Today’s job market is fiercely competitive. Attracting and retaining talent has never been more challenging. Be it the result of the Covid-19 pandemic or the ‘Great Resignation’ trend, top talent know their worth and require more than just a competitive salary. They seek meaningful perks that go beyond the standard paycheck. This is where employee fringe benefits come into the picture.
Employee fringe benefits refer to additional perks beyond monetary compensation that can boost employee retention, attract top talent, and build a positive company culture. They can transform your office into a magnetic workplace where the employees feel valued, satisfied, and motivated. Be it family medical leave and retirement plans or unconventional benefits like flexible work arrangements and gym memberships, these fringe benefits can make all the difference in employee satisfaction.
Let’s dive into the world of fringe benefits and uncover the hidden potential these benefits can have over your staff and company.
The Power of Employee Fringe Benefits in Your Company
In 2019, an organization surveyed 1000 UK employees regarding the importance of fringe benefits. A stark 66% rated their employee benefits as equal to or more important than their salary. In fact, 14% said they would like an increase in benefits over a pay rise.
It’s clear that certain employees don’t care only about compensation. They also value health benefits, tuition assistance, and robust pension plans in addition to a competitive salary. According to an employee happiness study, 92% of respondents reported fringe benefits as important to their job satisfaction. These employee benefits also report high self-reported levels of engagement and loyalty.
As such, if you strategically offer fringe benefits to your employees, it can enhance your company’s reputation as an employer of choice. In this post, we will discuss fringe benefits and their importance and which employee benefits should be your priority. Click on each of these topics to lean more!
- What are Employee Fringe Benefits?
- Why Do Employee Fringe Benefits Matter?
- What is the Difference Between Employee Benefits and Employee Fringe Benefits?
- How are Fringe Benefits Paid?
- 10 Employee Fringe Benefits Your Company Should Consider
What are Employee Fringe Benefits?
Employee fringe benefits are the non-monetary perks and advantages that employers offer to their employees beyond the regular salary or wages. It also does not include bonuses and other types of cash compensation. Their goal is to enhance the overall employee compensation package and improve the employee experience within the workplace. However, most fringe benefits are included in an employee’s gross income and are subject to income tax withholding and employment taxes.
Fringe benefits can be offered to support employees’ physical and mental well-being, to take care of their future needs, or to create a positive work environment. They span across several domains — health, wellness, retirement, work-life balance, and financial security. Since they are not required to be offered, they are also known as voluntary benefits. Moreover, it’s not crucial fringe benefits are offered to every employee. Employers can offer fringe benefits to all employees and certain benefits to a section of the workforce, like executives or independent contractors. Some of the most common examples of fringe benefits are commuter benefits like company cars, flexible work arrangements, discounted or free commercial flights, wellness programs, health insurance coverage, retirement benefits (such as 401(k) or pension plans), unemployment insurance, tickets to entertainment or sporting events, tuition assistance, and dependent care assistance.
DID YOU KNOW where the term ‘fringe benefit’ originated? Interestingly, the United States National War Labor Board came up with it during World War II. Around then, the economy was facing an absence of wage increases and a short labor supply. So the companies offered fringe benefits to lure employees to work for them during the war.
Why Do Employee Fringe Benefits Matter?
In today’s dynamic and competitive job market, fringe benefits are a game changer for not just employees but also for employers. If you’re wondering why employees offer fringe benefits, let’s have a look at their advantages:
1. Increased Productivity
Fringe benefits can really help motivate and engage employees. Imagine receiving achievement awards for your work performance or getting employee stock options as a part of your compensation package. Won’t you feel more valued and appreciated by your company? When employees feel their efforts are being rewarded, they are more likely to be engaged and productive in their workplace. A study by Benify suggests the same — employees most satisfied with their benefits estimate their level of engagement as 11.5% higher than the average.
2. Improved Morale
Happy employees make for a thriving workplace. Fringe benefits are great ways for employers to show their employees appreciation and care, which enhances company culture, employee satisfaction, and overall happiness. When employees feel seen and heard through certain fringe benefits, they work harder with more dedication.
3. Lower Employee Turnover
The study by Benify was published in the Employee Happiness Index 2019, revealing that employees most satisfied with their benefits were 21.5% more likely to see themselves as ambassadors for their employer.
