A Complete Guide To Fringe Benefits

As a business, you may choose to offer your employees additional benefits and perks on top of their salaries. These are known as fringe benefits, and more and more companies are upping their game when it comes to the total salary package they offer. 

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By providing employees with competitive and desirable fringe benefits, companies can recruit talented individuals to work for them as well as retain their existing employees.

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If you want to learn more, this handy guide covers all the fundamentals of fringe benefits, including what they are exactly and how they're taxed.

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What Are Fringe Benefits?

A fringe benefit is a benefit received by an employee in addition to their regular income. Some firms provide these benefits to all employees, while others offer them as a reward for those who make significant contributions to the company.

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The employer can pick which benefits they will give to employees during a given period. Because of this, the fringe benefits can vary significantly from one firm to the next. 

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Awarding employees with fringe benefits helps make them feel at ease and, as a result, more productive at work. However, it also helps the company stand out to future employees and distinguish it from the competition.

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Types Of Fringe Benefits

Fringe Benefits Required By Law

Legally mandated benefits include retirement income and medical treatment for workers and their families. 

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They also include benefits that minimize economic hardship caused by job loss and disability and cover liabilities resulting from occupational accidents and illnesses.

Medicare and Social Security

Medical care and social security are two legally required benefits systems. All employees contribute towards these systems while working and then receive the benefits later in life. 

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Employees receive Social Security benefits to ensure that they have a source of income once they reach retirement age or become permanently incapacitated. 

Compensation Insurance

Every company should have a worker’s compensation program in place in case an employee gets hurt at work. Having this type of insurance ensures that a firm can give their injured employee the benefits they need should they get injured. 

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It covers a variety of costs, including:

• Rehabilitation

• The costs for medical care treatment

• Paid leave for recovery

Unemployment Insurance

All employers must pay unemployment tax to the Department of Labor. Unemployment compensation replaces a portion of an employee's salary for a limited period of time if he or she becomes unemployed through no fault of their own. 

Medical Leave

If your company has 50 or more employees, you must provide unpaid medical leave for up to 12 weeks to your employees.

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This rule was enacted to allow employees to manage the situations that may arise within their families, personal lives, and medical requirements without fear of being fired for not going to work. 

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There are many situations in which an employee may request family or medical leave. These include:

• Taking care of a family member or spouse with a significant medical condition

• Childbirth

• Joining the military service

• Taking care of their own health conditions

Health Insurance

Any company with 50 or more employees who work on a full-time basis must provide them with healthcare plans. These businesses must also declare how much health insurance they provide on employee W2-forms. They also need to file the relevant IRS forms with information on the type of plans they provide and the cost. 

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The authorities can assess the business and impose penalties if you don't provide enough or affordable health insurance to full-time employees.

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Healthcare plans should cover visits to primary care and specialist doctors, as well as emergency care.

Fringe Benefits Not Required By Law

There are many types of fringe benefits that companies voluntarily offer their employees. Here are some of the most common ones:

Retirement Plan Contribution

An employer-contributed 401(k) is one of the most prized fringe benefits. Employers can assist workers in putting money aside for retirement. This means that employees will see an increase in the amount of their overall retirement savings when the employer matches or makes qualified contributions to their 401(k) plan.

Tuition Reimbursement

Some employers offer their employees tuition reimbursement or education assistance. They can either pay for the fees or contribute to them. 

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Employers who offer this benefit often give their employees flexible hours so that they can better balance their studies and work schedule. 

Free Meals

Many top companies like Netflix and Google offer their employees free meals and snacks at the office as a perk. This could include free coffee, free catered lunches, free Friday lunches, or a discount on their food or meals.

Commute Assistance

An employer may be able to assist employees with transportation if they commute to work. This could include full or partial bus, train, and parking reimbursements, as well as gas reimbursement for car travel.

Gym Membership

Many companies now provide free or reduced gym memberships to their employees. If the workplace has an in-house gym, employers might allow employees to use the gym at cost. This helps employees manage their personal time better as they can easily pop into the gym and work out when they need to. 

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Are Fringe Benefits Taxable?

Some people believe that fringe benefits are offered and received tax-free. However, this isn't always true. Benefits with a hefty value are usually taxable to the employee and are subject to social security, federal withholding, and Medicare taxes. 

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The employee's gross income is increased by the benefit's fair market value. This is reported on his or her W-2 form together with any taxes that may be withheld. 

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Taxable fringe benefits include the following:

• Expenses for vacations, sporting club memberships, or health resorts

• Bonuses

• Personal usage of an employer-provided automobile is worth a lot of money.

• Amounts paid to employees for relocating expenditures that are more than the actual costs

Certain fringe benefits are excluded from gross income and are not subject to tax. In most cases, these benefits are not subject to Medicare, Social Security, or other taxes, and you don’t have to report them on Form W-2. 

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These benefits include:

• Payments for public transportation to and from work and parking while on the job

• Medical flexible spending accounts and dependent care accounts

• Assistance programs for adoption

Related: What Are Non-Taxable Fringe Benefits?

Are Fringe Benefits Subject To FICA?

FICA (Federal Insurance Contributions Act) is a federally mandated payroll tax that is paid evenly between employees and businesses.

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Although some fringe benefits may be nontaxable, most are subject to income tax withholding and employment taxes.

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Can You Give Fringe Benefits To Non-Employees?

An individual who is typically treated as an employee may be classed as a non-employee by definition so that they can get fringe benefits.

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Here is a list of employees who cannot be considered employees for the purposes of receiving fringe benefits.

• In an S-Corporation, an employee who owns more than 2% of the equity

• A highly compensated employee (HCE) is a person who is either an officer, a shareholder with more than 5% voting power, highly compensated based on the circumstances, or the spouse or dependant of such a person.

• An HCE who is either one of the top five paid executives, who owns more than 10% of the company's shares, or is in the top 25% of all employees in terms of pay.

• An HCE who was a 5% owner at any point during the year or the previous year. Or an HCE who earned more than $150,000 in the previous year.

• A key employee who is either an officer with annual pay of more than $185,000 or a 5% or 1% owner of the business with an annual remuneration of more than $150,000.

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Why Offer Fringe Benefits?

It Helps Your Company Stand Out

In general, top talent wants more than a great role and a fair salary. They want to feel that the company values them as people. As such, offering fringe benefits is very important.

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These benefits help employers to attract, motivate, and retain high-quality personnel. 

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Companies that are fighting for the most in-demand abilities are more likely to give expensive and generous benefits to ensure that they attract top talent.   

They Make Employees Feel Valued

When employees believe their employer values their contribution to the organization, they are more likely to work harder. 

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Providing additional benefits, such as paid holidays, health insurance, stock options, and so on, is one approach to improve employee happiness. It will help to reduce the number of disgruntled employees and keep them engaged.

Wellness

When employees can’t work due to work-related illnesses or injuries, businesses lose money. This is because employees will spend a lot of time looking for treatment, which can affect the company. 

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Providing a safe working environment and fringe perks like gym memberships, health insurance, and dental coverage can improve their health and reduce sick days.

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Final Thoughts

Any employer who wants to attract and retain top talent should make sure they are offering competitive fringe benefits. These benefits show that, as a company, you value your employees’ health and wellbeing as well as their personal lives. 

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If you want to start offering additional benefits and perks to keep your employees happy and motivated, check out PerkUp today. Alternatively, check out our piece on Fringe Benefits Taxation to ensure you’re being compliant.