What Are Fringe Benefits?
Fringe benefits are the “perks” offered by employers that are provided in addition to standard salary. Some types of fringe benefits include tuition reimbursement, health and dental insurance, gym memberships, paid time off, free meals and retirement plan contributions. In addition to the obvious benefits of enhanced curb appeal and improved employee retention, fringe benefits can also boost employee satisfaction and engagement, which in turn can help boost productivity.
Fringe Benefits Examples
Health and Dental Insurance
Health insurance is important to most working adults, and if you employ 50 or more full-time workers you’re legally required to provide it. Offering health insurance coverage to your employees and their dependents makes it easy for them to get a comprehensive plan that they can quickly and easily enroll in. Offering comprehensive health and dental insurance to potential employees helps them see more value in your company and could increase the likelihood that they’ll accept a job offer from you.
Tuition Assistance or Reimbursement
With more people going back to school to earn advanced degrees, offering tuition assistance or tuition reimbursement — and a flexible schedule to allow for class attendance — is a great way to lure top employees and keep them.
Retirement Plan Contributions
Saving for retirement is essential for the majority of working adults, and providing retirement plan contributions is a common fringe benefit to offer your employees. While some employers offer to match employee contributions to their 401(k)s and IRAs, that might not be affordable for many small businesses. Instead, you could offer qualified contributions to retirement plans.
Paid Time Off
Paid time off is a fringe benefit that most workplaces offer their employees, once earned. In many businesses, after an employee works a certain amount of hours (determined by the employer), they’re eligible to start earning paid time off and can use that time for sick days, vacation days or personal days.
Some employers choose to offer free or reduced-cost cafeteria meals to employees so they don’t have to purchase their meals from restaurants or fast-food chains, which can get expensive.
Child Care Assistance
Many working adults have children, and those children could need child care outside of the home while their parent works. Year-round child care services’ costs are often equal to the price of rent in some areas. As a fringe benefit, some workplaces provide on-site child care, while others might reimburse employees’ child care costs. Several potential employees would see this benefit as a plus when considering employment options.
Other Examples of Fringe Benefits
Some fringe benefits are required by law, including Medicare tax, Social Security tax, health insurance (when you have more than 50 full-time employees), unemployment insurance, worker’s compensation, COBRA insurance, family and medical leave (if you have more than 50 employees) and time off to perform civic duties. Other optional fringe benefits include paid holidays, stock options, work from home flexibility, employee discounts, life insurance and adoption assistance, among others.
Why Should You Offer Fringe Benefits?
Offering employee fringe benefits can help you attract high-quality job candidates and potentially give you an advantage when candidates are considering positions at several different companies. The quantity and types of fringe benefits your business offers can outweigh other factors — sometimes even salary — when a potential employee is mulling your job offer.
Offering fringe benefits also helps you keep high-quality employees on staff. When people feel they’re being taken care of, they’ll want to return the favor and take care of you — or, in this case, your business, through loyalty and solid job performances. Good employee morale positively impacts productivity, helping you reach your business goals faster and more efficiently.
Keeping your employees healthy can help save you money on health care costs. According to a report from the health research group Integrated Benefits Institute, poor worker health can cost 60 cents for every dollar that you spend on health care benefits; annually that amounts to about $530 billion. That number factors in things such as lost productivity due to employee absences, among other factors. So, if you want to keep costs low, make sure your employees get the benefits they need to keep them in good health, such as paid time off (PTO), wellness programs, health care, family and medical leave and more.
What is a taxable fringe benefit? Some fringe benefits are considered taxable income, meaning they should be included on each employee’s W-2. Those benefits include moving reimbursement expenses and excessive mileage reimbursements. If your employees have to move in order to accept a job with you, those expenses are taxable. And if they rack up mileage in their personal vehicles for business-related trips — and it exceeds $0.54 per mile — that’s taxable as well. Another taxable expense? Any clothing provided to employees that they can wear outside of the workplace.
Choosing Which Fringe Benefits to Offer Employees
When considering which benefits to offer your employees, think about what you can afford as well as what your objectives are. Consider the size of your business, your location, the culture of your workplace and your industry. For example, candidates for entry-level positions — and even long-term employees — might see a career advancement program or tuition assistance as a boon. If your company sells athletic equipment or something related, it would be fitting to offer gym memberships. Think about what kind of benefits the people working in your industry would find most valuable. In some instances, childcare might be seen as a better perk than a gym membership.
Before you make a decision on what benefits to offer, you might wonder how to calculate fringe benefits’ overall cost. You can conduct a cost-benefit analysis, which is a process to weigh the sum of the benefits against the costs. To perform this analysis, make a list of all the costs and benefits for each fringe benefit and give each cost and benefit a monetary value. Then, plug the numbers into a cost-benefit formula to determine whether each benefit is worth providing based on your budget. You can use a basic formula such as benefits divided by cost. You can also use an online fringe benefits calculator.
Once you’ve decided which fringe benefits you want to provide to your employees, look into providers — companies that manage benefits on your behalf.