What Fringe Benefits?

The main goal of most corporate fringe benefit schemes is to recruit, maintain, and empower skilled, capable workers. When rival companies provide equal base salaries, an employer who offers a more appealing compensation package frequently has an edge over other employers in recruiting and retaining skilled workers.

Common Examples Of Fringe Benefits

Fringe benefits are another type of financial reward commonly offered by organizations to attract, retain, and engage employees. These benefits are specified as indirect forms of total compensation.

Common fringe benefits include: 

• Gym memberships
• Health and wellness programs 
• Tuition coverage
• Additional Paid Time Off
• Opportunities to work remotely 
• Use of the corporate vehicle
• Childcare 
• Life insurance
• Dependent care
• Retirement planning
• Dependent care
• Accident and health benefits
• Employee discounts 

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Often, companies can provide these protections to employees at a cheaper rate than employees can obtain for themselves. However, these benefits largely depend on various external factors such as government policies and regulations.

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Fringe Benefits vs Traditional Compensation

Organizations give non-financial and financial benefits to employees around the world in an effort to recruit, retain, and engage them. The term "non-financial rewards" refers to all forms of organizational rewards that have no readily identifiable monetary value but are desired by employees. This includes employees feeling appreciated, moving up the job ladder, and job security. 

Any fringe benefits are included with gross earnings. In addition to base or incentive compensation, fringe benefits are part of an overall plan to incentivize workers. Ultimately, fringe benefits are intended to maintain (or improve) an employee's quality of life.

In contrast, traditional compensation usually involves rewards with monetary value and takes the form of direct financial rewards (for example, fixed and variable pay).

How Are Fringe Benefits Taxed?

Fringe benefits are taxed depending on the specific benefit, the laws of the country, and the circumstances under which the benefit was given. For example, in the US fringe benefits are generally taxable unless specifically exempted by the IRS. 

The IRS tax guide to fringe benefits stipulates that most fringe benefits are subject to income tax, social security, Medicare, and federal unemployment (FUTA) taxes. These include benefits like cash bonuses, personal use of a company car, and employer-provided housing. 

However, certain benefits such as health insurance, life insurance (up to $50,000 of coverage), retirement plan contributions, and minimal fringe benefits like occasional meals or small gifts, are typically exempt from taxation.‍

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Importance of Fringe Benefits

An employer can choose to provide fringe benefits in addition to mandatory benefits in an effort to attract, retain, and motivate employees. Providing fringe benefits to employees can act as  a motivating factor that helps to boost overall employee satisfaction

For example, a 2023 study from the Asian Journal of Business Environment found that some employees think that the fringe benefits can be a substitute for their main wages, and they are willing to receive more benefits in exchange for less basic pay.

In addition to this, the study found that paid time off contributes the most and has the largest positive impact on employee satisfaction. 

Employees are more at ease and less likely to get sidetracked from their professional obligations the more paid time off they receive. Moreover, benefits that support a balance between work and family life are the most significant for employees. 

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Fringe Benefits in a Nutshell

Fringe benefits are additional perks that employers provide to draw in and retain the most attractive talent. These benefits are generally not related to factors such as employee performance but are intended to improve workers’ quality of life. 

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Fringe Benefits FAQs

How Do Fringe Benefits Vary Between Industries Or Companies?

Fringe benefits can vary significantly between industries and companies due to the nature of the work, employee needs, competitive practices, and regulatory requirements. For example, some tech companies, particularly startups and large firms like Google and Meta, offer on-site amenities like gyms, cafes, childcare services, and even laundry facilities.

Are There Any Limitations Or Restrictions On The Amount Or Type Of Fringe Benefits Employers Can Offer?

Yes, there are several limitations and restrictions on the amount or type of fringe benefits employers can offer, particularly in terms of tax exemptions. The IRS has set specific guidelines for how much can be excluded from an employee’s taxable income, depending on the type of benefit. For example, Employers can offer up to $5,250 per year in educational assistance (covering tuition, fees, books, and supplies) without the amount being taxable.

What Are Exempt Fringe Benefits? 

In the U.S., exempt fringe benefits are specific benefits provided by employers that are excluded from an employee's taxable income.