What are Employee Fringe Benefits?
Due to the competitiveness of today’s business world, it is increasingly difficult to find good employees. Therefore, the most successful companies use diverse methods to attract, motivate, and retain top talent. To help our client network develop better recruitment and retention abilities, CulverCareers wanted to explore the notion of fringe benefits.
Employee fringe benefits can take on a diverse array of shapes and sizes. To illustrate, a progressive tech company in Silicon Valley might offer unique perks like mindfulness training. Conversely, many businesses only offer basic benefits like retirement packages and health benefits.
Whatever the package might be, fringe benefits are an effective means for attracting great employee teams. At the very least, good fringe benefit offerings will help increase overall employee engagement at your company.
What is a Fringe Benefit?
At the most basic level, fringe benefits are the added perks that employees get on top of their normal salaries. To this end, examples of common benefits are dental insurance, 401(k) plans, and company vehicles.
When it comes to employee recruitment, the topic of fringe benefits often takes center stage. Especially when recruiting C-level talent, good candidates will have very specific questions about employee benefits packages. While this process might seem challenging, you can use it to your advantage in recruitment.
According to Investopedia, “Some fringe benefits are given universally to all employees of a company while others may be offered only to those at executive levels.” The flexibility in crafting fringe benefits packages allows you to customize them for specific positions. When recruiting executives, you can offer unique benefits like deferred compensation packages, without having to extend the same offers to the entire employee team.
What are Examples of Fringe Benefits?
While the basic functions of fringe benefits are the same across the board, the actual offerings can be quite diverse. Even more, there are different classifications of benefits.
Legally Required Fringe Benefits
Importantly, employers are mandated by law to provide certain fringe benefits. These required fringe benefits change in type and increase in scope with larger organizations. According to the Corporate Finance Institute website, examples of legally required benefits include:
- Worker’s Compensation (rules vary by state)
- Medical Leave (businesses with 50 employees)
- Health Insurance Coverage (businesses with 50 employees)
- Unemployment Insurance Coverage (all businesses)
Optional Fringe Benefits
Beyond the benefits that are required by law, businesses can provide other optional fringe benefits. The primary motivation behind using these optional benefits is attracting and retaining key employees. Similarly, businesses use them as a tool to boost employee engagement. Examples of optional fringe benefits are:
- Retirement Plans
- Gym Memberships
- Company Computers
- Vacation Compensation
- Stock Options
Please Contact Us to learn more about using benefits to attract and keep top talent.
Do Employees Pay for Benefits?
Fringe benefits are defined as perks that employees receive on top of their normal salary. To this end, in the most traditional sense, employees do not pay for fringe benefits – employers cover them. Yet, this notion becomes less clear when it comes to paying taxes on benefits.
The IRS considers certain fringe benefits to be forms of revenue. As such, employees are responsible for paying income taxes on benefits unless the IRS purposely excludes them from being taxed. Examples of non-taxed fringe benefits include health insurance, tuition reimbursement, stock options, and more. You can find the entire list of non-taxable benefits on the IRS website, under the section titled “Fringe Benefit Exclusion Rules.”
The point where employees do pay for fringe benefits is through the income taxes placed on them. Aside from those listed on the Fringe Benefit Exclusion Rules list on the IRS website, employees can count on the fact that benefits are taxable. Not surprisingly, the list of taxable benefits by far exceeds the list of non-taxable benefits.
To figure out income tax on benefits such as employee cars, the IRS applies a “fair market value system (FMV).” For a company car, the system seeks to figure out the taxable revenue on the vehicle using similar lease rates in the area where it is being used. As such, a vehicle that would require $5,000 in yearly lease payments would add an additional $5,000 of taxable income to an employee’s salary.
Should My Company Offer Benefits?
The question of whether your company should offer fringe benefits is hinged on a wide variety of factors. Moreover, when it comes to choosing the right benefits package for employees, the possibilities are nearly endless. Nonetheless, Culver can say definitively that the more competitive hiring is in your industry, the more valuable benefits become.
If your company operates in a field with high-demand skill sets, such as blockchain technology or cloud computing, fringe benefits are essential for staying competitive in the hiring market. In a similar vein, you will almost always need a solid benefits package to attract good executive leadership.
Another factor to consider regarding the use of fringe benefits is your ability to retain employees. If you are having a hard time keeping good people at your company, you might want to revisit your benefits package. A good place to start this process is to understand employee needs through engagement surveys. Once you know what employees are missing, you can act accordingly.
Finally, you should assess your operating budget to decide exactly what sorts of fringe benefits you can afford. For small businesses with under 50 employees, this might mean not offering benefits at all. However, large corporations with 100s of employees will need to carefully craft benefits packages that attract employees and keep them engaged. They will also have to ensure they can afford these packages. Looking to recruit executive talent, benefits will grow in their complexity and cost.
Contact Culver for Tips on Attracting and Retaining Great Employees
The recruiters at CulverCareers know what it takes to attract the best employees. We are constantly monitoring the job market to better understand what benefit packages are most attractive to job searchers.
Please Contact Us to discuss our professional services in more detail.