Most employers, both in the public and private sectors, provide various benefits aside from regular salaries for their employees. These perks of the job are normally referred to as fringe benefits, and the compensation types vary widely between one employer and another.
What Are Fringe Benefits?
Fringe benefits are the term used to refer to additional compensation for employees given by employers. The benefits sometimes are granted to compensate the costs employees that have to put out related to work, while some others are meant to provide general satisfaction over their job. Nevertheless, they are offered by employers to motivate, recruit, and maintain their high-quality employees.
What Types of The Benefits Available?
There are two main types of these benefits, as explained below:
Law Mandated Benefits
Some examples of benefits that are being mandatory by law to be provided by employers are:
- Health Plans
Companies that hire over 50 employees at a time are required to provide healthcare insurance, to have the health plan of the employees covered.
- Medical Leave
Companies that hire over 50 employees at a time are required to provide their workers with providing family and medical leave. The leave compensation may last for 12 weeks for those who worked more than a year in the company.
- Worker’s Compensation
Federal workers who suffered from injuries on the workstation or obtain disability are required to be provided with benefits such as medical treatments, rehabilitation, and wage replacement.
- Unemployment Benefits
It is required by the Department of Labor for employers to reimburse unemployment tax at state and federal levels. It is meant to provide temporal monetary help to employees who are terminated not because of their fault and meet the law’s requirements.
Non-Law Mandated Benefits
These types of benefits are granted by the discretion of the company and most of them are taxable, with only several exceptions. Some examples of these non-law-required benefits are paid holidays, commuter benefits, employee discounts, achievement awards, services of retirement plans, stock options, and so many others.
READ ALSO: Federal Withholding Tables 2021.
Why Are They Provided by Employers?
Here are the reasons why nearly all employers invest in programs of fringe benefits:
- To Gain Better Public Perception
Companies that are known to provide great extra benefits besides salaries often perceived better than their competitors, which gives the advantage of drawing more stakeholders. Customers are more likely to buy products and use services from a business that’s not able to have a safe working environment and treat their employees well.
- To Provide Contentment For the Employees
When employees cannot work optimally due to illnesses or injuries acquired during work, companies will lose money. Giving wellbeing-related benefits such as health plans, coverage for dental care, and gym membership may improve the employee’s health and decrease sick leaves.
- To Achieve Better Engagement From Employees
When employees feel appreciated, they are more likely to work harder in order to contribute more to the company. Offering extra benefits helps to create better employee engagement and decrease work dissatisfaction.
Frequently Asked Questions & Answers
1. Are the Benefits Taxable?
Nearly all the provided benefits that aren’t required by the law are taxable unless being specifically excluded by the regulations.
2. Is a Cash Bonus Considered as Fringe Benefits?
Yes, any cash or cash equivalent bonus should be reported on the W2 form of the employee as additional income.
3. Is Vacation Time also Considered as Taxable Benefits?
Yes, paid holidays (and sick leaves) are included as extra work benefits.
4. What If the Supplemental Benefits are Accounted for Wrongly?
In this case, IRS will send the employer’s match payroll taxes bill for the employers. The employers need to adjust the W2 form, W3 form, and 941 forms, as well as correct their individual tax returns.
Besides advantageous for huge companies, the fringe benefits strategy is also beneficial for small businesses. This way, they can experiment to compete with their bigger rivals by tailoring the additional benefits to match with employee’s needs.