Fringe benefits

Fringe benefits encapsulates the rewards from a job that an employee receives beyond their actual salary. Whilst compensation will be the primary influence for an employee's decision-making process, there should be a consideration for the additional perks of working for one organization over another.

Employees can be offered many types of fringe benefits. Typical fringe benefits include employee discounts, health insurance (sometimes including family members), a company car and employee stock options.

There are also some fringe benefits that are required by law. For instance, any organization with over 50 employees must provide healthcare plans. Moreover, there is also unemployment insurance that comes under the Federal Unemployment Tax Act (FUTA), along with medical leave and worker's compensation which is administered by the Department of Labor.

The reason for providing these additional fringe benefits is to compensate employees for their services to the company. Highly compensated employees are far more likely to better engage with their work. As ever, the more engaged your workforce, the more productive they will be.

Taxable Fringe Benefits

In some cases, fringe benefits are taxable. For example, a cash bonus or other financial benefits paid by the employer may be subject to tax. From an HR perspective, guidance on this can be provided to employees - an employer tax guide to fringe benefits can help to clarify the conditions in such circumstances.

The reason for these taxable benefits is due to the fact that an employee is subject to a particular amount of income taxes. These conditions, however, may not apply to independent contractors. Regulations with regard to taxing fringe benefits for independent contractors are liable to change dependent on the physical location of work.

Those working in the US, or for a US-based company, are able to learn more about how their fringe benefits are taxable by making reference to the IRS Publication 15-B. Within this publication, there are comprehensive explanations for conditions around group term life insurance coverage, types of fringe benefits and other laws and regulations.

Taxes on fringe benefits were introduced so that employers would be encouraged to pay employees properly. On the other hand, fringe benefits may have been abused as a means to compensate employees tax-free. As a result, there are set limits to the extent to which companies can give in terms of fringe benefits before tax.

Whilst all of this information may seem somewhat confusing, at it's core fringe benefits are essentially attributed as form of compensation. Dependent on the value of such employee benefits, employees might accept a slightly lower salary in order to receive, alternative yet useful, fringe benefits.