wouldn’t be fair to judge or compete in a race if the distance
wasn’t established ahead of time. By the same token, the effectiveness of leaders can’t be fairly judged
without a business articulating what they really value and expect.

Some organizations philosophically prefer a slow and steady pace; others are innovation-minded and
would rather someone step up to the plate and hit a home run than maintain a solid batting average for
several years. Again, both styles can work, but getting caught between the two in terms of articulation or
finding compensation out of alignment with organizational goals can both be costly.
Aligning Different Elements of Your Compensation Package
Any compensation package includes a salary, employee benefits, and often for executives, equity and
bonus opportunities. For a compensation structure to truly work, all those pieces of the pie must be
balanced in a way that works for assets and the company alike, building reward, incentive, and buy-in.

Let’s think about how different elements of that compensation puzzle can be implemented or leveraged
depending on company goals, size, and industry.

Balancing Base Salary – Base salary is probably the least “unique” piece of a compensation package, as
it is generally strongly informed by industry benchmarks. With that said, salary can be adjusted on a
sliding scale based on organizational values and growth goals.

For example, an early-stage organization prioritizing growth, innovation, and short-term performance
can create strong bonus incentives for executives (more on that later), allowing the organization to place
less emphasis on salary. On the other hand, larger, more established businesses who are years or decades
past their IPO can align their compensation structure to their market positioning by putting greater
emphasis on salaries.

Intelligently Leveraging Equity – In almost any for-profit business scenario, the business itself is the
owners’ primary asset. When experienced executives see a profitable idea or great business model, they
want to get in on the ground floor and grow along with that company. That means equity offers can be
powerful incentives for executives and other leaders to drive growth, achieve milestones, and stay
bought in for a half-decade or more.

On the other hand, some organizations’ goals or financial positions might make it advantageous to
protect equity. That can be a successful and profitable long-term strategy as well, but in order to win
with great talent, those organizations will need to pump up other aspects of compensation, such as salary
or achievable bonuses.

Again, the key either way is to articulate a consistent approach that’s aligned to company goals and
drives growth – not just to land talent by offering them stock options.

Building an Impactful Bonus Structure – Startup culture has made equity compensation so attractive over
the last 20 years that cash bonuses are often forgotten as part of a winning compensation strategy. With
that said, a well-scaled bonus structure is a fantastic tool for keeping leadership engaged and maximizing
each project or initiative.

Bonuses invite employees to succeed and celebrate alongside the organization they work for and see the
true connection between their great work and company growth. In this way, bonuses reward assets for
their direct, impactful alignment with company values and goals. That’s why bonuses are great buy-in
tools and motivators, both in the long- and short-term.

One of the best ways organizations (even small or medium-sized ones) can provide impactful bonuses
that show clear alignment with company values and goals is to provide ad hoc rewards. Essentially, ad
hoc bonuses are cash rewards distributed to leaders and/or team members when specific goals are
achieved. An ad hoc bonus could come at the end of a timely development sprint, at the completion of a
key project, at the closing of a major account, or any other time for organizational celebration.

Creating a winning executive compensation structure is highly complex because no two businesses are
alike. Remember:
• Executive compensation must be aligned with organizational goals and values in order to succeed
• Salary, equity offers, and bonuses can all be structured, balanced, and leveraged in different ways
depending on company size and objectives, but the compensation structure must match be built
purposefully and account for the uniqueness of the organization
5. Explain in details various employee benefits and employee services. What is Voluntary
EmployeeBeneficiary Association (VEBA) in details.

Difference Between Employee Benefits & Employee Services

What Are Employee Services?

Employers can offer a wide variety of benefits to their employees. Benefits are designed to help
employees meet basic needs they might not otherwise be able to meet on their own. For instance, the
high cost of health insurance is often offset by employer contributions to the employee's premium.

Employee services are employee benefits, but they are a more specific form of employee benefit that
employers offer to help instill loyalty among their workers. Small business owners must decide which
benefits and services to offer employees. With limited resources, some can offset expensive benefits with
less expensive employee services.

Employee services can include anything an employer deems necessary to provide as a perk for
employees. No real limit exists as to what can be included as an employee service. Some companies
provide cafeterias and event catering services for employees. Others have coffee shops, gyms in-house,
or anniversary gifts, according to AIHR Digital. Employee services are more of a convenience than a
true benefit.

Busy corporate offices, for example, might provide dry cleaning pickup services for employees.
Employers in remote locations might offer shuttle services to and from work. The types of services
depends upon each employer. Small business owners can use employee services such as on-site childcare
to make their positions more attractive to potential employees.

