Fringe Benefits Examples
Are you looking for fringe benefits examples? You are in the right place then.
Fringe benefits are fundamental organizational programs that boost the productivity and motivation of employees. You can offer several types of compensation to introduce and retain the top talent in your organization. The Internal Revenue Service (IRS) considers fringe benefits taxable income in most cases.
If you are on your way to providing fringe benefits to your employees, learning about fringe benefits examples will give you a better understanding of the entire concept. This article describes fringe benefits and their examples to understand how to use them to your company’s advantage.
As an employer, learning about various fringe benefits, their types, and how you can offer such benefits to your employees helps you design a better employee benefits package. You must learn about fringe benefits to understand how these perks impact your business’s budget and employment taxes.
Fringe Benefits Examples
Fringe benefits are compensation or perks offered to an employee in addition to their regular salary. These are extra employee benefits and are not a part of the employee’s regular salary. Offering fringe benefits is an excellent way to appreciate your employee’s contribution and loyalty to the company.
Fringe benefits are an effective tool to engage your employees in various business operations. They are a great way to show your employees that you appreciate their contributions to the company. These plans also assist in the retention of staff and boosting employee engagement.
The concept of fringe benefits came into existence at the time of World War II because of the government-imposed wage controls at the time. Since companies had no choice other than cutting back on employee hours and pay, they sought alternative ways to attract and retain employees by offering benefits, like health insurance, paid leave, and commuter benefits.
The trend continued and expanded post-war, and companies began to offer more diverse benefits at a time when the labor movement was advocating for better working conditions and compensation packages.
Fringe benefits are of two types: monetary and non-monetary.
Monetary fringe benefits include health insurance, vacation pay, and retirement plans.
Non-monetary fringe benefits include company cars, lodging on your business premises, free tickets, employee stock options, and gym memberships.
Here are some common examples of fringe benefits that help employers offer excellent employee benefit plans:
1. Taxable Fringe Benefits
As an employer, you must know that certain fringe benefits are taxable. Taxable benefits are a part of the employee’s gross income. A few other benefits, or uncommon fringe benefits, are subject to taxable income and medicare taxes.
After finding out how to calculate fringe benefits, report these benefits on your wage and tax statement, known as Form W-2. For calculating federal income tax withholding, you must have the fair market value of the fringe benefit. Here are the most popular examples of fringe benefits:
- Bonuses – Bonuses are one-time payments employees receive in addition to their regular salary or wages. These are given as an extra employee benefit and are not a part of the employee’s regular salary. They show employees that the company appreciates their work contributions.
- Paid Vacations – Employees use paid vacation days for purposes, such as leisure, travel, or personal errands. Paid vacations improve employee health and their work-life balance. It is a type of paid time off where the employee is given a set number of days off from work each year. The number of days off depends on the company’s policy and the employee’s years of service.
- Travel Subsidies – Companies offer fringe benefits for travel costs, including public transportation, parking charges, or mileage reimbursement for workers using their vehicles for work. Some other commuter benefits include covering expenses incurred during work-related travel (flight costs or accommodation).
- Athletic Club Membership – Athletic club membership is another taxable fringe benefit that allows employees to use the facilities of an athletic club at a discounted rate. This benefit improves the health and well-being of your employees. It helps them relieve stress, improves their work-life balance, and increases productivity.
- Health Resort Expenses – If you want to cover health resort expenses for your employee, you can reimburse them for their costs while staying at a health resort. Health resorts offer various health and wellness services, such as massages, fitness classes, and spa treatments. Though covering health resort expenses is expensive, it generates positive effects on your employees’ physical and mental health.
- Housing Allowances – If you offer a housing allowance to your employees, you can reimburse them for their costs while renting or buying a house. This benefit helps employees save money on housing costs. It also helps them find a comfortable and affordable place to live.
2. Non-Taxable Fringe Benefits
Not all fringe benefits are taxable. Companies also offer non-taxable fringe benefits. These benefits exclude from employees’ gross income and are not subject to income tax withholding, social security, and medicare taxes.
Examples of nontaxable fringe benefits are adoption assistance, retirement planning services, child care, commuter assistance, educational assistance, and employee discounts. Flexible spending accounts, health savings accounts, employer-provided cell phones, and group-term life insurance coverage are also considered non-taxable fringe benefits.
Here are a few common tax-free fringe benefits.
- Tuition Reimbursement – Educational assistance enables employees to get expense reimbursements for their educational expenses. This type of fringe benefit is non-taxable and helps employees enhance their skills and knowledge. Tuition reimbursement supports employees’ continued education and professional development by covering the expense of educational programs related to the employee’s job or career advancement within the company.
