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Summary: In an effort to attract and retain great talent, employers often offer fringe benefits to employees and contractors. These benefits are developed to appeal to individuals who are looking for more than just a paycheck.
In an effort to attract and retain great talent, employers often offer fringe benefits to employees and contractors. These benefits are developed to appeal to individuals who are looking for more than just a paycheck. From standard fringe benefits to some of the more unique forms of compensation, this article will present a wide variety of fringe benefits you may consider for your workforce.
Fringe Benefits
In the broadest of definitions, fringe benefits are anything of value offered to employees and independent contractors (in addition to their income) as compensation for services rendered. Fringe benefits may be offered to some or all workers, often at the discretion of hiring managers or company leadership based on certain criteria.
While they are not required, most employers understand the importance of developing benefit programs that support recruitment and retention efforts. Recent USA Today surveys indicate that nearly 80% of employees are concerned with the rising costs of healthcare, which makes them more likely to seek other employers who offer better benefits. When there are shortages of qualified workers, competition for talent is difficult, so employers can use fringe benefits to build compensation and benefit plans that stand out. Oftentimes, these fringe benefits are low cost or free. Fringe benefits also honor diversity and inclusion by connecting meaningful perks to the employees who prefer them.
You might be wondering what fringe benefits you can offer to your workforce? In the next section, you will learn more about the different types of fringe benefits available.
What are some examples of fringe benefits?
Fringe benefits generally fall under either standard or creative categories. Since fringe benefits can be anything offered to employees and contractors outside of their financial compensation (wages, salary, fees, bonuses, commissions, etc.), they can include a long list of benefits—some expected by the average employee and those that are more creative and viewed as “perks” of employment. Employers can design benefits that fall under both categories if they choose to offer a more competitive plan.
Standard fringe benefits
When designing a standard benefit plan for employees, there are certain benefits that employees have come to expect. These fringe benefits essentially set the standards in hiring and total compensation. These may include benefits that have a cash or non-cash value. Fringe benefits that are standard can include:
- Employer-sponsored health insurance
- Dental and vision insurance
- Supplemental/voluntary insurance
- Life insurance
- Paid time off
- Sick leave
- Retirement savings matching
- Health savings accounts
- Employee stock options
- Company payroll loans
- Corporate discounts
- Training and professional development
- Tuition reimbursement
- Banking and debit card programs
- Wellness support
- Job-related use of company vehicles
- Company computers and mobile phones
- Dedicated desk space and supplies
- Uniforms
- Special licensing and certification
- On-site child care
- Dependent care assistance
- Pet insurance
Creative fringe benefits
Going above and beyond the standardized employee benefits, creative fringe benefits can be anything that may represent a value to employees. This takes more thought to develop, but there are many ways to add or expand perks to a benefit plan that will be appreciated by your workforce. This effort can indicate to candidates that a company is worth considering if it has taken the time to understand what employees want and need from their employer. Here are some creative fringe benefits to consider:
- Awards for achievements
- Premium parking spaces
- On-site wellness services (massage therapy, dieticians, counseling, etc.)
- Live workshops and lunch and learns
- Home office remodeling funds
- Pet-friendly corporate offices
- Transportation reimbursement
- Rewards and recognition programs
- Afternoon tea time or treat breaks
- Nap pods for employees
- Earned sabbaticals
- Financial and debt counseling
- Discount electronics and software
- Free meal delivery
- Adoption assistance
- Fertility assistance
- Private rooms for breastfeeding
- Shipping and dry cleaning services
- Corporate housing and lodging
- Extra/unlimited time off
These are just a few examples of the fringe benefits that any employer can choose to offer their workforce. When developing your own fringe benefits, consider what your employees want and need to have a more positive work-life experience.
How do fringe benefits work?
Just like any other benefits and compensation plan, fringe benefits must be carefully managed by human resources to be effective. Usually, the idea to add fringe benefits comes from what will satisfy and surprise employees. This involves analyzing what employees want—both what they expect and the unexpected. The benefits can then be evaluated to determine if they are a reasonable cost to employers and if they belong in the company benefits package.
