Fringe benefits: types, examples and advantages
Fringe benefits are extra perks offered to employees beyond their salary. They enhance employee satisfaction, loyalty, and productivity. While some fringe benefits are tax-free, others are taxable. Understanding fringe benefits, their types, and tax implications is highly recommended for growing organizations.
In today’s world, where employees drive an organization towards its growth, keeping them happy and satisfied is what makes a workplace safe and interesting. How’s that possible? Well, you can give them the best fringe benefits!
Wondering what are fringe benefits for employees? Let’s break it down for you!
Fringe benefits are additional compensation given to employees on top of their regular salary. These perks range from healthcare insurance and paid time off to gym memberships. Essentially, they are non-cash compensation offered to attract, retain, and motivate employees.
According to IJNRD, the most desired fringe benefits are health insurance, paid time off, vacation time, and flexible work schedules for newlyweds. These highlight the significance of benefits pertaining to family support, work-life balance, and health.
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What are fringe benefits for employees?
Enhanced well-being
Fringe benefits contribute to employee health and peace of mind. Based on One Medical’s recent survey, 60% of employees felt medical benefits are very important. They alleviate the financial burden associated with medical expenses, allowing employees to focus on their health without the fear of bankruptcy. By providing access to quality healthcare, employers demonstrate their commitment to their employees’ well-being and create a positive work environment.
Financial security
Retirement plans and life insurance offer employees a crucial safety net for their financial future. Retirement plans, such as 401(k)s or pension plans, enable employees to save for their retirement and ensure a comfortable lifestyle in their later years. Life insurance provides financial protection for employees’ families in the event of their untimely death, ensuring their loved ones are not burdened with debt.
Work-life balance
The best fringe benefits include paid time off, flexible work arrangements, and parental leave to support employees’ personal lives and promote work-life balance. They allow employees to take time off for rest, relaxation, and family commitments without fear of job insecurity.
Flexible work arrangements like remote work or flexible hours give employees greater control over their work schedules and enable them to manage their responsibilities. Parental leave policies support employees with required fringe benefits as they transition to parenthood. The Family and Medical Leave Act ensures organizations give employees the time and resources to care for their newborns.
Professional development
Tuition reimbursement and professional development opportunities help employees grow and advance their careers. By investing in their employee’s education and training, employers demonstrate their commitment to their professional development and create a culture of continuous learning. These benefits not only enhance employees’ skills and knowledge but also increase their job satisfaction and retention rates.
Increased satisfaction
Perks like gym memberships, on-site amenities, and employee discounts are excellent examples of fringe benefits. They ensure a positive work environment and make employees feel valued and appreciated. By providing opportunities for recreation, relaxation, and social interaction, employers demonstrate their commitment to their employees’ overall well-being and create a workplace that fosters a sense of community!
Also read: Employee benefits: A guide on common and best benefits
What are fringe benefits for employers?
Attracting top talent
According to EBRI, 41% of employees feel benefits play a key role in their decision to join an organization. Competitive fringe benefit packages help companies recruit and retain skilled employees. By offering attractive benefits, companies can differentiate themselves from their competitors. A robust benefits package demonstrates a commitment to its employees’ well-being and creates a positive employer brand.
Improved employee morale
What are considered fringe benefits can be directly linked to improved employee morale and loyalty. Employees who feel valued and supported by their employer are more likely to be engaged, productive, and committed to their work. By offering benefits that meet their needs, companies can foster a positive work environment and create a sense of belonging among their employees.
Tax advantages
Some fringe benefits, such as health insurance, offer tax advantages to employers as per the IRS. These benefits can be deducted as business expenses, reducing a company’s overall tax liability. Now you know what taxable fringe benefits are, your organization can improve its financial performance and allocate more resources to other areas.
Enhanced company culture
A benefits package contributes to a positive company culture and employer brand. When employees feel valued and supported, they are more likely to be loyal and committed to the company. It can create a positive and supportive work environment that attracts and retains top talent.
Examples of fringe benefits
Fringe benefits can vary depending on the industry, company size, and employee roles. Here are some common examples:
- Health and wellness
- Health insurance
- Dental and vision coverage
- Life insurance
- Disability insurance
- Flexible Spending Accounts (FSAs)
- Health savings accounts (HSAs)
- On-site gym or fitness reimbursement
- Wellness programs (e.g., gym memberships, nutrition counseling)
- Time off and flexibility
- Paid vacation and sick leave
- Paid holidays
- Parental leave
- Flexible work arrangements (telecommuting, flextime)
- Sabbaticals
- Financial support
- Retirement plans (401k, pensions)
- Employee stock ownership plans (ESOPs)
- Tuition reimbursement
- Childcare assistance
- Employee discounts on company products or services
- Perks and amenities
- Company car or car allowance
- Public transportation subsidies
- On-site dining or meal vouchers
- Employee assistance programs (EAPs)
- Professional development opportunities
What is a fringe rate?
A fringe rate is the percentage of an employee’s total compensation that represents the cost of their benefits. It’s calculated by dividing the total cost of benefits (like health insurance, paid time off, and retirement contributions) by the employee’s total wages. This figure helps organizations figure out what fringe pay is, calculate true employment costs, and make informed decisions about budgeting and pricing.
You can calculate a fringe rate with the help of the following formula: –
Fringe rate = (Total fringe benefits/Annual wages) X 100
Types of fringe benefits
- Fringe benefits by law
Some benefits are legally required by the government to protect employees’ welfare and financial security.
- Social security: A federal program providing retirement, disability, and survivor benefits.
- Medicare: A federal health insurance program for people aged 65 and older, as well as younger individuals with disabilities.
- Unemployment insurance: Temporary financial assistance to eligible workers who lose their jobs through no fault of their own.
- Workers’ compensation: Medical care and wage replacement benefits to employees injured on the job.
- Fringe benefits not by law
These fringe benefits are best suited for organizations that wish to attract, retain, and motivate employees. They often vary by industry, company size, and employee position.
- Health insurance: While often offered as a mandatory benefit, the specific coverage and plan options can vary.
- Retirement plans: Beyond legally mandated contributions, employers may offer additional matching contributions or profit-sharing plans.
- Paid time off: Vacation, sick leave, and personal days often exceed legal minimums.
- Life insurance: Coverage beyond what is required by law.
- Disability insurance: Additional coverage beyond legally mandated benefits.
- Flexible spending accounts (FSAs): Allow employees to set aside pre-tax dollars for eligible expenses.
- Employee assistance programs (EAPs): Offer confidential counseling and support services.
Tax implications of fringe benefits
Whether a fringe benefit is taxable depends on its nature and value. Some fringe benefits, like health insurance and retirement contributions, are often tax-free for employees. However, perks like personal use of a company car or subsidized meals might be subject to fringe benefit tax. Understanding these tax implications is essential for both employees and employers.
What are considered fringe benefits depends on several factors, including the type of benefit, its value, and whether it’s considered essential to the employee’s job.
Tax-Free fringe benefits
- Health insurance
- Life insurance
- Disability insurance
- Retirement plan contributions
- Certain educational assistance
Taxable fringe benefits
- Personal use of a company car
- Employer-provided housing
- Excessive meal allowances
- Gift certificates or cash bonuses
Note: Tax laws can change; specific rules and calculations are involved in determining the taxable value of fringe benefits. Employers should consult with tax professionals about what taxable fringe benefits are and ensure compliance.
Fringe benefits are the best components of a comprehensive compensation package that significantly impact employee satisfaction, loyalty, and overall well-being. Offering employee benefits and perks beyond base salary can create a positive work environment, attract and retain top talent, and boost employee morale.