In the modern workplace, compensation means more than just numbers on a paycheck. Also included in an employee’s compensation? An additional element known as fringe benefits.
The term “fringe benefits” might make them sound like they’re out of the ordinary, but fringe benefits are more commonly known simply as employee benefits—the extra monetary and non-monetary perks given to employees on top of their regular salary. Fringe benefits can range from freshly brewed coffee and snacks offered for free in the break room to indispensable safety nets like health insurance and retirement plans. Some fringe benefits are given to all staff, but some can be exclusive to those at the executive level. How fringe benefits are offered can significantly influence employees’ attitudes toward their positions and commitment to their employer.
If you don’t have the in-house capabilities for human capital management (HCM), enlisting the expertise of a professional employer organization (PEO) like Rippling could be a strategic move to help handle fringe benefits effectively.
Below, we’ll delve deeper into fringe benefits—which are mandatory and optional, how they help attract top talent, and how to design a benefits package that will make your company stand out when recruiting.
Examples of fringe benefits
Here are some of the most common fringe benefits companies offer their employees:
1. Healthcare benefits:
- Health insurance
- Dental insurance
- Vision insurance
- Prescription drug coverage
2. Retirement benefits:
- 401(k) plans
- Pension plans
- Roth IRAs
3. Time off benefits:
- Paid vacation time
- Paid sick leave
- Paid holidays
- Paid parental leave
- Bereavement leave
4. Financial benefits:
- Bonuses
- Profit-sharing
- Stock options
- Employee stock purchase plans (ESPPs)
- Performance-based incentives
5. Safety and security benefits:
- Workers’ compensation insurance
- Safety training and equipment
6. Wellness benefits:
- Gym memberships
- Wellness programs
- Fitness classes
- Health screenings
7. Transportation benefits:
- Commuter benefits (e.g., transit passes and parking)
- Company-provided transportation
8. Educational assistance benefits:
- Tuition reimbursement
- Professional development opportunities
- Skill-building workshops
9. Childcare and family benefits:
- On-site daycare
- Dependent care assistance
- Flexible spending accounts (FSAs)
- Adoption assistance
10. Legal assistance:
- Legal aid services
- Legal consultation
11. Employee Assistance Programs (EAPs):
- Counseling services
- Mental health support
12. Insurance coverage:
- Life insurance
- Disability insurance
- Long-term care insurance
13. Meals and refreshments:
- Subsidized or catered meals
- Snacks and beverages in the workplace
14. Recognition and awards:
- Employee of the Month programs
- Service awards
- Recognition ceremonies
15. Social and recreational benefits:
- Company outings
- Team-building events
- Company-sponsored sports leagues
16. Technology and equipment:
- Company-provided laptops or devices
- Cell phone reimbursement
- Reimbursement for home office setup
17. Travel benefits:
- Business travel accommodations
- Travel expense reimbursement
18. Uniforms and dress code:
- Provided uniforms or branded attire
- Casual dress code policy
19. Flexible work arrangements:
- Remote work opportunities
- Flextime (flexible working hours)
- Compressed workweeks
20. Financial counseling:
- Financial planning assistance
- Debt management resources
21. Community involvement:
- Paid volunteer time
- Community service initiatives
22. Legal and financial consultation:
- Access to legal and financial advice
- Estate planning services
23. Language learning:
- Language courses or language learning tools
24. Pet-friendly policies:
- Pet-friendly workplaces
- Pet insurance discounts
25. Housing assistance:
- Relocation assistance
- Housing stipends
Required fringe benefits vs. optional fringe benefits
Some fringe benefits are required. For example, if you have 50 or more full-time or full-time equivalent employees, federal law requires you to provide health insurance. Workers’ compensation insurance is another example—laws vary by state, but most states require employers to provide workers’ comp once they have a small number of employees (and in some states, like California, Colorado, and Hawaii, it’s required once they have a single employee).
But even when fringe benefits aren’t legally required, failing to offer them can make it a challenge to hire and retain the most talented (and committed) employees.
On the other hand, while there's room for creativity, it’s important to be judicious. You can offer optional benefits like retirement plans and employee discounts that can draw exceptional talent to your organization. However, it's crucial to choose these benefits carefully to avoid draining your resources in the long run.
Head spinning? Take control with Rippling's benefits administration software and manage and administer your company’s benefits packages seamlessly. Rippling brings all your fringe benefits into one system and automates the busy work, such as enrolling new joiners, updating deductions, and administering benefits.
Are fringe benefits taxable?
There are two types of fringe benefits: taxable and non-taxable.
By default, all fringe benefits are taxable unless they fall under specific exemptions outlined in the IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits. This means employees should include the fair market value of all non-exempt fringe benefits in their taxable income each year.
