Offering a variety of fringe benefits can help recruit and retain employees. Employee fringe benefits can entice candidates to accept a job at your company and help supplement your current employees’ income.
What are Fringe Benefits?
A fringe benefit is a form of payment for performance of services outside an employee’s regular pay. For example, a fringe benefit can include the use of an employee vehicle or employee discounts. Some benefits are required by law, like social security and health insurance, while others are voluntary perks provided by employers.
The IRS describes what constitutes a fringe benefit in Publication 15-B, who can receive them and who can provide them.
- Performance of Services. The IRS states the person who performs services for your company doesn’t have to be your employee. They could be an independent contractor, partner or director.
- Provider of Benefits. And, the IRS clarifies that an employer is the provider of a fringe benefit if that benefit is provided for services performed for the company; i.e., your employees talk to clients to sell your products, so you provide mobile phones. Even if a third party provides the benefit for your employee, your company is still the provider of the fringe benefit because the employee who benefits is performing services for your company. For example, you provide your employees with paid daycare as a fringe benefit, even though an independent company actually watches the kids.
- Recipient of Benefits. The person who performs services for a company is the recipient of the fringe benefit. This also extends to the person’s family. For example, as an employer you provide health insurance to your employees, but that coverage extends to their families as well.
Examples of Fringe Benefits
- Accident and health benefits. Accident and health benefits include your healthcare plan options and any accident insurance you provide to employees. Employers can offer a variety of health insurance options, short- and long-term disability coverage and other health plan options. Employers typically cover part of the employees’ premium costs.
- Achievement awards. Achievement awards recognize employees for length of service, safety or awards given during a meaningful presentation. The actual award can include personal property like a watch or plaque.
- Adoption assistance. Adoption assistance grants financial help to employees looking to adopt either domestically, internationally or through the foster care system. SHRM states this is a low-cost benefit (as most employees aren’t likely to use it) but has a high output of employee goodwill.
- Athletic facilities. Employers can offer workers access to an on-site fitness center or free or reduced memberships at local gyms or wellness spas. Some employers might even reimburse employees for the purchase of exercise or gym equipment.
- Bonuses. Bonuses or awards can be given or promised to employees. Bonuses can include prizes such as vacation trips for meeting sales goals or cash.
- Dependent care assistance. Offering childcare assistance is a popular benefit for employees to help reduce scheduling conflicts and offset daycare costs. Dependent care assistance can be offered in-house or as a reimbursement for outside daycare services.
- Educational assistance. Reimbursement programs are offered by companies whose employees seek degrees or certifications. The education will ultimately benefit the employee’s current position or allow them to move forward in the company with a different position.
- Employee discounts. Employers can extend discounts on the company’s products and services to employees. Dealerships often offer employee pricing on vehicles and retail stores will give employees a discount on their products.
- Employee stock options. Some employers choose to supplement their employees’ income with stock options. Stock options can be given as a performance bonus or for years of service.
- Employer-provided cell phones. Employers have two options for providing this fringe benefit. They can reimburse employees for work completed or business-related communication on their personal mobile phones, or provide company-owned cell phones.
- Group-term life insurance coverage. Aside from health insurance plans, employers may offer employers group-term life insurance. Many employers will cover a certain amount for free, like $10,000, and give employees the ability to raise their coverage.
- Health savings accounts (HSAs). Health savings accounts allow employees to save pre-tax dollars to spend on eligible healthcare expenses. HSAs also enable employees to earn interest on savings amounts over $1,000.
- Lodging on your business premises. Employer-provided housing is a fringe benefit and counts as taxable income for the employee, unless the lodging is for the employer’s convenience, is on the business’ premises or is a condition of employment. For example, an employer might require an apartment manager to live onsite.
- Meals. Meal fringe benefits cover free snacks and meals in the office or reimbursements of any meals eaten out of the office.
- Retirement planning services. Employers might cover of the cost of having a financial planner work with their employees to develop retirement plans. This benefit can go beyond assisting with employer-sponsored 401(k) options but help employees strategize about their complete financial health.
- Transportation (commuting) benefits. Employers can provide employees with pre-tax contributions that cover parking passes, railway or toll road passes.
- Tuition reduction. Tuition reduction benefits allow employees, and sometimes family members, to receive reimbursement for achieving undergraduate or graduate degrees. Some employers offer assistance to employees to help pay off their existing student loans.
