What are Fringe Benefits: Example, Benefits and Taxation

Organizations have implemented a myriad of innovative measures to enhance employee engagement. One impactful approach is the strategic provision of "fringe benefits."

In fact, effective fringe benefits programs have emerged as a crucial determinant of an organization's ability to attract and retain talent.

What are Fringe Benefits?

Employee fringe benefits are the tangible or intangible perks that institutions provide their Workforce and their salaries. Companies also offer these benefits to compensate for any work-related expenses that the employees may bear.

Some common fringe benefits include health insurance, retirement plans, paid time off. It can also include perks like access to the company car, cell phones, in-house gyms, subsidized cafeteria plans and more.

Why are Fringe Benefits Important?

Gone are the days when a good salary was enough to impress employees. Nowadays, people are paying close attention to what companies offer beyond just the paycheck.

That's where fringe benefits come in. They're not just extras. They're a big deal.

In one of their recent articles, Forbes listed a couple of benefits of offering fringe benefits to employees. According to the article, some of the benefits of fringe benefits are:

• Attracting top talent
• Keeping employees motivated
• Improving loyalty and employee satisfaction
• Ensuring the good health of employees
• Reducing employee turnover

And we completely agree with these benefits.

So, let's understand these benefits a little better.

1. Attracting Top Talent

Fringe benefits can help draw in skilled professionals. Employees who are looking for comprehensive compensation packages.

2. Keeping Employees Motivated

Benefits like these make your employees feel supported in various aspects of their lives. They feel more driven to excel in their roles.

3. Improving Loyalty and Employee Satisfaction

Offering valuable perks shows employees that their well-being matters. It helps in building a stronger emotional connection to the company. A sense of belonging naturally leads to increased loyalty.

4. Ensuring the Good Health of Employees

Access to perks like health insurance and wellness programs is a game-changer for your employees. These benefits ease the burden of healthcare costs and help keep your team healthy and active. When employees feel secure in their health, they're more engaged and ready to give their best.

5. Reducing Employee Turnover

Your employees are less likely to leave if they feel well cared for.

Employees opting to stay longer means reduced turnover rates, which saves the company the time and cost of hiring and training new staff.

4 Types of Fringe Benefits with Examples

Fringe benefits is often classified into 4 types. These types are as follows:

1. Mandatory Benefits

The law requires mandatory fringe benefits. These benefits are designed to ensure employees have access to medical care, protect them from financial difficulties if they lose their jobs, and provide stable income during retirement.

Examples of Mandatory Fringe Benefits

• Health Insurance

• Unemployment Insurance

• Workers' or Employee Compensation

2. Voluntary Benefits

Voluntary benefits are not required by law. Employers offer them the overall compensation package and attract or retain talent.

These benefits provide additional value and can be tailored to meet the specific needs and preferences of employees.

Examples of Voluntary Benefits

• Life Insurance Coverage

• Retirement Plans

• Employee Assistance Programs (EAPs)

3. Cash Equivalents

Cash equivalent fringe benefits are non-cash perks that you can provide your employees. They have a specific monetary value.

Think of them as flexible rewards that employees can use, just like cash. Such benefits can offer your employees quick financial relief or added convenience.

Examples of Cash Equivalents

• Employee Stock Option Plans (ESOPs)

• Gift cards or Vouchers

• Reimbursements

4. Non-cash Benefits

Perks that don't have a direct monetary value are considered non-cash fringe benefits. These benefits don't appear on a paycheck, but they can significantly affect employees' feelings about their jobs.

Examples of Non-Cash Benefits

• Employee Food Allowance/ Meal Subscription

• Transportation Benefits

• Corporate Education Assistance

• Exclusive Employee Discounts Program

Top 10 Fringe Benefits for Your Workforce

While a competitive salary is important, smart employers know that a well-crafted benefits package can be the key to attracting top talent and keeping employees happy and productive.

So, here are the top 10 fring benefits for your workforce

1. Health Insurance

67% of employees and 68% of employers believe employer-covered healthcare to be the most crucial benefit.

Many employees and job seekers view it as one of the lucrative benefits attracting them to the organization.

Healthcare insurance offers employee’s financial protection against medical expenses. It covers costs for doctor visits, hospital stays, medications, and preventive care, which can otherwise be expensive.

Such benefits also reduce their stress about healthcare costs, allowing them to focus better on their work.

2. Unemployment Insurance

The Federal Unemployment Tax Act (FUTA) requires employers to pay both federal and state unemployment taxes to the Department of Labor. These taxes fund wages, training, and career guidance for employees who lose their jobs through no fault. The benefits provide short-term financial support to those who qualify under the act's guidelines.

3. Worker's or Employee's Compensation

Worker's compensation is a mandatory benefit administered by the Department of Labor. It provides financial support to injured or ill employees caused by their jobs.

Worker's compensation covers medical expenses related to the injury or illness. It also compensates for lost wages if the employee cannot work during recovery.

4. Life Insurance Coverage

Life insurance coverage is one of the most common fringe benefits employers provide their employees. This fringe benefit is a must for organizations requiring their employees to travel frequently or engage in hazardous work.

Life insurance cover gives an employee a sense of relief when he/she is on duty. Further, it'll also positively impact the employer-employee relationship which is the base of every successful organization.

