12 Examples of Fringe Benefits & How They Work [Full Guide]
January 12, 2024
Fringe benefits are a separate form of compensation that employers give their employees in exchange for completing specific tasks or fulfilling their job role.
Employers and employees need to understand how fringe benefits work and why they can aid in improving employee morale and employer-employee relations in the long run.
If you’re eager to know the meaning or definition of fringe benefits, as well as their advantages and variations, this article is just the reference you need!
- Fringe benefits are perks given to employees on top of their regular income to reward their performance in the company or boost their morale and motivation.
- Some fringe benefits, such as healthcare and educational assistance, are required by law. Other benefits are more specific to the company’s work culture and dynamics.
- Taxable fringe benefits follow the benefit’s fair market value. Tax-exempt benefits include accident assistance, dependent care assistance, FSAs, and group-term life insurance.
- Freelancers and workers hired for temporary work do not benefit from fringe benefits.
What Are Fringe Benefits & How Do They Work?
Fringe, or voluntary, benefits are payments given to employees aside from their regular income. They can be monetary or non-monetary.
Granting fringe benefits varies depending on whether they are given as a reward, part and parcel of an employee’s job role, or as an additional perk corresponding to the employee’s tenure and position in the company.
Healthcare, educational assistance, and hospital treatment are usually included in the employee’s compensation package and are regarded as mandatory benefits.
Complementary meals and drinks, employee discounts, recreational areas in the office, travel allowance, and the use of the company vehicle are benefits that go hand in hand with the employees’ nature of work and job performance.
There are also fringe benefits that are more specific to the company. For instance, for salaried employees, Netflix offers unlimited and fully paid parental leave. Google provides free food, cooking classes, and massage therapists.
To top it off, Google also offers a death benefit worth 50% of their deceased employee’s salary to the surviving partner or spouse. Finally, Campbell Soup Company covers 100% of healthcare for their employees while providing healthy meal options and free flu shots.
Benefits vs. Fringe Benefits
The main difference between regular and fringe benefits is that the former refers to the fundamental and universal benefits that adhere to the employees’ basic needs. These employee benefits include health insurance coverage and retirement plans.
Fringe benefits are akin to additional perks given to employees to motivate or reward them.
You might be wondering whether fringe benefits are deducted from employee paychecks.
Some fringe benefits, such as healthcare and retirement plan coverage, are deducted from the employees’ salaries. Other types of fringe benefits are either partially deductible or tax-free and are used by employers to reduce the amount of taxes they owe.
Are Fringe Benefits Taxable?
Most fringe benefits, from the IRS’ perspective, are taxable. It all boils down to the value of the benefits and the type of perks the employers offer. For instance, healthcare-related benefits are usually categorized as pretax earnings.
Also, the IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, specifies that only the fringe benefits deliberately exempted by tax law are exempted from taxation.
Examples of tax-exempt benefits include:
- Achievement awards
- Accident benefits
- Adoption assistance
- Athletic facilities
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Flexible Spending Accounts (FSA)
- Group-term Life Insurance
- Lodging within the company’s location or premises
- Meals and drinks
- Retirement planning services
- Transportation or commuting benefits
- Tuition Reduction
- Working-condition benefits
Meanwhile, employees must include all taxable fringe benefits they receive within the year in their taxable income. The IRS follows the benefit’s fair market value in determining the fringe benefits tax rates.
Non-tax-exempt fringe benefits are also reported in the employees’ W-2 forms.
Why do Companies Offer Fringe Benefits?
Companies offer fringe benefits mainly because they effectively increase employee satisfaction and retention.
Providing fringe benefits benefits both employers and employees, as demonstrated by the following advantages:
- Boost employee morale. The importance of fringe benefits lies in making employees feel valued and acknowledged. By providing workers with additional perks, either in the form of fringe benefits insurance, discounts, or travel allowances, they are motivated to continue performing their job well and even strive to exceed company expectations.
- Attract new talent. Job applicants often check and compare the benefits offered by each potential employer. Providing a list of benefits potential new talents find helpful and enjoyable is one way to entice them to apply and join the company.
- Regulate employer’s taxes. Businesses also take advantage of some tax-exempt fringe benefits to reduce their taxes. Mainly, small business owners will benefit from more tax write-off opportunities to save on taxes and manage their operational expenses.
- Enhance workplace atmosphere. Companies that take extra care in ensuring they cater to the needs and demands and the tasks assigned to their staff observe a positive outcome in their work environment. After all, ensuring a safe and fulfilling workplace should prevail if employers expect stellar and consistent performance from their workers.
- Minimize employee turnover. Healthcare, gym memberships, self-care days, and additional paid time off are benefits that highlight work-life balance for employees. These programs effectively encourage workers to value their personal development and feel more compelled to support and stick with the company for the long haul.
- Improve the company’s image. Customers love supporting businesses that clearly and consistently prioritize their employees’ well-being. Investors and potential business partners are also more likely to do business with a company that understands the importance of investing in its workforce.
12 Examples of Fringe Benefits
There are various examples of fringe benefits, and employers can offer more than one type of benefit depending on their budget and conditions for providing perks and benefits to their employees for working for their company.
Below are some of the most commonly provided fringe benefits:
#1. Unlimited Time Off
This type of benefit is meant to boost productivity at work by providing employees with more opportunities for work-life balance.
Unlimited PTO gives employees more flexibility in using the said benefit as they see fit. In contrast, a fixed and limited number of days for their paid time off makes employees more careful not to use their days off so thoughtlessly.