Taxable fringe benefits
- Using a company car for personal reasons
- Gym memberships
- Vacation expenses
- Moving expenses
Non-taxable fringe benefits
- Reimbursements for job-related education
- De minimis benefits (small perks like free coffee in the office)
- Employee stock options
- Adoption assistance
- Health savings accounts
- Meals
- Working condition benefits
See the IRS’s full list of tax-exempt fringe benefits in Publication 15-B.
Note that any fringe benefits exempt from income taxes might also be free from Social Security, Medicare, and federal unemployment taxes.
Advantages of offering fringe benefits
Offering fringe benefits comes with advantages. Case in point: While 49% of employees will consider a job change within 12 months due to benefits-related confusion or dissatisfaction, 78% of employees are inclined to remain with their current employer if they’re happy with their benefits.
Here are some more great reasons to offer desirable fringe benefits:
- Curb turnover: High turnover can wreak havoc on any organization, from increased costs to recruit and train new employees to reduced morale. A robust benefits package can help cultivate loyalty and reduce the likelihood that employees will seek new opportunities—translating to savings in recruitment and training costs.
- Attract top talent: A standout benefits package gives your business a competitive edge when seeking top-tier candidates. In fact, 60% of job seekers prioritize benefits and compensation above other factors, including a higher salary, when searching for a new job.
- Boost morale: Fringe benefits are an investment in your team’s welfare, development, and growth. That kind of investment helps foster a sense of camaraderie among teams, ultimately boosting morale.
- Improve employee wellbeing: Employees are more efficient and productive when they’re healthy and well. Through fringe benefits, you can give them access to quality healthcare, mental health resources, fitness incentives, and other tools to promote their overall wellbeing.
- Lower costs. Strategically built fringe benefits can yield tax benefits for both the company and employees. And using a platform like Rippling PEO can allow you to offer more comprehensive, big-company benefits to your employees for less.
How to decide which fringe benefits to offer
Deciding on which fringe benefits to offer requires a strategic approach that balances employee needs with your business goals. Here's what to consider:
- Assess employee needs: Understand your workforce's demographics, preferences, and needs. Conduct surveys, feedback sessions, and performance reviews to identify the most valued benefits.
- Review industry standards: When thinking of the most suitable fringe benefits, compare what competitors are offering. Also, research what fringe benefits are common in your industry and geographic location.
- Prioritize core benefits: Start with essential benefits like health insurance, retirement plans, and paid time off. These are often expected by employees and provide a solid foundation for your benefits package.
- Customize to your culture: Tailor benefits to fit your company culture. For example, if you emphasize work-life balance, offer flexible work arrangements or wellness benefits programs.
- Consider your budget: Analyze your budget to determine which benefits you can realistically offer without straining company finances. The cost of the benefits shouldn't be excessive, as increased administrative expenses can negatively affect your profit margins in the long run.
- Ensure legal and regulatory compliance: Ensure benefits align with local labor laws and regulations. This includes tax implications and reporting requirements. For instance, the Family and Medical Leave Act (FMLA) mandates up to 12 weeks of unpaid leave for serious medical reasons or family care, with continued group health benefits.
- Communicate and educate: Clearly communicate benefits to employees, explaining how they work and their value. Offer resources to help employees make informed choices.
Remember, fringe benefits aren't static; they should evolve with shifting needs and preferences. Be sure to regularly reassess your offerings to remain an attractive choice for both prospective and current employees.
FAQs about employee fringe benefits
Can independent contractors get fringe benefits?
Yes, but remember that contractors don't typically receive all the same benefits as employees. Offering benefits can help retain talent, but avoid blurring the contractor-employee line to prevent legal and tax issues.
Do fringe benefits qualify as income?
Yes. According to the IRS, fringe benefits qualify as income and are subject to income and employment taxes—except for a specific list of tax-exempt fringe benefits outlined in Publication 15-B.
What is a cafeteria plan?
A cafeteria plan is a system that offers employees a selection of pre-tax benefits to choose from, similar to picking items from a buffet. These benefits can include options like insurance plans, retirement plans, health savings accounts (HSAs), and more. Employees can customize their choices based on their needs and preferences, and they can even choose not to take any benefits.
Is a lifetime achievement award taxable?
According to the IRS, a lifetime achievement award can be tax-exempt if it meets the following conditions:
- It should be valued at less than $1,600.
- It shouldn't be given as cash, gift cards, or stocks.
Certain items like vacations, meals, and event tickets don't qualify for a tax deduction, but something like a plaque, pen, or wristwatch (as long as it’s worth less than $1,600) would typically be exempt from taxation.
Is a bonus a fringe benefit?
Cash bonuses like performance or sign-on bonuses are a form of fringe benefit. However, tax rules for bonuses can differ based on location.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