What Are Employee Benefits?

Employee benefits differ from employee services in that benefits tend to be necessities for many people
and their families, according to Money Zine. Basic insurance needs are covered by many employee
benefit plans. Insurance options provided by employers can include health insurance, but they can also
include life insurance, accidental death and disability insurance, dental insurance and unemployment
insurance also.

Other types of benefits usually include a retirement plan in the form of a 401(k) or some other qualified
tax-deferred plan. Although employee services might be considered a benefit, they are usually optional
and not necessarily what job seekers first look for when conducting a job hunt.

Importance of Benefits and Services

Benefits and services for employees play important roles in the culture of a company. For employees,
these provisions can create a sense of loyalty to the employer and indicate the employer cares for their
well-being. Employee benefits, such as health insurance and retirement plans, also provide employers
with tax advantages. Employees also benefit in this manner with tax-deferred retirement plans. A
carefully implemented benefits plan that also includes some basic employee services can go far toward
creating a positive business culture.

Pros and Cons

A small business owner should consider the pros and cons of employee benefits and services before
implementing either as part of a compensation package. Employee benefits packages can be cost
prohibitive but can benefit the business owner as a tax deduction. Business owners might be limited in
the benefits they can provide and might have to compete with other business owners to provide the most
comprehensive benefits packages.
Employee services have the potential to make a less comprehensive benefits package appear to be more
generous because of the additional perks they provide. Employee services can also prove to be expensive
for employers. In businesses where employee services are an established part of the benefits offered, it
might be difficult for employers to cut the services even when they become too expensive.

What Is a Non-Benefited Employee?

Successful small-business owners who want to expand their companies often hire employees to help with
increasing workloads. Businesses can give employees two basic types of compensation: cash
compensation or salaries and benefit compensation. A non-benefited employee is a worker who only
receives cash compensation.

Employee Benefit Basics

An employee benefit is any form of compensation a worker receives other than his stated hourly wage or
salary. Common types of employee benefits include health insurance coverage, access to a retirement
plan, dental insurance and vacation benefits. Non-benefited employees do not receive any of these job
benefits. According to the Department of Labor, federal law does not address employee benefits such as
health benefits and vacation benefits in the private sector, so employers do not have to offer benefits to
all employees.

Temporary Workers
Temporary workers are employees that a company hires for seasonal work or other short-term tasks.
Temporary workers often do not receive the same benefits as full-time workers and may be completely
non-benefited.

Newly Hired Workers

New full-time employees sometimes do not receive benefits immediately after accepting job offers. New
workers may have to go through a probationary period of a few months or more where they get no
benefits or reduced benefits. It is common for employees to have to wait six months or longer before
getting access to retirement benefits.

Part-Time Workers
Part-time employees are workers who perform services for less than 40 hours a week. In many
companies, full-time workers receive benefits but part-time employees are non-benefited. Some
companies offer benefits to part-time workers if they work more than a certain minimum number of
hours per week.

Contractors
Independent contractors are workers who hire out their services to clients and control how they perform
the jobs they are given. Independent contractors are technically self-employed business owners, so they
are not employees of the companies that hire them. Because they are not employees, contractors
generally do not receive benefits from their clients.

Types of Employee Services

Many organizations offer different types of employee services to attract and retain employees. These
services provide assistance to employees in a variety of ways to improve their work and personal life.
Along with standard fringe benefits such as health care and paid time off, many employers are creating
more ways to keep employees satisfied. Many of these services can be implemented in small businesses
at low costs.

Flexible Work Schedules

Some employers offer their employees flexible work schedules. These programs are arranged to meet an
organization's goals while assisting employees with their personal lives. For full-time employees who
work a 40-hour work week, arrangements can include working four days per week, 10 hours each day or
working extra hours throughout the week to leave early on Fridays. Because of technological advances,
some employers allow employees to work from home one or several days per week. This gives
employees some flexibility to maintain a balanced personal life and continue to successfully complete
their work responsibilities.

Wellness Programs
In 2008, the Harvard School of Public Health noted a national study by Harris Interactive showing that
91 percent of employers "believed they could reduce their health care costs by influencing employees to
adopt healthier lifestyles." Many employers offer wellness programs to improve employees' health.
These programs can be applied in a variety of ways, including reimbursable gym membership costs, on-
site fitness facilities, and events to promote healthy living and eating.

