In business circles, employers can't always attract the best professional help via salary alone.
Thus, the ascent of the fringe benefit - valued employee benefits that seal the deal between employer and employee, bringing top talent on board by adding lucrative benefits like health care and a company-owned vehicle, among other fringe benefits, to an employee's financial package.
Still, employees fortunate enough to be the recipient of fringe benefits shouldn't take those benefits without factoring in key questions like tax liability, the shelf life of certain fringe benefits, and whether or not they can be taken away from you in a moment's notice.
While employers are a good first resource for education on fringe benefits, it's up to you, the employee, to learn all you can about fringe benefits, and how to optimize the career "swag bag" experience.
Here's how to get that process rolling.
What Are Fringe Benefits?
Fringe benefits are an "add-on" form of employee compensation that employees can offer career professionals in addition to just a wage or salary.
Typical forms of fringe benefits include:
- Medical and dental insurance
- Year-end and performance bonuses
- 401k, IRA or other employer-sponsored retirement plan, including employee matching contribution plans
- Employee profit sharing
- A company car or SUV
- Housing allowance
- Educational assistance
- Vacation and vacation pay
- Sick days and sick pay
- Free meals, drinks and snacks
- Wellness stipends (like paying for a gym membership)
- Permission to keep your frequent flyer points and card rewards earned on business trips, which can be used for private trips
Recently, companies have also started to offer student loan payoff assistance and free digital devices (think smartphones and tablet computers) to staffers. Also, since telecommuting has become a burgeoning workplace option, companies are also offering to help workers pay for cable connections and smartphone bills.
Maternity leave and paternity support are also examples of fringe benefits that weren't around 10 years ago, but are today.
Once you add all of the above fringe benefits together, you have what human resources managers refer to as "total compensation, which is accumulated as follows:
Salary and wages, plus paid benefits = total compensation.
Structurally, employers will provide an employee benefits statement that lists all the fringe benefits given, and present it to the employee, both for organizational and tax reasons.
That list is generated annually, and includes regular income (i.e., an employee's salary or wages). It also lists partial payments the employer makes make on benefits like health and life insurance. The employee benefits list is also considered by employers as a morale boost and statement of loyalty to valued employees. Certainly, many career professionals who receive large fringe benefit packages from their employers feel that way.
Employers also hope that good "word of mouth" kicks in, and that their employees will tell talented workers at other companies about their company's generosity in prioritizing fringe benefits, leading to stronger hires, higher employee performance, and more robust company revenues.
Why Do Companies Offer Fringe Benefits?
Employers load up on fringe benefits because they have to - it's simply the cost of doing business and remaining competitive in their industry.
Look at it this way.
Talented career professionals have all kinds of employment landing spots, especially since the economy has been on the upswing. To attract that talent, companies have to offer lucrative employment compensation package that includes an ample salary and most - or all - of the fringe benefits listed above.
If they don't, their competitors will, and could load their own firms up with talented, game-changing engineers, accountants, or sales professionals (among many other vocations) who can significantly and positively impact on the hiring company's bottom line.
Studies show that career professionals place a great value on employee compensation that goes beyond salary and wages.
Plenty of valued employees have moved on from a company if they don't seem the fringe benefits sufficient, and go to a company where ample employee compensation is a big priority.
Five Reasons Why Fringe Benefits Are so Important to Workers
Besides earning more financial benefits (which is always appealing to workers), why are fringe benefits so important to career professionals? Here's a snapshot:
1. Happier and More Productive Workers
Study after study shows that the more employee benefits a career professional receives, the happier and better they are on the job.
2. Healthier Workers
Access to good health insurance coverage and wellness programs (like that gym membership) will have you feeling better and doing the types of things (like working out and visiting your doctor regularly) that will lead to a longer life expectancy.
3. Opportunities for Career Advancement
Getting fringe benefits like job training and educational assistance will give new skills that can be put to work in your own vocation, and can lead to promotions, higher salaries, and better-paying posts down the road.
4. Save on Auto Payments and Vehicle Insurance
If you're fortunate enough to be given a company car, you'll not only save thousands of dollars on auto payments every year, you'll save big on vehicle insurance and maintenance, too.
5. Saving Money on Meals
Companies that provide free meals or meal discounts are a boon to career professionals who love to eat well and save money. The more free meals you consume in the workplace, the less you're paying for breakfast, lunch or even dinner away from the job.
Tax Issues With Fringe Benefits
The Internal Revenue Service largely considers fringe benefits to be part of a taxpayer's gross revenues from their employers. That means, according to IRS rules, fringe benefits are subject to income tax withholding and employment taxes.
To both employees and employers, the IRS does offer an annual Taxable Fringe Benefit Guide to steer staffers and managers in the right direction on possible fringe benefit tax liabilities.
By and large, the IRS deems employee benefits in one of three categories:
- Nontaxable (like qualified health plans.)
- Partially taxable (like transportation benefits.)
- Tax-deferred (that means you have to pay taxes eventually, but not right now. A 401k plan or a pension plan is a good example of a tax-deferred employee benefit.)
Fringe benefits are largely tax-exempt to employers, thus giving companies more incentive to provide them to employees.
How to Value Fringe Benefits
For employers and employees, fairly valuing fringe benefits is an important task.
- For employers, valuing company perks and benefits is needed to recognize the total value of any and all compensation. That will keep you in compliance and give you a road map for just how much providing fringe benefits will cost with future employees.
- For employees, properly valuing fringe benefits puts you in compliance with IRS rules, and gives you a measuring stick when competing offers roll in and you need to make a career decision.
That means figuring out how all of those benefits are calculated, taxed and reported to the IRS.
While using the fair market value assessment model is the standard used in valuing fringe benefits, it's not the only way.
Let's take a look at possible fringe benefit valuation possibilities:
Fair Market Value
You can ascertain the fair market value of fringe benefits by figuring out how much the employee would have had to pay for all of their total benefits, if their employer hadn't provided them. Such a calculation must include any compensation paid toward the benefit by the employer.
Valuing Company Vehicles
To calculate the market value of a company vehicle, just calculate how much a staffer would have to pay to rent, lease or buy the vehicle in question. Use IRS Form 15-B to locate the vehicle's standard mileage rate (.58 cents per mile in 2019) and multiply that rate by the total number of miles the staffer drives in a company vehicle on personal business. The resulting figure to get the car or SUV's value, which should be included in the staffer's salary or wages.
For commuting purposes, you can establish the value of any company vehicle by multiplying every one-way commute to the office by $1.50. Again, the resulting figure should be included by the employer in the employee's wages and salary.
A "Win-Win" Deal
No doubt, employers and employees likely view fringe benefits as a "win-win" proposition.
For employers, fringe benefits translate into happier and more productive employees, and a better reputation among employees who may be considering working for the firm.
For employees, fringe benefits can translate into substantial cost savings, more cash for retirement, and even healthier diets and lifestyles.
That's a pretty good deal for both parties, thus ensuring even bigger and better fringe benefit packages between employers and employees down the road.