The Evolution of Fringe Benefits
Wellness programs, employee discounts, commuter benefits, and free lunches are all perks that employees may be eligible to get because they work for a company. These are sometimes called “fringe benefits”. When used appropriately, they can be a powerful tool for employers to recruit and retain talent.
What are fringe benefits?
The Bureau of Labor Statistics defines benefits as “nonwage compensation paid to employees”. This is a broad definition of benefits, so for the purpose of this article, we will distinguish between basic benefits and fringe benefits. Basic benefits are those HR solutions that employees have come to expect from companies. This includes benefits such as health insurance, retirement plans, and paid time off. Some industries may also include shift differentials and holiday pay as part of their basic benefits.
Fringe benefits are different. They are not as easy to define because they are always evolving. Companies are adding new ones to their perks based on the preferences of their employee population, business strategy, and tax law implications. Some are common. Gym memberships, snacks or meals, employee discounts, and free or discounted access to public transportation are popular employee incentives. However, fringe benefits can include anything your employees will appreciate and that you think will motivate them to work towards business goals.
The increasing importance of fringe benefits
HR solutions to business challenges have a long history in the United States. After the passage of legislation to allow collective bargaining in the 1930s, unions began to negotiate on behalf of the employees they represented. They began to negotiate for things beyond wages and working conditions. During World War II, wage and price controls prevented companies from competing for employees on the basis of pay. Instead, companies got creative and started to offer health and retirement benefits to employees to make up for stagnant wages. This is the basis of the workplace health insurance system we have today. Since then, companies have offered different perks with the hope that they could recruit and retain top talent compared to their competition. This is particularly important for companies during lean times when they may not have the cash to spend on cash compensation but they want to motivate through other employee incentives.
What you need to know about fringe benefits
One important consideration when it comes to benefits is to understand how the IRS views these employee incentives. In some cases, these are taxable benefits, which means you need to track and report them. Anything that is a form of payment for services is taxable unless there are specific exemptions (such as qualifying health and retirement benefits) and de minimis benefits. There’s no specific dollar amount used to value benefits, but anything that would be hard to track has a low market value or is an “arms-length” transaction can be considered de minimis. Some examples of de minimis benefits include occasional parties or events for employees, occasional use of company equipment, and small holidays gifts (i.e. holiday turkeys or hams). Using a benefits provider like Vantage Point can help you manage your fringe benefits and track the amounts that need to be reported to the IRS. They can also help you track changes to the tax code over time to help you keep compliant.
Examples of common fringe benefits
- Fringe benefits are not just for large companies. Small- and medium-sized businesses can offer competitive employee incentives without breaking the bank. Here are some examples of common fringe benefits:
- Wellness programs — this includes gym memberships (or discounts), in-office massages, on-site fitness centers or classes, and fitness subsidies.
- Employee discounts — companies often have large contracts with third parties which can be extended to their employees. For example, cell phone discounts and software programs are common. In some industries, employees receive discounts for products or services that they purchase from their employers.
- Educational programs — many companies invest in training and developing their employees for the job, but some companies offer educational programs that help employees with real-life issues. For example, some companies offer programs on managing personal finances or retirement.
- Commuter benefits — these benefits help subsidize or pay for transportation to and from the office. In cities, this might include discounted or free public transportation. There may be incentives for people to bike to work (or maybe motorized scooters as they become more popular). In some cases, this might also include free or subsidized parking in a place where parking is not free.
Examples of not-so-common fringe benefits
Companies are getting creative with their employee incentives based on their mission and vision statements. Some examples include:
- Paid time off to do volunteer work — this can be a team effort or individual effort.
- Sports leagues — company-sponsored teams made up of employees to help foster relationships.
- Pet-friendly offices — bring your dog to work
Often, unique benefits are specific to the industry. For example, people who work in the travel industry have access to discounted trips. These unique benefits are specific to the company and industry.
What employees expect
Employees have come to expect some fringe benefits from their employer and it’s a great way to stand out as an employer who cares about their people. One of the important things to consider when you decide to offer fringe benefits is what HR solutions will appeal to your employee population. Offering daycare doesn’t mean much if your employee population trends younger and without kids, although this might be something to consider adding in 10 years or so! Nor should you add a benefit like a games room if it does not fit your employee culture just because it’s the latest trend.
Every company should have a yearly compensation statement that highlights the benefits that the company offers. Anything that can be quantified, such as commuter benefits or lunches, should be tracked. Other fringe benefits that cannot easily be tracked can be listed in an explanation of benefits. This will help your employees understand and value everything you offer them and can help to increase engagement.