Notably, employee turnover is a challenge for companies. It is a waste of resources in many aspects, costing businesses money, time, loss of expertise, and time spent on hiring and training new personnel. By providing fringe benefits that are relevant and beneficial to your employees, you can reduce employee turnover rates significantly. A fringe benefits package will keep them happy and satisfied, and they will be less likely to look for other job opportunities. As a result, you create a loyal and committed workforce.
4. A Magnet for Top Talent
As Sverker Walldal, Head of Total Rewards, Ericsson, Sweden, said, “Along with development opportunities, leadership, and wellbeing, attractive benefits are an important part of a strong employer brand.”By the next decade, Millennials and Generation Z will account for 58% of the global workforce. These employee groups don’t just want salaries — they want paid time off, robust retirement benefits, athletic facilities, and other optional fringe benefits. If you offer a comprehensive fringe benefits package, you’ll become an attractive employer in the market and have a competitive hiring edge. As a result, you create a highly talented and skilled team.
What is the Difference Between Employee Benefits and Employee Fringe Benefits?
While the terms “employee benefits” and “fringe benefits” might be used interchangeably, they do have a different meaning.
Employee benefits is an umbrella term for all the benefits an employer offers to its employees. Employee benefits beyond the regular wages or salaries enhance the overall compensation package. Most common examples include paid time off (such as vacation and sick leave), gift cards, tuition reimbursement, wellness programs, and employee assistance programs.Fringe benefits, on the other hand, are a part of employee benefits. They are one subset of the broad category of employee benefits and specifically include non-wage compensation. The most common fringe benefits are workers’ compensation, commuter benefits, athletic facilities, term life insurance coverage, medical leave, and other taxable and non-taxable benefits.
How are Fringe Benefits Paid?
Fringe benefits are not a part of employee salaries. The most popular examples of fringe benefits include accident and health benefits, such as health insurance, workers’ compensation, gym memberships, commuter benefits, or other employee benefits that boost employee satisfaction. Here’s how companies might offer fringe benefits:
Direct Fringe Benefit Payment
When employers directly cover the cost of fringe benefits on behalf of their employees, it may come in the form of direct fringe benefit payments. For example, if a company offers group-term life insurance as a fringe benefit, the employer will pay the premium to the insurance provider.
A Pre-tax Salary Deduction
Some employers offer employees the option to cover certain additional fringe benefits from their wages or salary. This fringe benefit arrangement provides employees with immediate tax advantages and long-term financial benefits.
Every fringe benefit has different tax implications. Let’s have a look at the employer’s tax guide and understand the applicable taxes on fringe benefits:
Taxable Fringe Benefits
Some fringe benefits that companies offer are taxable income for employees. In general, fringe benefits provided by employers are taxable and included in an employee’s gross income, unless the law specifically excludes them. The government charges a small part of your fringe benefit as taxes for federal income tax, social security, federal unemployment tax, and Medicare taxes.
Taxable fringe benefits require specific reporting and withholding requirements. Their fair market value should be disclosed in employees’ income for tax purposes and withhold the appropriate taxes.
Examples: Social Security or federal and state unemployment insurance.
Non Taxable Fringe Benefits
Certain benefits are not a part of employees’ income taxes and are exempted from their taxable income. The Internal Revenue Service (IRS) maintains a list called the Tax Guide to Fringe Benefits. This list has fringe benefits that are excluded from income taxes. Here are the top ones that are not taxable benefits:
- Accident and health benefits
- Achievement awards
- Adoption assistance
- Athletic facilities
- De minimis minimal benefits (small perks like free coffee)
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
- Group-term life insurance coverage
- Health savings accounts
- Lodging on business premises
- Employee meals
- No-additional-cost services
- Retirement planning services
- Transportation (commuting benefits)
- Tuition reimbursement
- Working condition benefits
10 Employee Fringe Benefits Your Company Should Consider
Fringe benefits are vital for new-age employees, especially Millennials and Gen Z. Whether fringe benefits are taxable or not, they increase employee satisfaction and retention, building a competitive and engaging work environment.