5. Retirement Plans

77% of working Americans view retirement as the most essential.

Retirement plans have always been one of the top investment criteria for every employee. These plans carry the dreams and aspirations of employees that they want to pursue once they retire.

Employers can offer various retirement plans, with 401(k) plans being one of the most popular options.

401(k) allows employees to set aside part of their salary into a retirement account instead of receiving it in their paycheck right away. This money is invested in the employer's 401(k) plan. The funds in the account are generally not taxed until they are taken out, usually after the employee retires.

Here's what you need to know if you're considering establishing a 401(k) plan:

Flexibility: You can have other retirement plans alongside a 401(k).

Business Size: 401(k) plans are available to businesses of any size. Small startups to large corporations, all can avail it.

Compliance: You'll need to file a Form 5500 annually to meet regulatory requirements.

Customization: A 401(k) plan can be as simple or as complex as you prefer. It mostly depends on your business needs and goals.

6. Employee Assistance Programs

86% of the employees reported having a positive impact on their well-being after implementing EAPs.

If your employees are dealing with personal or work-related stress, consider offering them an Employee Assistance Program (EAP). EAPs offer confidential counseling and support services to employees.

These programs offer a safe space for employees to seek assistance with personal or work-related challenges. Assistance may range from stress management to other mental health concerns.

Programs like EAPs contribute to reducing absenteeism and workplace conflicts. Further, creating a more harmonious and productive work environment.

7. Employee Stock Option Plans

Employee Stock Ownership Plans (ESOPs) are an excellent addition to the fringe benefits you offer your employees. An ESOP gives employees a stake in the company by providing them with shares in the business, effectively turning them into partial owners. The underlying premise of assuring a prosperous future via hard effort resonates with ESOPs.

These plans encapsulate employees' aspirations, symbolizing their envisioned post-retirement endeavors.

Integrating ESOPs into your benefit structure will empower employees to align their efforts with the organization's. Such a benefit can also stand as a testament to your employee appreciation.

8. Exclusive Employee Discounts

Corporate employees are always on the potential watchlist of every major brand. These brands generally include names from lifestyle, automobile, healthcare, and other industries.

To nurture their consumer base amongst the corporations, they offer many employees-only deals and discounts.

Hence, giving your employees access to these privileges will not only help them save some of their hard-earned income but also improve their stature as employees of your organization.

Do Give a Read: A Complete Employee Benefits Guide: What Employers Need To Know

9. Corporate Education Assistance

A 2023 Linkedin report shows that 94% of employees would stay with a company longer if the organization invested in learning.

Many employees today want to keep growing and advancing in their careers. They often seek additional education to improve their job prospects. This can lead companies to lose valuable staff who might leave to pursue further studies.

However, offering tuition assistance is an effective way to retain these workers. You’ll be inspired to know that

According to SHRM, 48% of companies provide undergraduate or graduate tuition assistance programs.

So, it’s evident that many organizations are investing in their employees’ learning journey. Because they know, it’s no secret that when employers contribute to educational expenses, it helps employees develop in their roles. It also creates trust and encourages people to stay with the company.

10. Employee Food Allowance/ Meal Benefits

Meal benefits enhance employees' well-being and offer a practical and thoughtful addition to their compensation. They not only satiate hunger but also symbolize a tangible appreciation for their hard work.

Further, elevating their workplace experience and fostering a stronger bond between their efforts and the organization's growth.

Are Fringe Benefits Taxable?

Here the answer is “YES”!

Most of the fringe benefits may come under the domain of taxation based on the tax rules applied in your country of operation.

Like for taxable fringe benefits in the US, the receivers must mention the market value of the availed benefits in their taxable income of the year. And this must be done in accordance with IRS Publication 15-b.

But, there’s also a list of few tax-exempted fringe benefits that you can consider for curating a lucrative employee benefits program.

Final thought!

The function of fringe benefits in influencing the modern job landscape is critical. These additional benefits go beyond mere salary. They enrich the work environment and increase employee happiness.

From health insurance to flexible work arrangements, fringe perks demonstrate a company's commitment to the well-being and engagement of its workers.

FAQs

1. Are fringe benefits subject to FICA?

Yes, most fringe benefits are subject to FICA (Social Security and Medicare) taxes unless they are specifically exempt, such as specific health insurance benefits.

2. Is health insurance a fringe benefit?

Yes, health insurance provided by an employer is considered a fringe benefit. It is a non-cash benefit that offers employees coverage for medical expenses.

3. Is PTO a fringe benefit?

Yes, Paid Time Off (PTO), which includes vacation days, sick leave, and personal days, is considered a fringe benefit. It provides employees with paid leave for various personal or medical reasons.

4. Is vacation a fringe benefit?

Yes, vacation time is a type of fringe benefit. It allows employees to take paid time off for rest and relaxation.

5. Is a 401(k) match a fringe benefit?

Yes, an employer's 401(k) match is a fringe benefit. It involves the employer matching a portion of the employee's contributions to their retirement savings plan, providing additional financial security.

This article is written by Sanjeevani Saikia who is a Content Marketing Specialist at Vantage Circle. Esteemed for cultivating recognition and people-first cultures, Sanjeevani also hosts the Vantage Influencers Podcast, where she engages with global HR leaders to uncover critical industry insights. For any related queries, contact editor@vantagecircle.com.