Child Care
Many large employers offer on-site child care services to employees. A 2007 study by Bright Horizons
found that 90 percent of working parents having access to a work-site child care center "positively
affects their ability to successfully concentrate on the job and be productive." For a small business, child-
care services can reduce the stress of many working parents. These services can also be provided by
child care centers close to the employer by providing discounts to employees who use those services.

Product/Service Discounts
Most individuals clip coupons and shop for sales to save money. Some employers work with local and
national retail product and service providers to offer employees discounts for their personal needs. These
types of programs can include everything from discounts on groceries to purchasing a vehicle at a lower
cost. Free or discounted on-site food and drink services such as lunch, snacks and coffee can also assist
employees by saving them time and money. These types of services are often appreciated by employees
and can be implemented at little or no cost.

Tips on Gross Receipts

How to Account for a Customer Tipping My Business
Definition of a Loaned Employee
U.S. Payroll Tax Deductions
What Are Employee Responsibilities Under The American Disabilities Act?
What Can Employers Do to Make a Restaurant Successful?

Managers of companies that staff employees who earn tips often have difficulty determining just how
much workers are earning in tips. It is important that employers have an accurate account of what
workers are earning -- in addition to their hourly salaries -- because a significant portion of any unpaid
taxes becomes the fiscal responsibility of the company. By law, employers are allowed to report tip
earnings and make tax deductions based on an employee's gross receipts.

Gross Receipts Defined

The term "gross receipts" describes the total amount of funds earned by a business for all sales and
service transactions. The gross receipts for individual employees, is the portion of receipts that each
worker produces individually on the company's behalf. For tipped employees such as waitresses, caterers
and salon workers gross receipts are the total amount of funds collected through sales of products and
services within a specific period; daily, weekly, monthly, quarterly or annually. Tips are customarily
based on a percentage of gross receipts.

Employer Responsibility
Companies that employ tipped workers must report to the Internal Revenue Service all known voluntary
cash tips that employees receive and make all corresponding tax deductions from employee payroll
checks. Because it is difficult for employers to be certain of actual tip amounts, the IRS has imposed an 8
percent tip reporting guideline for workers who earn $20 or more in tips per month. Employers are
legally able to estimate that each employee earns at least 8 percent of their gross sales in tips, and deduct
accordingly.
Gratuity
A common misconception is that tips and gratuity are the same. Though a very fine line exists between
the two, gratuity and tips have distinct differences. Tips are voluntary contributions from the patron to
the service provider and not handled by employers. Gratuities are service charges implied by the
company to the patron, that are later allocated to employees through payroll. Because such income is
processed by the employer and taxed accordingly, gratuities are considered part of an employees gross
receipts.

Credit Card Tips

Another fine line exists between tips and gross receipts when credit card transaction tipping is present. If
a customer pays for services with a credit card and adds a voluntary tip for the employee, this is
considered a gratuity. Although the employer in no way imposes this contribution upon the customer,
because the funds are processed, accounted for, taxed and allocated by the employer, the tip amount is
considered gratuity and therefore included in gross receipts.

Claiming Tips On Gross Receipts

Because tipped employees often earn far more than employers are able to track in tips, it might be
tempting to fib a little bit when it comes time to report your earnings. Be advised, that the few extra
dollars you put in your pocket each week can cost you dearly in the future. Not only is tax evasion illegal
and punishable by law in even the most petty instances, false tip reporting can damage your credit.

For instance, you may earn enough unclaimed money to afford a new home or automobile, but if you
can't prove it, you may not be approved for financing or endure a much higher interest rate. It is best to
abide by the law and honestly report all tips received on your gross receipts.

What Makes an Employee Assistance Program Effective?

Types of Employee Services
What Is an Employee Assistance Program?
How to Plan Programs for Strategic Wellness
What Is the Meaning of Employee Wellness Days?
Night Shift Safety Issues

Employees are often faced with difficulties that cause stress in their daily lives. Marital and family
issues, financial troubles and workplace conflict can negatively affect employees, resulting in poor job
performance and unscheduled absences. Circumstances, such as starting a family or supporting aging
loved ones, are also situations that may consume a worker's attention. Many companies have recognized
the need for employee assistance programs to help workers effectively manage the stress in their lives
while also maintaining a positive and productive work environment.

Health And Wellness

Employee assistance programs promote healthier and more productive workers. According to the U.S.
Bureau of Labor Statistics, employees that have access to wellness and employee assistance programs
have the opportunity to pursue a healthier lifestyle. This allows the employee to reduce stress, illness and
time off work. Wellness programs educate employees on proper nutrition, physical fitness and how to
improve overall quality of life.