- Employee Discounts – Employee discounts are a great way to increase employee satisfaction. Discounts allow employees to purchase goods and services at a discounted price from your company. Discounts on goods and services include items and perks from clothing to travel.
- Accident and Health Benefits – In addition to health insurance, accident and health benefits cover the employee’s cost of accidental and medical healthcare expenses. These types of fringe benefits include health savings accounts that you provide to your employees. Examples of accident and health benefits are dental, eye care, prescription drugs, and archer medical savings accounts.
- Retirement Plans – Retirement plans include 401(k) plans and pension plans as fringe benefits. These plans relieve employees of the financial burden of retirement. It also allows them to save for their retirement.
- Group-Term Life Insurance – Group-term life insurance provides life insurance coverage to employees. Companies offer different policies with different coverage amounts. Employers decide the amount of coverage that will cover employees’ expenses.
3. Legally Required Fringe Benefits
Some fringe benefits are required by law. Legally required benefits depend on the country you live in, the size of your company, and the number of employees. Some examples of legally required fringe benefits are unemployment insurance, workers’ compensation, family and medical leave, and social security.
Review your country’s labor laws to learn about this type of fringe benefit. Consult with a lawyer to ensure that you provide the legally required benefits to your employees. You must get assistance from benefits professionals to ensure that you provide the legally required benefits.
Here is a brief description of some legally required fringe benefits:
- Health Insurance – Companies provide health insurance to employees who get injured or ill due to their jobs. It covers self-insurance and state-run insurance. Self-insurance helps injured or sick employees pay their medical bills and covers a portion of their lost salaries, whereas state-run insurance covers all businesses in the state and compensates injured and ill employees as a result of their jobs.
- Unemployment Insurance – This fringe benefit involves contributions from employers through payroll taxes. The unemployment insurance program is beneficial for employees who lose their jobs. With this benefit plan, employees cover their living expenses while looking for a new job. Both part-time and full-time employees can leverage this plan.
- Parental Leave – This fringe benefit covers employees who need vacations from work to care for a family member or their medical condition. The Family and Medical Leave Act (FMLA) requires employers to provide employees with 12 weeks of unpaid leave per year. For private-sector employers, the company must cover at least 50 employees by this act.
- Life and Disability Insurance – This type of insurance provides benefits to employees who cannot work because of a disability. It offers half of the employee’s salary for a certain period. The structure of disability insurance is much like that of medical insurance. Employees can pay for the coverage with their own money, or the employer can pay for the insurance.
- Social Security and Medicare – Social Security and Medicare are for disabled or retired workers. The employer and employees contribute to these programs through payroll taxes. Employers must withhold 6.2% of employees’ wages for Social Security taxes and 1.45% of employees’ salaries for medicare taxes.
Remarks
Fringe benefits are a great way to compensate your employees and boost their morale and energy for work. They help boost employee productivity which benefits the organization’s growth. Know that offering fringe benefits is a challenging task.
There are several advantages and disadvantages of fringe benefits that you must research well before drafting the benefits plan. However, you can avoid the risks by implementing the program in a step-by-step way keeping in view the state labor rules, the organization’s policies, and target goals.
FAQs
Here are the most frequently asked questions and answers related to fringe benefits examples:
What is meant by a fringe benefit?
Fringe benefits are additional compensation packages companies give their employees in addition to regular pay. Employee fringe benefits help employers increase employee satisfaction. While some fringe benefits are for all employees, other benefits are just for eligible employees. A few of them are non-taxable fringe benefits, whereas tax applies to other benefits at fair market value.
What are some of the most common examples of fringe benefits?
Some of the most common fringe benefits include health insurance, retirement plans, paid time off (PTO), family and medical leave, disability insurance, tuition reimbursement, flexible working arrangements, commuter benefits, employee benefits, profit sharing, relocation assistance, gym memberships, athletic facilities, adoption assistance, dependent care assistance, and employee recognition programs.
How to calculate fringe benefits?
To calculate fringe benefits, you must see how much more a company pays employees other than their base salaries. Use a simple formula of adding up the annual cost of the employee’s fringe benefits, including payroll taxes, divide this amount by the employee’s salary for the year, and multiply it by 100. This gives you the fringe benefits rate percentage for an employee.
How do fringe benefits affect employee performance?
Fringe benefits have a positive effect on employee performance as they provide employees with lifestyle benefits and a level of security for them and their families. These are rewards that motivate the workforce to increase their work output expectations. Offering desirable job facilities, such as fringe benefits, help companies increase employee satisfaction and boost morale.
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