Employees are protected by the law, specifying their rights, including the right to receive their salary on time, incentives, healthcare coverage, and other employee benefits.
But how is fringe benefit different from common employee benefits?
What Is a Fringe Benefit?
Fringe benefits are awarded to employees as a form of compensation for expenses related to the performance of their duties. It eliminates employees paying out of their pocket for doing business-related transactions or tasks. Fringe benefits are also given to promote general job satisfaction.
Why Employers Offer Fringe Benefits?
Employers offer fringe benefits to remain competitive in the industry. While there are plenty of applicants out there willing to fill a vacant post, you want to keep talented employees in your company. If you want to retain your top-notch employees, you have to ensure that you’re offering a very competitive employment compensation package.
There are many good reasons why employers offer fringe benefits, including the following:
- Employee Job Satisfaction: Better recognition, career progression, and engagement with business leaders have the biggest positive impact on employees’ job satisfaction.
While competitive pays and flexible working schedules initially appeal to employees, they’re generally perceived as less important daily. Experiencing the perks of being an employee through fringe benefits, a safe and healthy workplace, and a good culture become the most influential factors in employee retention.
- Career Advancement Opportunities: Educational assistance and job training provide employees new skills to advance their professional career within your company, opening more opportunities to get promoted and receive higher salaries.
- Help Employees Save: Employees can save from car insurance and auto payments from companies that offer fringe benefits. Also, they can save money paying for meals because employers provide some free or meal discounts.
- Employer Business Tax Deductions: Fringe benefits can also be a source of business tax deductions, including office renovations, to provide safe access to disabled employees.
Examples of Fringe Benefits
Not all employers offer the same fringe benefits to their employees. For this reason, job applicants tend to apply in companies offering excellent fringe benefits. But what are some of the examples of fringe benefits?
One of the most common fringe benefits includes a good combination of insurance coverage, such as healthcare, life insurance, and worker’s compensation. Employers usually offer up to US$50,000 worth of group health insurance, term life insurance, and short- and long-term disability coverage options. Employers share the premium costs with employees to offset the total cost they pay.
Take a close look at the following fringe benefits:
- Education Assistance: Many employers provide tuition reimbursement or education assistance to employees who want to pursue their studies, like enrolling in a Master’s degree program.
- Fitness Assistance: There are companies with on-site fitness centers where employees can take advantage of free gym memberships at a discounted rate. Also, some employers offer yearly fitness equipment reimbursement to a certain limit.
- Meal Plans: Another good example of a fringe benefit are meal plans. Because the cost of meals adds up quickly, many employers provide free meals for employees that work overtime.
- Childcare or Dependent Assistance: Work scheduling conflicts arise because of a lack of childcare assistance. Established companies usually offer employees child care on-site, free, or at a discounted cost. On the other hand, smaller companies usually provide a monthly bonus to pay for child care.
- Retirement Plan Contributions: Employees look forward to a retirement plan. While some companies offer employee 401(k) paycheck deferrals (automatic retirement saving contribution deduction via employee’s paycheck), other companies make premium contributions to retirement plans without their employees paying any contribution. Retirement plan contributions help employees save for the long-term, above and beyond their monthly salaries.
How Fringe Benefits Differ From Common Employee Benefits
- Required by the Law
Common employee benefits are employee benefits mandated by local statute, state, or federal law. Unlike common employee benefits, fringe benefits are given at the discretion of the employer. In short, fringe benefits are not mandatory.
For small businesses that aim to stay competitive and retain good employees, allocating budget for employee benefits can be tough. But with so many employee benefits available, what benefits are required by the law?
- Social Security and Medicare: The Federal Insurance Contributions Act (FICA) specifies that both employers and workers are required to contribute to these funds.
- Workers’ Compensation Insurance: It provides financial support to workers unable to work due to occupational illness or workplace injury.
- Unemployment Insurance: It assists employees who lose their jobs.
- Health Insurance: Companies with 50 and more full-time workers, including full-time equivalent employees, should offer health insurance.
- Medical Leave: All employees and workers from private firms (50 or more employees) should be given 12 weeks of unpaid leave yearly for qualifying medical and family reasons.
- Premium Contributions
For common benefits, employers and employees usually share in paying premium contributions. On the other hand, fringe benefits are generally shouldered by the employer, mostly non-taxable or not deducted as a form of tax on employees’ income.
- Taxable and Non-taxable
All reimbursements or payments, including gifts and perks, are taxable under the law unless specified otherwise. Taxable employee benefits include commissions, wages, and overtime pays. Even tips are taxable and specified on Form W2 (Wage and Tax Statement employers are required to file to all employees and to the IRS at the end of the calendar year.
Non-taxable benefits may include medical cash allowance, monetized unused vacation leaves, and de minimis or minimal benefits (e.g., low-value gifts given on company anniversary or holidays). Also, food subsidy, uniform or clothing allowance, daily meal allowance, and employee achievement awards or incentives are not taxable.
Fringe benefits are given to employees based on the discretion of their employers. Some fringe benefits are paid vacation leaves, disability, life insurance, retirement savings plans, wellness programs, child care assistance, and education assistance.