Employees Variety
Wellness programs offer employees a variety of services to make balancing work and home life easier.
Employers often choose services that best suit the needs of their employees, such as onsite fitness centers
and clinical specialists. Program possibilities are quite abundant. For example, employers may choose
services that help their employees identify health risks or quit smoking. Benefit packages may also
include legal and financial counseling, child care assistance, and even adoption and elder care
professionals.
Convenience
Employee assistance programs drastically reduce the amount of time a worker spends on issues that
affect other areas of their life. Employees have access to many resources, such as 24-hour physician
helplines, to help with medical issues. This type of resource minimizes the need to schedule time-
consuming consultations during work hours. Workers have pre-screened wellness professionals at their
disposal, which takes the guesswork out of knowing whether they are working with competent experts.

Employee Retention
The U.S. Department of Labor's Office of Disability Employment Policy acknowledges the validity of
employee assistance programs. The office indicates that wellness programs "enhance employee and
workplace effectiveness and are a vital tool for maintaining and improving worker health and
productivity, retaining valued employees, and returning employers to work after illness or injury."
Workers are more inclined to remain with a company that supports them and helps them resolve personal
issues.

Saves Employers Money

Companies that invest in employee assistance programs see a return on their investment based on the
overall health of their employees and the correlation between worker productivity. Employee assistance
programs reduce the need for costly health care and disability claims. Less absences and lower employee
turnover supports an employer's bottom line. Further, a company that markets the employee assistance
program is in a better position to recruit new and more qualified employees.

About Employee Payroll Services

An employer can process payroll in-house or outsource it to a payroll service. The former includes using
payroll software or hiring an on-site staff to process the payroll manually. The latter includes hiring a
service to handle the administrative tasks of processing employee payroll. Using a payroll service is an
increasingly popular method among employers.

Significance
The U.S. Department of Labor notes that employers must pay workers in a timely manner and
accurately. Furthermore, federal and state laws govern a number of payroll tax laws that employers must
comply with. Payroll services staffs ensure accurate employee paychecks and compliance with payroll
laws.

Benefits
Payroll processing is a detail-oriented task that requires ample concentration and time, particularly if the
payroll is large. Many employers do not want to be bothered with these tasks, so they use a payroll
service. This allows the employer to focus on other duties, increasing productivity.

Payroll includes time card, wage and payroll tax computations. A payroll service typically has a staff
knowledgeable in these areas, reducing payroll errors. Furthermore, if payroll errors occur, the payroll
service is responsible for correcting them. Hiring an on-site payroll staff can prove expensive; the
employer may have to invest in payroll software and pays staff salaries and benefits. Payroll services
charge employers a flat fee to process payroll.

Implementation
It is not that difficult to implement an employee payroll service business. If your business will have
employees, it will need an Employer Identification Number, which you can obtain from the Internal
Revenue Service. You also will need payroll software to simplify payroll processing. If it’s a small
payroll service, you can run it from home on your own. What’s critical, however, is that the business has
qualified payroll professionals. It will not keep its clients for long if the staff is incompetent.

During the initial client set-up, the payroll service typically needs power of attorney to handle its client’s
payroll tax affairs, bank account information for direct deposit purposes and a signed contract with the
terms of service.

Services
Payroll services often do not have a limit on how many employees for which they process payroll.
Consequently, some payroll services have clients with thousands of employees and others administer
payroll for less than 10 employees. Payroll processing for each client varies, depending on what the
client wants and what options the payroll service offers, such as processing the payroll, ensuring
compliance with tax obligations and benefits administration.

Considerations
Employee payroll services have their disadvantages. Because the service's staff is off-site, face-to-face
interaction is absent. If there’s a problem with the payroll, the employer might not know it until payday.
Furthermore, according to the Internal Revenue Service, the employer is ultimately responsible for
making proper payroll tax deposits. Therefore, if the payroll service fails to make appropriate tax
deposits, the IRS charges related penalties to the employer’s account.

What Is a Voluntary Employees’ Beneficiary Association Plan (VEBA)?

A voluntary employees’ beneficiary association (VEBA) plan is a type of tax-exempt trust used by its
members and eligible dependents to pay for eligible medical expenses. The plan is typically funded by
an employer. While the popularity of VEBAs has waned, there are companies that continue to offer
them.

Employee contributions may or may not be mandatory depending on the company plan, although
individual elections are not permitted.2 However, employees must be covered by an employer-sponsored
health plan to be eligible for VEBA membership. Additionally, the company must observe rules
established by the Internal Revenue Service (IRS) for creating and maintaining a VEBA.

