What are Fringe Benefits
According to Forbes, Fringe benefits are extra remuneration offered on top of a regular income. While some fringe benefits are available to all employees, others are restricted to specific employee groups. For instance, paid time off for employees often varies in direct proportion to their length of employment.
While some benefits, like health and life insurance, are exempt from taxation, most fringe benefits are taxable at fair market value.
Fringe benefits examples
Benefits that are a necessity
The following are some extra perks that you must typically give to your staff:
Health Insurance: According to the ACA, you are not required to offer health insurance if you have fewer than 50 full-time employees. However, since individual medical coverage can be pricey and employees expect their employer to pay for it, you might consider offering it as a fringe benefit to all your employees.
Workers' compensation: Workers' compensation is insurance that covers lost wages, medical expenses and rehabilitation costs for employees who have fallen sick or gotten injured on the job. It also includes death benefits to the next of kin of employees killed on the job. Most businesses with employees are required to have workers' compensation insurance.
Family and Medical Leave: Under the Family and Medical Leave Act (FMLA), companies must grant employees up to 12 weeks of unpaid leave of absence to care for a newborn or a family member with a significant medical condition. During this time, group health benefits are still available.
Related: How to Apply for FMLA
Choice-Based Fringe Benefits
You can also decide to offer the following extra fringe benefits:
Plans for Retirement: You can set up a 401k plan that enables your employees to begin contributing to their retirement accounts through payroll deductions. Because any matching donations you make are tax-deductible, this also offers advantages for your company.
Paid Vacation: You can provide your staff with the option of taking paid time off (PTO) from work to attend to medical emergencies or to take a trip to relax. Paid time off depends exclusively on the agreement between you and your employee because it is not required by the FLSA.
Gym memberships: Giving employees access to a gym is a simple way to show that you care about their health and well-being.
Meal subsidy: If your plans are financially feasible, you could open an on-site cafeteria. If not, you can offer coupons or vouchers that can be redeemed at nearby restaurants.
Benefits for Commuting: Companies may offer their staff tax-free transportation benefits following IRS regulations. Public transportation, vanpooling, biking, and parking are all forms of transportation covered by these benefits.
ESOPs: Employee Stock Ownership Plans You may draw in qualified candidates by allocating stock ownership to employees according to their pay grade, level of responsibility, and range of duties. When establishing the guidelines for distributing ESOPs, you must engage your legal, finance, and accounting teams.
How to calculate the rate of fringe benefits
The cost of an employee's fringe benefits for the year, including payroll taxes paid, must be added up and divided by the employee's yearly wage or salary to get the employee's fringe benefit rate. To determine the percentage of the fringe benefit rate, multiply the sum by 100.
The formula below should be used to determine an employee's fringe benefit rate.
Fringe Benefit Rate = (Total Fringe Benefits / Annual Wages) X 100
According to the Bureau of Labor Statistics, the average fringe benefit rate (benefit costs) is 30%.
Advantages of Fringe Benefits
If employers offer top-notch benefits packages, workers feel appreciated. Offering your staff fringe benefits has several advantages, including the following:
Bring in excellent talent. Offering generous fringe benefits can aid in luring talented and qualified job prospects.
Maintain staff motivation. Giving staff perks increases their sense of worth, which helps keep them motivated and extremely productive.
Boost employee happiness and loyalty. Fringe perks show your staff that you value them, which raises morale and increases loyalty.
Ensure the workers' health. Businesses suffer when workers are unable to work because of illness or accidents. Offering benefits that promote excellent employee health makes sense, therefore.
Lower employee churn. Employees are less likely to leave an organization if they feel appreciated and are happy with their work and pay.
Fringe Benefits: Are They Taxable?
According to the Employer's Tax Guide to Fringe Benefits, all fringe benefits are implicitly taxable unless they are specifically exempt from taxation. The employee must include the benefits' fair market value in their taxable income for the relevant year. A fringe benefit's market price on the open market represents its fair price.
A list of fringe benefits not subject to taxation is kept on file by the IRS Publication 15-B. These are: Accident and health benefits, achievement awards, adoption assistance, athletic facilities, de minimis (minimal) benefits, dependent care assistance, educational assistance, employee discounts, employee stock options, employer-provided cellphones, group-term life insurance coverage, health savings accounts (HSAs), lodging on your business premises, meals, no-additional-cost services, retirement planning services, transportation (commuting) benefits, tuition reduction and working conditions benefits.
These are subject to several restrictions and regulations; therefore, they are not entirely exempt. Before making any decisions, you should seek legal advice from an experienced attorney.
Why Do Companies Give Fringe Benefits?
Many businesses provide a mix of frequent and unusual fringe benefits to:
Recruit new employees. You have a better chance of luring top talent to your company when you provide perks that a rival does not.
Keep the present workforce content. Fringe benefits can improve work-life balance, raise morale, and encourage people to stick around.
Establish a path for career progression. Some benefits, such as on-the-job training and tuition reimbursement, might help your employees develop new abilities and get promoted within the company.
Others can assist in decreasing unhappiness, though corporations often offer fringe benefits to boost employee satisfaction.
For instance, since most employees consider health insurance a necessity, offering it as a benefit won't always lead to higher employee happiness; rather, it will shield your staff from the displeasure they would otherwise experience if your company did not offer health insurance.
Fringe benefits are vital in attracting and retaining employees in today's competitive job market. These additional perks, such as health insurance, retirement plans, and flexible work arrangements, go beyond the traditional salary package and contribute to employee satisfaction and well-being. By offering a comprehensive range of fringe benefits, employers can create a positive work environment that fosters loyalty, productivity, and organizational success. Employers must understand the value of these benefits and continuously adapt them to meet the evolving needs of their workforce.