However, employers often wonder where to begin. Your company can offer an endless number of attractive fringe benefits. However, not all the fringe benefits examples would make a measurable difference or contribution in employees’ lives. Here are some of the top fringe benefit examples that matter most to employees:
1. Flexible Working Arrangements
Salesforce offers a “Work From Anywhere” policy. Google allows employees to work from various office locations. Microsoft has a “hybrid workplace” model. You see, all the big companies are bending their schedules to fit the unique needs of their employees.
Flexible work arrangements are one of the most in-demand fringe benefits. Be it remote working, work-from-home, flexible office hours, or compressed workweeks, employees want an out from the traditional 9-to-5 grind. 30% of respondents of a Deloitte study say it would increase their work productivity and morale. It is because the newfound flexibility offers a healthy work-life balance and empowers employees to bring their best selves to the table.
Moreover, flexible working offers benefits for both employees and employers. Most taxes depend on specific arrangements and local regulations. However, certain fringe benefits, like home office expenses, can be excluded from taxable income.
2. Health and Wellness Programs
Today, employees prioritize their holistic health and overall well-being and thus expect a high standard of healthcare benefits. Focusing on physical, mental, and emotional well-being boosts their work performance and results in better productivity. It is why companies are also on board with the idea of offering health benefits to their employees. Here’s a breakdown of the key health benefits you can offer to your workforce as fringe benefits.
Wellness Initiatives
If you want to empower your employees to make a positive health and lifestyle, wellness initiatives should be a must fringe benefit. Here are the most popular ones:
- Offer on-site fitness facilities or organize fitness challenges to motivate active lifestyles. Group exercise classes, yoga sessions, discounted gym memberships, or access to personal trainers are also effective fitness programs.
- Health education on nutrition, stress management, mindfulness, and disease prevention is crucial for employees to indulge in self-care.
- Mental health support via counseling services, therapy sessions, or employee assistance programs (EAPs).
Engagement-building activities like step challenges, weight loss competitions, or mindfulness challenges boost motivation. You can also reward employees with gift cards, paid time off, or other health resources for completing goals.
Health Savings Accounts
Health Savings Accounts (HSAs) are a non taxable fringe benefit that provides employees more control and flexibility over their healthcare expenses. Employees can set aside a fixed amount of money in their tax-advantaged account and use it for qualified medical expenses, such as medical, dental, and vision care and prescription drugs.
Archer Medical Savings Accounts
Archer Medical Savings Accounts (AMSAs) are also a non taxable fringe benefit where both employees and employers can contribute to the tax-advantaged savings account to cover the employees’ medical expenses. These are particularly to help individuals with high-deductible health plans (HDHPs).
Dependent Care Assistance
Dependent care assistance, as the name suggests, is a fringe benefit that helps employees with financial care for their dependents. These funds are exempt from federal income tax.
This program is for employees who have dependents requiring care when they are working. So dependent care assistance is eligible for employees with children under a certain age or individuals with assistance-requiring disabilities. It generally includes expenses related to child daycare, preschool, after-school programs, or care for individuals with special needs.
Family and Medical Leave Act (FMLA)
The Family and Medical Leave Act (FMLA) is a federal law in the United States. If your company adheres to the Family and Medical Leave Act, employees are eligible for job-protected leave for certain family, health, and medical reasons. It allows employees to handle their family and health-related matters without the fear of losing their jobs.
The general duration of leave under the Family and Medical Leave Act is 12 weeks for 12 months. The reason may include birth or care for a newborn or adoption of a child, care for a seriously ill family member, or dealing with one’s serious health condition.
3. Health Insurance
Health insurance is not one of the optional fringe benefits. It is an essential fringe benefit whose absence will hurt your employer’s brand. You see – if you don’t provide health insurance, employees are likely to see you as an employer that doesn’t care about the well-being of its employees and their families. So offering comprehensive health and life insurance is the notion today.
Offering comprehensive health insurance, including group term life insurance, ensures employees, the employee’s spouse, and their families get access to quality healthcare without taking a financial hit.
While health and life insurance is a taxable fringe benefit and is subject to federal income tax and Federal Insurance Contributions Act (FICA) taxes. However, health insurance becomes a valuable tax advantage for employees when the employer offers it.
However, health insurance becomes a valuable tax advantage for employees when the employer offers it.
4. Retirement Benefits
If you want to offer financial security to your workforce, retirement benefits stand out as one of the vital fringe benefits. Retirement planning services help employees plan their long-term financial well-being.