Not all PTO is used for vacation, though. In some instances, employees have to deal with emergencies in the family, while others have to take extra time off from work to recover from an illness.
On the other hand, the challenge in successfully implementing unlimited PTO lies in employers finding a way to maintain productivity and consistently meet work deliverables despite the promise of limitless paid leaves.
#2. Educational Assistance
Educational assistance is designed to help fresh graduates pay off their tuition fees, educational expenses, and student debt. Employers offer this benefit to entice college graduates to apply.
Aside from fresh graduates, employees who are continuing educational courses and attending conferences, seminars, and training programs also qualify for academic assistance.
Some companies cover a specific percentage of their employees’ student debt or tuition expenses. In some instances, employers reimburse their employees’ educational costs.
Providing meals to employees, either free snacks and drinks or complimentary breakfast, lunch, and dinner, is one of the most common forms of fringe benefits. Companies that offer this benefit have in-house chefs and caterers who prepare the food for the employees.
Free meals enable employees to save time and reduce their daily expenses since they do not have to get food from nearby restaurants. It is also worth noting that offering meals to employees entails catering to different food preferences and addressing possible allergies that employees may have to certain ingredients and spices.
#4. Employee Discounts
Employee discounts, also called qualified employee discounts, are special price reductions on the company’s services and products. Often, the dependents and spouses of employees are also covered by the discount.
Alternatively, employees working for organizations or clubs get discounted membership fees. Employers give discounted prices to their employees either as an incentive or a reward for boosting the company’s sales.
#5. Employee Stock Options
Employee stock options enable employees to own company equity and potentially aid in improving the employees’ financial security.
Depending on the business’s success trajectory, these stocks can increase in value and effectively keep employees motivated to meet the company’s performance metrics.
#6. Retirement Plan Contributions
The most common examples of retirement plan contributions are the Simple IRA, 401(k), 403(b), and 457 plans.
Simple IRA plans, or Savings Incentive Match Plan for Employees, represent a type of individual retirement account typically offered by small businesses.
The said plan allows employers and employees to contribute, wherein employers can match up to 3% of their employees’ contributions or contribute 2% of the non-collective contribution for each employee.
Meanwhile, 401(k) plans are known for their flexible and low-cost setup and for opening tax incentive opportunities for employers.
Finally, 457 retirement plans are designed for non-profit organizations and government employees, while 403(b) plans are exclusively for public school employees and tax-exempt associations.
#7. Paid Sick Days
This is a common type of fringe benefit that lets employees take a specific number of days off when they are not feeling well. Some employers offer paid sick days on top of their employees’ fixed PTO or paid leave.
If employees do not use their paid sick leaves within the year, the company allows them to monetize their unused time off or add them to their paid sick days for the following year.
#8. Company Car Allowance
Company car allowances are usually given to employees whose work entails constant traveling to fulfill specific tasks for the company. Employers also cover the costs of vehicle maintenance and gas.
#9. Gym Membership
Employers may promote a healthy lifestyle by offering gym membership perks to their employees.
This type of fringe benefit is quite popular in corporate workplaces, where employees spend hours sitting in front of their computers.
Sometimes, employers pair gym membership coverage with other health and wellness programs, such as free checkups, medical expense coverage and discounts, and regular seminarsabouthealth-related topics.
#9. Child Care Assistance
There are different ways that employers can offer child care assistance to their employees.
Employers can cover or reimburse part of the expenses associated with childcare, often when companies offer parental leave to employees who recently became parents.
They can also provide educational assistance to parents with dependent children who are already attending school. There are also companies with on-site daycare that allow parents to bring their kids to work, especially when they cannot find or hire a nanny to care for their child in their stead.
#10. Moving Expenses
At times, employees may be asked to relocate to one of the company’s branches, either due to a lateral transfer or as part of getting promoted to a managerial position.
Employers who offer this type of career advancement understand the costs, time, and energy associated with requiring their staff to move locations. As such, they assist in covering their employees’ moving expenses.
#11. Mental Health Days
Mental health days are gradually becoming more common, given the increasing awareness and focus on the importance of mental wellness in the workplace.
Companies offering mental health days provide additional time off so employees can destress and focus on self-care.
Sabbaticals are extended periods away from work granted to employees so they can pursue their hobbies and specific interests.
The critical difference between sabbaticals and vacation leaves is that the former can take up to two years and is usually granted to tenured employees with years of service.
Who Doesn’t Benefit From Fringe Benefits?
Freelancers, independent contractors, and temporary workers usually do not benefit from fringe benefits. The reason is that employers typically provide this type of benefit.
Since independent contractors and freelancers work for themselves, they are already at an advantage regarding their finances and work setup. They can work remotely or build a comfortable working space at home.
Freelancers also have the freedom to manage their working hours more effectively. Some find it more beneficial that they can choose their health insurance provider and opt for more expensive packages.
Similarly, workers hired to complete temporary jobs do not qualify for fringe benefits since they are not permanently included in the company’s payroll. It would not be financially ideal for employers to make long-term investments in short-term working agreements.
Employees are the backbone of every company’s success. As such, employers should provide fringe benefits, regardless of their business niche or industry.
It is the least employers can do in exchange for employees working their best to help the company achieve its core objectives and succeed.
All in all, employers must take the time to assess their employees’ expectations and needs to ensure they offer benefits that address issues concerning their staff’s working conditions, security, and fulfillment.