Key Takeaways
A voluntary employees’ beneficiary association (VEBA) plan is a type of tax-exempt trust used by its
members and eligible dependents to pay for eligible medical expenses.
This type of employee benefit program has waned in popularity over the years, though some employers
still offer them.
VEBA rules state that employers must first obtain a letter of determination from the Internal Revenue
Service (IRS) for their plan to be considered a VEBA for federal income tax purposes.
VEBAs are subject to some aspects of the Employee Retirement Income Security Act (ERISA);
however, they are not considered to be qualified retirement plans.
How VEBA Plans Work
VEBAs allow employers to provide benefits to employees on the condition that they follow certain
guidelines. For instance, VEBA rules state that employers must first obtain a letter of determination from
the IRS for their plan to be considered a VEBA for federal income tax purposes.3 VEBAs are subject to
some aspects of the Employee Retirement Income Security Act (ERISA); however, they are not
considered to be qualified retirement plans.4

Unlike in 401(k) or 403(b) plans, for example, participant withdrawals from a VEBA are not taxable if
made before age 59½. Withdrawals from a VEBA are not required to begin at 72 years of age.

Beneficiaries must be employees, their dependents, or their designated beneficiaries.1 VEBA plans are
considered to be welfare benefit plans under federal tax law and are tax-exempt under Section 501(c)(9)
of the Internal Revenue Code. Employer contributions made to a VEBA plan are tax deductible and have
no limit.5

Funds in a VEBA grow tax free, and there are no tax penalties levied upon employees or VEBA
members who take distributions from a VEBA for qualified medical expenses, which often include co-
pays, co-insurance, and deductibles, as well as dental and vision payments. These expenses are defined
in Section 213(d) of the Internal Revenue Code.6 Members can also use VEBA plans to fund post-
retirement health insurance premiums.

Even though these accounts are usually used as savings vehicles to fund healthcare expenses in
retirement, employees can use money from their VEBAs to pay for qualified medical expenses while
working. If account holders don’t use money in their VEBA plans for a given year, then that amount
rolls over to the next year’s balance. That means a VEBA is not a use-it-or-lose-it plan, unlike a Flexible
Spending Account (FSA).

To qualify under IRS rules, a VEBA’s mission must be centered on providing whatever benefits to
beneficiaries (i.e., employees) are designated by the association.

Special Considerations

A VEBA can also act as a type of health reimbursement arrangement (HRA).

A post-deductible VEBA, for example, is designed to reimburse vision and dental expenses until a
member meets their health plan deductible. After the deductible is met, members can be reimbursed for
non-health plan-related medical expenses.

A limited VEBA, however, can reimburse only medical and vision expenses. Meanwhile, money in a
post-employment VEBA can be used only after an individual has retired or left employment with the
VEBA’s sponsor.
When a VEBA plan is paired with a Health Savings Account (HSA), VEBA dollars will be limited
toward eligible dental and vision expenses until individuals meet their medical health plan deductibles.
Health Savings Accounts (HSAs) offer triple tax benefits in the form of tax-deductible contributions,
tax-deferred growth, and tax-free withdrawals when funds are used to pay for qualified medical
expenses.
Voluntary Employees’ Beneficiary Association FAQs

What’s a VEBA plan?

A voluntary employees’ beneficiary association (VEBA) plan is a type of tax-exempt trust that
employers can offer to help employees with the cost of medical care. These plans are typically funded by
the employer and governed under Internal Revenue Code Section 501(c)(9).

Who is eligible for a VEBA?

To be eligible for a VEBA plan, your employer must offer one. Also, you must be an active employee
and be covered by your employer’s health insurance plan to participate in a VEBA.

Is a VEBA an HRA?
Health reimbursement arrangements (HRAs) allow employers to reimburse employees for certain
medical expenses. Employees can roll over contributions year to year while investing contributions for
growth. Under that definition, a VEBA can be considered a type of HRA.

What is the difference between a VEBA and an HSA?

Health Savings Accounts (HSAs) allow you to save for qualified medical expenses on a tax-advantaged
basis. These accounts are associated with high-deductible health plans. The main difference between a
VEBA and an HSA is how they’re funded. VEBAs are funded only by the employer in most cases, while
HSAs can be funded with employer and employee contributions.
Can I have a VEBA and an HSA?
Yes, depending on the options offered by your employer, it is possible to have both a VEBA and an
HSA. If you have both, it’s important to understand the rules for contributions, withdrawals, and taxation
to ensure that you’re making the most of these benefits.