Employees highly value pensions and retirement plans like 401(k) plans. In a survey of 1,000 UK employees, 44% stated pension schemes as one of their top five most desired workplace employee benefits. However, retirement benefits go well beyond that. If you wish to stand out as a recruiter, offer retirement planning services, investment options, and valuable resources. It would help employees make informed decisions about their financial future.
5. Workers Compensation
According to the International Labour Organization, 2.3 million women and men succumb to work-related accidents or diseases. Employers offer workers compensation to ensure employees receive medical care and compensation for lost wages due to accidental or occupational injuries.
Workers’ compensation is a crucial fringe benefit that offers financial protection to employees in case of a work-related injury. It provides wage replacement benefits and covers expenses like doctor visits, hospitalization, medication, and rehabilitation services. Workers’ compensation offers peace of mind to employees and serves as a safety net for them.
6. Tuition Assistance
According to the Benify Employee Happiness Index 2019, skills development is the top third most appreciated fringe benefit appreciated among all generations. If you’re wondering why, it’s simple — employees know continuous learning is the way to unlock their full potential.
Let’s suppose your employee wants to advance his career or explore a passion project. However, finances are a roadblock. With your tuition assistance fringe benefit, he can earn an advanced degree, enroll in professional development courses, or obtain industry certifications. And the advancement in skills would make your employee an asset to your company. So it won’t be just a fringe benefit — it will be an investment in the future of our company.
7. Adoption Assistance
Adoption assistance is one of the examples of fringe benefits that goes beyond monetary fringe benefits. It showcases that your company supports employees during the emotional journey of child adoption.
Companies like Citizens Bank and Snapchat stand out as employers for their generous adoption fringe benefits. While Citizens Bank offers $23,000 in financial support and one week of paid leave for all employees who adopt, Snapchat offers 12 weeks of paid adoption leave with an adoption reimbursement package.
Adoption assistance as a fringe benefit is exempt from federal income tax withholding. According to the Internal Revenue Service (IRS), adoption assistance is one of the non-taxable fringe benefits under the set limit.
8. Employee Stock Options
Imagine — you have a stake in the company you work for and get a share in the company’s success and growth. The sense of ownership would motivate you to put your best foot forward at work and boost your productivity. It is what employee stock options do.
Offering employee stock options is one of the best fringe benefits, as it allows employees to be an integral part of the company’s journey. Employees get shares at a predetermined price and get to leverage the benefit from its value appreciation over time.
Employee stock options create a sense of shared success. It is one of the easiest ways to align employees’ interests with those of the company.
9. Commuter Benefits
The daily commute to work is often a headache for employees. Be it the inconvenience of travel or financial burden, a negative travel experience begins the work day on the wrong note, affecting employees’ productivity.
If you want to make the daily travel of your employees more convenient, affordable, and enjoyable, offer commuter benefits as a fringe benefit. You can offer your employees subsidized public transportation passes for buses, trains, or subways. Or you can offer shuttle services for a comfortable commute with colleagues. Some companies also offer a business vehicle as a fringe benefit to employees.
10. Achievement Awards
Employees feel motivated when they get recognized for their performance, contributions, and milestones. If you want to acknowledge your team’s accomplishments, you should include achievement awards in your fringe benefits package. They can include tangible personal property, such as plaques, trophies, or gift items, and intangible awards, like vacation trips.
Achievement awards can be taxable fringe benefits. However, the fair market value of the award determines its taxability. Moreover, if the award is tangible personal property, it is generally taxable.
Another exception is qualified plan awards. According to the Internal Revenue Service (IRS), if the achievement award meets specific criteria to be a qualified plan award, it won’t come under the fringe benefits taxable group. Examples of fringe benefits may include a meaningful recognition program or an award having a limited value.
Closing Thoughts
A comprehensive mix of fringe benefits with and without tax implications can help you attract and retain top talent while fostering a positive office environment. Start with understanding your employees’ needs and preferences, conduct surveys, get feedback, and create tailored benefits plans.
If you are struggling with providing fringe benefits that align with your company’s values and support your employees’ holistic well-being, we at Incentfit can help. We are a leading choice in crafting customized employee benefit plans to create a thriving and fulfilled workforce. Book a call with one of our benefits experts today.
