What are Fringe Benefits?

Attracting and retaining top performers requires going further than simply offering a competitive salary. 73% of employees claim they would stay with their current employer if they had more benefits. This is when employee fringe benefits show up. These are the additional perks and programs companies offer employees on top of their base pay and play a central role in shaping employee experience, satisfaction, and, ultimately, your organization's success. We’ll see how in this guide.

We'll explore fringe benefits meaning, types, legal considerations, fringe benefits examples, and the advantages they offer for both employers and employees. We'll also provide practical tips on implementing effective fringe benefits plans in your organization.

What Are Fringe Benefits? Fringe Benefits Definition

Fringe benefits, also known as the classic employee benefits or perks, are additional methods of compensation offered by employers on top of an employee's regular salary. These benefits cover a diversified scope of offerings, from essential programs like health insurance to gym memberships, flexible work arrangements, group term life insurance, retirement planning services, and even free coffee.

While the term “fringe” might suggest these benefits are uncommon or unusual, they are, in fact, a critical component of most employee compensation packages. Even small startups frequently include them.

What’s the Difference Between Fringe Benefits and Regular Benefits?

In reality, there isn't a substantial difference between fringe benefits and regular benefits. The term “fringe benefit” is sometimes used to imply benefits that are uncommon or unusual, but there's no strict rule. Some companies and HR professionals might still use “regular benefits” and “fringe benefits” interchangeably—especially since the latter is becoming less common. In today's HR scenario, most of what we consider “regular” employee benefits fall under the umbrella of fringe benefits.

Types of Fringe Benefits

As you may know, fringe benefits come in a wide variety. In this section, we’ll present a breakdown of some common categories:

Core Benefits

These are essential benefits that many employees consider baseline expectations. They often include:

• Health insurance: Plans that cover medical, dental, and vision expenses. This can be done, for instance, through health savings accounts.
• Retirement savings plans: Options like 401(k) with employer-matching contributions that help employees save for the future.
• Paid time off (PTO): This refers to true paid time off, such as vacation days, sick leave, and personal days.
• Life insurance: This fringe benefit provides financial security for beneficiaries in case of an employee's death.
• Disability insurance: This protects income if an employee becomes disabled and unable to work.

Supplemental Benefits

Certain fringe benefits go beyond the core offerings and can be a great strategy to include them to attract and retain talent. They may include common and uncommon fringe benefits like:

• Flexible work arrangements: Options like remote work, compressed workweeks, or flexible hours that can improve work-life balance.
• Wellness programs: Programs that promote employee health and well-being, such as gym memberships or health screenings.
• Financial wellness programs: Resources and tools to help employees manage their finances, like financial education workshops or student loan repayment assistance.
• Dependent care assistance: Accounts that help employees pay for childcare or eldercare expenses with pre-tax dollars.
• Employee assistance programs (EAPs): Confidential counseling and referral services for personal or work-related issues.
• Tuition reimbursement: Programs that help employees pay for continuing education or professional development.
• Employee discounts: Discounted products or services from the company or partner businesses.
• Paid parental leave: Time off for new parents to bond with their child, beyond standard PTO.
• Sabbaticals: Extended periods of leave for employees to pursue personal goals or travel.
• Perquisites: These are typically benefits offered to high-level executives or employees in specialized roles. They may include a company car, a club membership and executive stock options, for instance.

Legal Aspects of Fringe Benefits

Let’s move on to an employer's tax guide regarding fringe benefits. Fringe benefits must comply with tax regulations and employment laws. Let’s take a closer look at these two aspects:

Taxation

Not all fringe benefits are created equal when it comes to employment taxes. The IRS provides guidelines on which benefits are taxable and which other benefits are exempt.

• Taxable benefits: These are subject to federal income tax withholding, Social Security, Medicare, and unemployment taxes. They are considered part of an employee's gross income and must be reported on the employee’s W-2 form. Some examples are cash bonuses, personal use of company car, and non-accountable expense allowances.
• Non-taxable benefits: These benefits are not included in the employee's gross income and, thus, are exempt from income tax withholding, Social Security, Medicare, and unemployment taxes, provided they meet certain IRS criteria. Health insurance premiums, retirement plan contributions, up to $5,250 in educational assistance, up to $5,000 in dependent care assistance, and certain transportation benefits are non-taxable fringe benefits.

