Fringe benefits, aka perks or perquisites, are additional non-wage compensations, bonuses, or advantages employees receive from their employer on top of their regular salary.
Companies often use fringe benefits to attract and retain top talent, enhance job satisfaction, and improve overall compensation packages.
Types of fringe benefits
There is a wide range of fringe benefits that employers may offer to their employees. Some common examples include:
- Health insurance: Coverage for medical, dental, and vision expenses.
- Retirement plans: Such as 401(k) plans, pension plans, or employer-contributed retirement savings plans.
- Paid time off: Including vacation days, sick leave, and holidays.
- Life insurance: Coverage that provides financial protection to the employee’s beneficiaries in the event of the employee’s death.
- Disability insurance: Income replacement benefits for employees who are unable to work due to illness or injury.
- Flexible spending accounts (FSAs) or health savings accounts (HSAs): Accounts that allow employees to set aside pre-tax dollars to pay for qualified medical expenses.
- Transportation benefits: Reimbursement or subsidies for commuting expenses, such as parking fees or public transportation costs.
- Education assistance: Reimbursement or payment of tuition and fees for job-related education or training programs.
- Childcare assistance: Subsidies or reimbursement for childcare expenses incurred by employees.
- Employee assistance programs (EAPs): Counseling, referral, and support services for employees facing personal or work-related challenges.
Fringe benefits vary depending on the employer and industry. Employers may offer additional benefits based on their business needs, budget, and goals for attracting and retaining talent.
How should employers communicate fringe benefits?
Employers should communicate fringe benefits effectively to ensure employees understand the full extent of their compensation package and take advantage of available benefits.
Here are some tips for effective communication:
- Provide comprehensive materials: Develop employee handbooks, benefit guides, and online resources that outline benefits and how to access them.
- Conduct orientation sessions: Hold orientation sessions for new hires to introduce them to the company’s benefits and answer questions.
- Offer one-on-one consultations: Provide opportunities for employees to meet with HR representatives or benefits administrators to discuss needs and learn about benefits.
- Use multiple channels: Use email, intranet portals, newsletters, and posters to ensure that employees receive information about fringe benefits.
- Highlight the value: Communicate to employees how fringe benefits contribute to overall compensation, work-life balance, and employee well-being.
- Provide reminders: Regularly remind employees about upcoming enrollment periods, deadlines, and changes to benefit offerings.
- Encourage feedback: Use surveys or focus groups to ensure that benefits offerings align with employee needs and preferences.
- Offer educational resources: Provide webinars, workshops, or online tools to help employees make informed decisions about their benefits and maximize their value.
What are fringe benefits in payroll?
Fringe benefits in payroll refer to non-wage compensations provided to employees in addition to their regular salary or wages. These benefits are considered part of an employee’s total compensation package and may have tax implications for both the employer and the employee.
Examples of fringe benefits included in payroll processing can include
- Health insurance premiums
- Retirement plan contributions
- Paid time off (e.g., vacation days and sick leave)
- Bonuses
- Other non-cash benefits
Correctly accounting for and reporting fringe benefits in payroll ensures compliance with tax laws and regulations. For example, employers must accurately report fringe benefits on employees’ W-2 forms for tax purposes.
How to calculate fringe benefits
Calculating fringe benefits can be complex and may require the expertise of a payroll specialist or accountant. Employers must understand the different types of fringe benefits offered, their value, and how they affect an employee’s overall compensation.
Some benefits, such as health insurance premiums, may require contributions from the employer and employee, while the company solely provides others.
Are fringe benefits taxable?
Fringe benefits can be taxable or nontaxable, depending on the benefit provided and tax regulations. In many cases, fringe benefits are taxable and must be reported on an employee’s W-2 form. But, the IRS does exclude some fringe benefits from taxation.
Common examples of nontaxable fringe benefits include:
- Health insurance: Employer-provided health insurance premiums are generally not taxable to employees.
- Retirement contributions: Contributions made by an employer to an employee’s retirement account may be nontaxable up to certain limits.
- Education assistance: Employer-provided educational assistance up to a certain amount may be nontaxable.
- Transportation benefits: Employer-provided transportation benefits, such as parking or public transit passes, may be excluded from taxation up to a specific limit.
- Dependent care assistance: Employer-provided assistance for dependent care expenses may be nontaxable up to certain limits.
However, many other fringe benefits, including bonuses, company cars for personal use, housing allowances, and more, are taxable.