Selecting fringe benefits
Understanding what motivates employees and contractors can be as simple as surveying them at different stages in the hiring and employment experience. Oftentimes, employees are more objective (and therefore vocal) at the start and at the end of their employment. Employers taking the time to get to know their employees’ wants and needs can identify ways to build fringe benefits into standardized benefit packages.
The next source for designing fringe benefit plans looking at the competition. Talent managers post benefits as part of recruitment advertisements. It’s critical to study the benefits being offered by other organizations for similar types of jobs and industries. Outside of job adverts, there are online sources that list companies with unique benefits. There are also news publications and associations that rate companies for their popularity based on the perks they offer. Employees often write reviews about their current and former employers, which provides insight concerning fringe benefits.
Lastly, every employer needs to evaluate fringe benefits based on data points. Historical information on the use of benefits currently offered can reveal their usefulness from the previous annual package. If employees are not enrolling or using certain benefits, they may not actually consider them useful, therefore they should be eliminated from the next benefits plan. Looking at health informatics can also reveal if new fringe benefits can be of value to employees. For example, if there is a high number of employees who are dealing with obesity-related medical care, perhaps some fringe benefits focused on supporting healthy eating and exercise would be welcomed.
Evaluating fringe benefits
Once a set of fringe benefits has been brainstormed, it’s time to review any costs and regulations associated with them. The Internal Revenue System (IRS) has strict rules around what benefits count as taxable income and those that are considered non-financial perks. (See the 2024 IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits) While they seem complex at first, and there are updates, here you can find a general breakdown to help you get started with evaluating and including fringe benefits in your employee benefits plan.
But first, let’s define what the IRS says about the rules around fringe benefits.
The IRS states that anyone who performs services on behalf of or for your organization can be an employee, an independent contractor, a partner, or a director. This can also include an agreement with an individual not to perform certain actions (non-compete).
If this individual accepts fringe benefits as compensation, they are referred to as the recipient of the benefit. This is still the case even if the fringe benefit is given to a member of the employee’s family or if the individual accepts the fringe benefit for performing or not performing services.
The provider of the benefit is the entity that issues the benefit to the recipient. This can include an employer or a third party that provides the benefit to the individual (such as a client or vendor). For example, a daycare provider may give employees free daycare for their children as part of compensation.
The important thing to remember is that anything that is valuable to another can be considered a fringe benefit.
Taxable or non-taxable?
The IRS determines if fringe benefits are taxable based on special criteria. Unless legally exempt, employers must include fringe benefits as taxable income with a determination of value. There are also limits as to how much of the fringe benefit may be exempt from taxes. The IRS supplies a list of fringe benefit exemptions and limitations to help make this clearer.
Employers must report income based on any amount that the IRS excludes from pay (using the above reference) and any amount that the recipient may have paid for the benefit (for example, a discounted gym membership fee).
How can fringe benefits can improve your workplace?
Fringe benefits can provide many advantages for employers as well as recipients. The main goal is to be competitive by offering benefits that are appealing to employees and will help keep them on board. Fringe benefits are flexible and offer the opportunity to be creative when designing benefit packages. They are also less financially burdensome than other benefits offered, which saves everyone money. While they do come with their own set of rules and must be managed, most of them work in the favor of employers who wish to offer a more robust benefits plan.
Employers who decide to include fringe benefits in their benefits and compensation packages should consult with a qualified tax advisor before doing so. This helps to prevent any compliance issues.
FAQ
Employers provide information about taxable fringe benefits on an annual basis using form W-2 (for employees) or 1099 (for contractors).
According to the IRS and the US Department of Labor (DOL) Wage and Hour Division, payments required by federal, state, or local law cannot be considered fringe benefits.
Andrew (Drew) joined the Remote People team in 2020 and is currently Director, Regulatory Affairs. For the past 13 years, he has been a trusted advisor to C-Suite executives and government ministers on international compliance and regulatory issues. Drew holds a law degree from the University of Otago, a PhD from the University of Sydney, and is an enrolled Barrister and Solicitor of the High Court of New Zealand.
