Allowances vs Perquisite: Difference and Comparison

What are Allowances?

Allowances are specific, regularly provided amounts of money given to employees to cover certain expenses or as part of their compensation package. Allowances are provided to help employees meet specific financial needs or requirements. For example, travel allowances may cover expenses related to business trips, while housing allowances may assist with housing costs.

The taxation of allowances can vary depending on the nature of the allowance and local tax regulations. Some allowances may be taxable, while others may be tax-free up to a certain limit. Employers outline the terms and conditions of allowances in employment contracts or company policies to ensure clarity regarding eligibility and payment amounts.

What are Perquisites?

Perquisites, referred to as “perks,” are additional benefits or privileges provided to employees beyond their regular salary or wages. These can be non-monetary benefits. Perquisites are provided to enhance the overall compensation package and attract and retain employees. They are seen as extra incentives or rewards for employees.

Perquisites are subject to taxation, and the tax treatment can vary depending on the specific perk and local tax laws. In many cases, the value of the perk is added to the employee’s taxable income.

Difference Between Allowances and Perquisites

1. Allowances are monetary payments provided by the employer to cover specific expenses or financial needs of the employee, such as housing, travel, or meals. Perquisites, or perks, are non-monetary benefits or privileges provided to employees. These can include things like company cars, gym memberships, or flexible work hours.
2. Allowances are designed to reimburse employees for specific costs or to assist them in meeting certain financial obligations directly related to their jobs or circumstances. Perquisites are provided to enhance the overall work experience, improve job satisfaction, and attract or retain employees. They are not tied to specific expenses.
3. The taxation of allowances can vary depending on the nature of the allowance and local tax laws. Some allowances may be taxable, while others may be tax-free up to certain limits. Perquisites are subject to taxation, and their value is added to the employee’s taxable income. However, some perks may have specific tax rules or exemptions.
4. Common allowances include housing allowances, travel allowances, meal allowances, and transportation allowances. Examples of perquisites include company-provided vehicles, stock options, access to on-site childcare, or membership in exclusive clubs.
5. Allowances are tied to specific job-related needs or expenses. For example, a travel allowance is provided to employees who need to travel for business purposes. Perquisites may not be directly related to job requirements and may be offered to enhance the overall work environment or employee well-being. For instance, a company gym membership is a perk that promotes employee health but may not be job-specific.

Parameters of Comparison	Allowances	Perquisites
Payment Type	Typically paid as regular monetary amounts.	Usually non-monetary benefits or privileges.
Frequency	Paid regularly (e.g., monthly, annually).	Can be one-time or ongoing, but less frequent.
Flexibility	Allowances are fixed and structured.	Perks can be more flexible and customized.
Purpose Clarity	Clearly defined purpose (e.g., travel expenses).	May not always have a specific, defined purpose.
Retention tool	May be used to attract talent but less so than perks.	Often used as a tool for talent retention.

References

1. https://www.jstor.org/stable/27767355
2. https://journals.sagepub.com/doi/abs/10.1177/1532673X8201000305

Last Updated : 05 February, 2024