Fringe Benefits are the additional benefits a company provides an employee aside from their regular salary. In simple words, it can also be called common employee benefits.
Employers also provide fringe benefits for a worker’s hard work and job satisfaction.
There are many types of fringe benefits that are given to employees in various ways. Some can be given to all employees, while others are given to only the top executives.
However, an employer utilizes fringe benefits to assist with employee performance, skills development, motivation, and recruitment of top talent.
What are the Advantages of Providing Fringe Benefits?
It is vital for a company to hold onto its skilled and talented employees. Fringe benefits give companies a chance to do precisely that.
Here are some other advantages for a company offering Fringe Benefits:
Fringe Benefits can attract top-valued and talented employees. It helps the company stand out among its competitors by providing these benefits that attract many potential candidates.
Fringe Benefits help increase employee satisfaction and employee loyalty. Offering “Fringe Benefits” shows that a company cares about the employees and appreciates their hard work.
A workplace can become demotivating when an employee feels underpaid. So fringe benefits help to motivate the employees by making them feel valued again and giving them extra incentives to work.
By offering health-related fringe benefits, employers can ensure the good health of the employees. It helps keep up the productivity level and ensures the business runs smoothly.
Negative employee turnover can occur due to poor management skills and underpaid employees. However, providing appropriate fringe benefits for employees' performance can keep them satisfied and working in the company.
When a company offers fringe benefits that include paid holidays, it decreases the chances of employee burnout. Employee burnout can impact a company negatively; fringe benefits ensure it does not happen.
Fringe benefits that provide educational support help employees develop their existing and new skills. It creates a more robust workforce, and the company can avoid hiring new people with additional costs.
What are the Categories of Fringe Benefits?
There are primarily two categories of Fringe Benefits. One is mandated by the law and must be provided, and another is optional. Many benefits fall into these two categories, and it is important to know about them.
1. Legally Required Benefits
The following fringe benefits are mandatory for employers to provide under various federal and state laws.
(a) Unemployment Insurance
According to the Federal Unemployment Tax Act (FUTA), all employers must pay the Department of Labor a mandatory federal and state unemployment tax. The government uses this tax to support people who become unemployed and are left without an income. However, the government only provides temporary assistance to eligible unemployed people.
(b) Medical Assistance and Leave
The Patient Protection and Affordable Care Act (ACA) states that employers with over 50 employees must offer healthcare coverage and insurance.
The healthcare plans should include primary physician care, specialist doctor care, and emergency care.
Employees will also have the opportunity to take unpaid medical leaves for up to 12 weeks in an organization with over 50 workers. However, only employees with a year of working experience in an organization will be eligible for the medical leave.
(c) Employee’s Compensation
The Department of Labor assists employees with workers' compensation benefits when they are injured in the workplace or catch a disease there. These benefits include offering medical care, rehabilitation, wage replacement, etc.
The benefits can vary statewide, and employees must check with their state worker’s compensation board for assistance.
2. Optional Employer-Provided Benefits
Employers offer the following benefits at their will, some of which are taxable.
Paid Time Off (PTO)
Fitness Training Sessions
Employee Stock Ownership Plan (ESOP)
These are a handful of benefits that employers commonly offer.
Can Fringe Benefits be Taxed?
Yes, some fringe benefits fall in the Internal Revenue Service (IRS) taxable category. The department maintains a “Tax Guide to Fringe Benefits,” which lists all the taxable and non-taxable fringe benefits.
It is essential to get a clear idea of some of the exempted fringe benefits.
Dependent Care Assistance
Accidents and Health Benefits
Gym Membership or Athletic Facilities
Employee Stock Options
Retirement Planning Services
Achievement Awards (Can be non-exempt)
Company Cell Phones
Health Savings Account (HSA)
Working Condition Benefits
Lodging for Business Purposes
How Do Achievement Awards of an Employee Become Non-Exempt from Tax?
An achievement award is primarily an exempted form of Fringe Benefit, but it can become non-exempt from tax if it falls within specific criteria.
Achievement Awards will become taxable when:
Qualified Plan Awards are more than $1,600, and Non-Qualified Plan Awards are more than $400.
Given in the form of cash or cash equivalents, such as gift cards or certificates.
Given in the form of bonds, stocks, etc.
Given in the form of meals, accommodation, tickets, vacations, leaves, etc.
However, any physical gift, like a wristwatch, clothing, shoes, purse, electronic appliance, etc., will not be counted as taxable and the achievement award will still remain exempted from tax.
How Does a Cafeteria Plan Work?
A Cafeteria Plan is a collection of Fringe Benefits offered to an employee at the beginning of joining the company. It allows workers to pick their own fringe benefits according to their preferences.