- Working condition benefits. Employers reimburse employees for business expenses documented with receipts. According to the IRS, this applies to property and services you provide to an employee so that the employee can perform his or her job.
According to the IRS, any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it. The IRS states this amount is determined if the value is more than sum of the following:
- Any amount the law excludes from pay
- Any amount the recipient paid for the benefit
Fringe benefits are part of taxable income. They are generally subject to employment taxes and must be reported on Form W-2, Wage and Tax Statements. Although special rules may apply. If the person getting the fringe benefit isn’t an employee, like a freelancer or contract worker, the benefit isn’t subjected to employment taxes.
The exclusions that apply to certain fringe benefits are outlined in Publication 15-B.
Non-taxable Fringe Benefits
While fringe benefits are taxable, many are exempt from income tax but taxable for federal unemployment, social security and Medicare. The examples of fringe benefits listed in this article all have specific exclusion rules. For example, achievement awards are only exempt for up to $1,600 for qualified awards and $400 for nonqualified awards.
Required Employee Fringe Benefits By Law
There are some fringe benefits that are completely voluntary, like meal plans, commuter benefits and employee discounts, but others are required.
Companies with 50 or more employees are required to provide healthcare plans under the Affordable Care Act. A group health insurance plan can be purchased through the Small Business Health Options Program (SHOP) or from a private insurance company. For employers with 50 or fewer employees, plans can be purchased through SHOP.
The Federal Unemployment Tax Act (FUTA), with state unemployment systems, offers compensation to workers who have lost their jobs. Most employers pay both a federal and state unemployment tax. A list of state unemployment tax agencies, including addresses and phone numbers, is available in Publication 926, Household Employer’s Tax Guide. Only the employer pays FUTA tax; it is not deducted from the employee’s wages.
Job Protected Medical Leave
The Family and Medical Leave Act (FMLA) entitles eligible employees to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage. The FMLA applies to employers if they are:
- A private-sector employer, with 50 or more employees in 20 or more workweeks in the current or preceding calendar year, including a joint employer or successor in interest to a covered employer
- A public agency, including a local, state, or Federal government agency, regardless of the number of employees it employs
- A public or private elementary or secondary school, regardless of the number of employees it employs
The U.S. Department of Labor requires worker’s compensation be given to federal employees (or their dependents) and other specific groups who are injured at work or acquire an occupational disease. Compensation includes:
- Wage replacement benefits
- Medical treatment
- Vocational rehabilitation
- Other benefits
Compensation requirements vary by state, and injured employees should contact their state worker’s compensation board.
Why You Should Offer More Fringe Benefits
Voluntary fringe benefits help your company stand out from the competition and have healthier, more engaged employees.
Highlighting a comprehensive fringe benefit package can help draw candidates to your company. These fringe benefits can be the deciding factor for a candidate choosing between two companies that both offer similar salaries. Consider how much difference paid daycare could make in an employee’s life. Customers will also want to work with companies that care about their employees.
Offering fringe benefits that are focused on wellness keeps your employees healthy. Athletic and healthcare plans help reduce sick days. According to a UnitedHealthcare survey, 62% of participants in wellness programs say their productivity has improved, 56% have had fewer sick days and 30% say they had a disease detected thanks to these programs.
Other perks, like adoption assistance, tuition reimbursement and commuter benefits help make your employees’ lives easier, reducing stress. Voluntary benefits show your employees you appreciate them, which goes a long way towards keeping them engaged.
Arcoro’s Benefits Management software is a cloud-based module that can help companies easily manage employee benefits while remaining compliant about federal requirements.
- Benefits administration software saves time and gives HR administrators and employees the ability to look at benefits selected, pay stubs and other HR information.
- It also allows you to keep detailed records and make sure all workflows are completed on time. HR automated tools help support greater organizational communication, transparency and increase company-wide productivity.
- Compliance is ensured as benefits management software automatically updates to the latest versions. If any compliance issues arise, a fix will be quickly employed.
- Advanced options calculate the age-banded benefits for each employee eligible to enroll in the ACA. Benefits can be customized for each employee and any selections quickly deducted from payroll. For administrators, HR software can easily transfer employee selections to the appropriate carriers and gather information for reporting.
- The product scales with your company. It will integrate with your current technology and any external products you may need in the future. It has built-in integration with more than 300 partners and can send data to insurance carriers, payroll providers, brokers, ERP systems HCM platforms and more.
Contact us to see how it can simplify your benefits administration process.