Compliance With Employment Laws

Additionally, certain benefits may be imposed by law depending on your location. For instance:

• Minimum wage: Some fringe benefits, like paid time off, may need to be considered in minimum wage calculations based on local regulations.
• Leave laws: Laws like the Family and Medical Leave Act (FMLA) in the US may set minimum requirements for leave programs offered as fringe benefits.

Advantages of Offering Fringe Benefits

Offering a strong fringe benefits program is no longer optional if you want to attract top talent and motivate loyalty and retention among your hires. In this same sense, it’s also financially a smart move—as bad hires can cost your business 30% of the employee's first-year earnings.

Here's a more in-depth look at the key advantages you can gain by implementing a well-rounded fringe benefits package:

• Attract and retain top talent: A survey revealed that according to 66% of respondents, benefits and perks are the most important factor when considering a job offer, and that 61% would take a lower-paying job for a better benefits package. Competitive fringe benefits are undoubtedly a major differentiator when candidates evaluate job offers.
• Increase employee satisfaction and motivation: Fringe benefits demonstrate to employees that you value their well-being and contributions. When employees feel valued, they're more likely to go the extra mile, take ownership of their work, and contribute to a positive company culture. For instance, employees who use wellness programs have reported high loyalty, job satisfaction, and a willingness to work.
• Reduce turnover and recruitment costs: As we’ve anticipated, high employee turnover can be a major drain on resources. In line with the employee retention advantage, by offering competitive benefits, you can encourage employees to stay with your company long-term, reducing the need for costly recruitment and training efforts.
• Improved employer brand and reputation: As it can be reasonably anticipated, a company known for its generous benefits package can attract more qualified candidates and improve its overall brand image. This can be especially helpful when looking for top talent in a competitive industry, like cybersecurity or healthcare.

Implementing Fringe Benefits in Your Organization

Building a successful fringe benefits program requires careful planning and ongoing evaluation. Here's a roadmap to guide you through the process:

1. Align with Business Goals and Employee Needs
• Start by defining your company's goals. Do you want to attract top talent, improve employee well-being, or increase productivity?
• Analyze your workforce demographics and preferences. What are your employees' needs and priorities? Consider conducting surveys or focus groups to gather useful data.
2. Design a Competitive Package
• Research what your competitors offer. This will help you benchmark your program and identify areas for differentiation.
• Focus on a variety of benefits to address diverse employee needs. Consider core benefits like health insurance and retirement plans and supplemental benefits like wellness programs or flexible work arrangements.
3. Ensure Legal Compliance
• Stay up-to-date on all labor laws and regulations related to fringe benefits. To protect employees, business premises must comply with certain occupational health and safety regulations. These include minimum wage requirements, leave laws and tax implications.
• Talk to legal or HR professionals to make sure your program follows all the legal regulations.
4. Track and Measure Effectiveness
• Regularly evaluate the effectiveness of your fringe benefits program. Gather employee feedback through surveys or focus groups.
• Monitor industry trends and adjust your program as needed to stay competitive.
• Track the cost and return on investment (ROI) of your benefits program. Consider factors like employee retention rates, absenteeism, and overall employee satisfaction when measuring ROI.

Consider a Software Solution for Benefit Administration

TalentHR is a comprehensive software solution that offers key features to automate core HR tasks like onboarding and employee performance management. Among its functions, the platform provides a tool for managing fringe benefits. You can adjust employee benefits to the exact way your business works. Keep track of your expenses by writing down each benefit's cost, as well as start and end dates.

Fringe Benefits FAQs

What are the most cost-effective fringe benefits a business can offer?

Consider low-cost options like wellness programs, professional development opportunities, or employee discounts. These can contribute to employee morale and engagement without a high financial burden.

Are fringe benefits taxable?

Taxation of fringe benefits can vary. Some common benefits, like health insurance, are non-taxable, while others may be taxed at fair market value.

How do we measure the ROI of our benefits program?

Track metrics like employee retention rates, absenteeism, and satisfaction surveys. Consider the cost of the program against these metrics to assess its overall return on investment.