Not that long ago, extra benefits were the least important part of a worker’s compensation. Employees cared almost solely about a good salary. Later, basic employee fringe benefits — first health insurance and then retirement plans — became a competitive advantage. But the situation has drastically changed, especially over the past two years. Today, a wider array of fringe benefits is as important as offering a competitive salary and basic or “core” fringe benefits for attracting and retaining skilled workers.
But what are fringe benefits?
The Fringe Benefits Definition: any nonwage payment or benefit … granted to employees by employers. It may be required by law, granted unilaterally by employers, or obtained through collective bargaining.
Today, companies must offer good fringe benefits if they want to stay competitive in the marketplace.
The core fringe benefits are the bare minimum that a company can offer, like medical, dental, and vision insurance and paid time off. In fact, when you hear the term employee fringe benefits today, it’s usually in reference to extra perks beyond core benefits or other voluntary employee benefits.
Why Are Fringe Benefits Important?
According to Benify’s Employee Happiness Index, there is a clear correlation between fringe benefits and employee engagement. The study showed that employees who were satisfied with their benefits package were 25% more engaged than the least satisfied.
Fringe benefits are an excellent way for employers and companies to stand out in the marketplace. It shows how much they care about their employees, their wellbeing, and their future. Because these benefits are entirely voluntary from each company, they are a powerful tool for big or small businesses to recruit and retain skilled workers.
Offering fringe benefits can have a positive impact on:
- Employee engagement
Employees who feel valued by their companies are more satisfied and tend to value their job more. The more satisfied the employee, the more engaged and productive they will be. A great way to increase employee satisfaction is by providing competitive fringe benefits like unlimited vacation time and top health insurance.
- Employee wellness
When an employee doesn’t have good health, it affects their quality of work and increases absenteeism. This is true for physical as well as mental health. A study by CIPD showed that more than 1 in 5 organizations in the U.K. cited poor mental health as the primary cause for absenteeism.
A safe work environment can help prevent these health-related issues from happening in the first place. A safe work environment with fringe benefits like wellness activities or a flexible workplace will increase employee health and consequently decrease absenteeism.
- Employer brand
Competitive employee wages are no longer the only way to attract skilled workers from their first interaction with your company, and they’re certainly not the most important factor, either. Today, fringe benefits are as significant to your employer brand as a good salary. Companies that get creative and offer exceptional benefits stand out from their competitors.
How Fringe Benefits Work
A company’s choice of fringe benefits will depend on its goal for offering employee benefits in the first place. For example, a company can offer a package of benefits designed uniquely to support employees with families. The perks might include access to workplace daycare or retail discounts.
Some companies give their employees an even wider range of optional benefits to choose from, from a company-sponsored car to paid membership to top local fitness studios to education assistance and more.
Giving these additional benefits to your workforce helps them feel more comfortable and cared for at work. In today’s competitive market, any additional perks to someone’s salary are crucial to retaining top talent and standing out from other employers.
The Two Types of Fringe Benefits
Required by Law
Not Required by Law
Fringe benefits required by law are meant to provide employees with basic compensations designed to help them maintain their financial security and avoid economic hardships during their retirement years.
Fringe benefits required by law are:
Fringe benefits not required by law are any extra perks sponsored by the employer. Usually, these benefits are taxable to the employee (explained next). Nonetheless, they’re the best option for companies to attract and retain talent.
Examples of fringe benefits not required by law include:
Are Fringe Benefits Taxable? Yes, Sometimes.
Fringe benefits are taxable to the employee by default unless they are explicitly exempt. That means they are subject to employment taxes and must be reported on the employee’s annual Wage and Tax Statement, IRS Form W-2. When valuing fringe benefits for tax purposes, it is important to know that they are valued at their fair market price.
IRS Publication 15-B — better known as the Employer Tax Guide to Fringe Benefits — has everything you need to know about taxable fringe benefits, how they affect taxable income and payroll tax, exclusion rules, and everything else to keep you compliant with tax rules and codes.
IRS Publication 15-B also offers a complete list of fringe benefits that are exempted from income tax. Some of these benefits include:
- Athletic facilities
- Adoption assistance
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Lodging on business premises
- Free meals
- Retirement planning services
- Tuition reduction
- Working condition benefits
So What Is a Fringe Benefit and Should You Invest in It?
Putting it simply, fringe benefits are any regular non-monetary benefits provided by an employer. Fringe benefits include a range, from the basics — healthcare insurance and paid time off — to the extravagant, like chef meals at work. A mix of both ranges of the spectrum has become an essential part of any successful organization today.
Here Are Some Extra Fringe Benefit Examples:
- Sponsored cellphone
- Traveling discounts
- Traveling expenses
- Home expenses
- Relocation expenses
- Personalized experiences
- Home office budget
- Diversity program
- Eye and dental care
- Discounts on company products
- Discounts on partners’ products
- Massage and stretching
- On-site health services
- Mental health support
- Midday office activities
Each benefit’s advantages vary, but anything that increases your employees’ morale and wellness at work will increase productivity, and a productive workforce means a fruitful business.
The Gympass Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.