What Are Fringe Benefits?
A fringe benefit is any sort of payment given to an employee for performance or services that are outside of their regular pay. It also can be offered in forms other than standard pay such as employee discounts, access to a company vehicle, employee meals, etc. Some benefits are or may be mandated on a state or federal level like health benefits, social security, worker’s compensation, and protected medical leave.
The IRS has defined who is eligible to receive fringe benefits, and who can offer them as the following:
- Provider of Benefits– an employer is the provider of the benefit if it is provided in exchange for services provided for the company. For example, if your company provides company-sponsored vouchers for daily lunches at the local deli, your company is the provider of the benefit even though it is the deli providing the lunches.
- Recipients– The individual providing services for your company does not need to be an employee to receive fringe benefits. Independent contractors, partners, or directors are illegible to receive benefits. Additionally, the recipient can extend the benefit to their family in certain situations like health benefits or dependent care benefits.
Health-Related Benefits
This includes your standard health insurance benefits that are in some cases mandated. In addition to traditional health insurance, these benefits can also include a variety of options such as flexible spending accounts, health savings accounts, long & short-term disability, and group term life insurance.
Retirement Plans
This can include employer-sponsored 401 (k), Roth IRAs and even covering the cost of a financial planner to work with their employees to develop personal financial strategies. Some states even have regulations regarding employee-sponsored retirement plans.
Bonuses & Awards
Bonuses are a common form of additional benefits that can be offered to an employee on a timed schedule or based on merit and achievements. Bonuses can be awarded in the form of additional pay or other tangible forms such as trips or physical items like trophies and certificates.
Transportation Benefits
In some cities, employers can offer their employees pre-taxed plans that cover traveling expenses.
Miscellaneous Benefits
Other types of fringe benefits include:
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided equipment (cell phones, vehicles, etc.)
- Athletic facilities on-site or memberships to gyms
- Dependent care assistance
- Employee housing
- Meals
Fringe benefits are subject to employment taxes and must be reported on an employee’s W-2. The benefit must be included in the recipient’s pay unless the law specifically excludes it. There are circumstances in which benefits or recipients don’t warrant employment taxes or they have specific exclusion rules which are defined by the IRS here.
Ultimately, offering voluntary fringe benefits is one way to make your company more competitive for job seekers and can help you increase the quality of potential candidates that apply to your open positions. It may also help with overall employee satisfaction and wellness.
Learn more about how Payroll Systems can seamlessly integrate benefits into its payroll service to help you empower your workforce.
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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.