What are Fringe Benefits?
Fringe benefits, also known as employee perks or perquisites, refer to non-monetary advantages that employees receive from their employer in addition to their regular salary or wages.
These benefits are provided to enhance the overall compensation package and improve the work experience for employees.
Fringe benefits can take various forms, including health insurance, retirement plans, paid time off, company-provided vehicles, housing allowances, and more.
Examples of Fringe Benefits:
Some of the most common examples of fringe benefits are health insurance, workers' compensation, retirement plans, and family and medical leave. Less common fringe benefits might include transportation assistance, free gym membership, child care assistance, bonuses, company cars, housing allowance, paid vacation, meal subsidization, and more.
Benefits Of Offering Fringe Benefits:
Fringe benefits can have significant positive impacts on both the employee and the employer. Here are the benefits of offering fringe benefits:
· Attraction and retention of talent: offering competitive fringe benefits helps in attracting top talent to the company and retaining existing skilled employees. It can also differentiate a business from its competitors in the job market.
· Improved work-life balance: benefits like family and medical leave, flexible work arrangements, and childcare reimbursement can assist employees in achieving a better work-life balance, leading to higher job satisfaction and productivity.
· Sustaining employee motivation: providing fringe benefits conveys a sense of appreciation to employees, which in turn helps maintain their motivation and productivity at high levels.
· Lowering employee turnover: when employees feel valued, receive fair compensation for their hard work, and are content with their overall work experience, they are less inclined to seek opportunities elsewhere.
· Tax advantages for both parties: some fringe benefits have tax advantages. For employees, certain benefits may be tax-free, while employers can often deduct the cost of providing these benefits from their taxes.
Are Fringe Benefits Taxable?
Fringe benefits are generally considered taxable. Recipients of taxable fringe benefits are required to include the fair market value of the benefit in their taxable income for the year.
This means that the value of a fringe benefit is subject to various taxes, including federal income tax and employment taxes. Essentially, any fringe benefit provided by an employer is taxable and must be included in the recipient's pay, unless the law specifically excludes it.
This includes benefits such as the use of cars or flights on aircraft provided by the employer. Cash payments, under almost all circumstances, are also considered taxable wages to the employee.
Difference Between Benefits And Fringe Benefits:
Benefits are a part of the overall compensation package provided to employees, in addition to their base salary. They include offerings such as health insurance, retirement plans, and paid time off. Benefits are essential and typically non-negotiable components of a compensation package.
Fringe benefits are additional perks or advantages offered to employees, often beyond their regular salary and may vary between employees or organizations.
What To Consider When Setting Fringe Benefits?
Fringe benefits in compensation encompass additional perks beyond salary. HR should consider:
· Competitor benchmarking: evaluate offerings compared to industry standards to remain competitive.
· Comprehensive packages: ensure a well-rounded benefits package, including healthcare, retirement plans, and paid leave.
· Tax considerations: understand tax implications, as some benefits may be taxable to employees.
· Employee preferences: tailor benefits to cater to the needs and preferences of the workforce, which can enhance job satisfaction and retention.
· Legal compliance: ensure adherence to labor laws and regulations when offering fringe benefits.
Fringe benefits play a crucial role in enhancing the overall employee experience and contributing to their well-being. Offering a comprehensive package of fringe benefits can be a strategic move for employers looking to create a positive and competitive work environment.