In the ever-changing world of work, offering additional benefits, known as fringe benefits, is not only a necessity, but practically required to help employers find and recruit top talent. By offering certain fringe benefits, companies can double down on their commitment to valuing employees.
While fringe benefits can range anywhere from the basics like health and life insurance packages to extra frills like DoorDash vouchers, some companies offer more fun and obscure benefits. PetSmart and Amazon, for example, allow workers to bring their dog to work. For some PetSmart employees, you can even bring your dog in once a month for a free bath.
With so many different types of fringe benefits on the table, designing compensation packages has gotten trickier. For HR teams at scaling companies, choosing the right fringe benefits has never been more challenging.
Here is our ultimate guide to fringe benefits, including information about 8 common benefits companies offer their teammates in order to create a competitive and rewarding compensation package.
Fringe benefits are added perks and bonuses that businesses give to their employees as part of their compensation and benefits package. While some companies universally give all employees the same benefits, others provide special perks to highly compensated executives and manager.
Companies hiring employees for in-demand jobs in competitive sectors tend to offer more extensive fringe benefits to excite prospective candidates. Microsoft, a top tech company, offers 20 weeks of paid time off for new mothers and 12 weeks of parental leave for other new parents.
Thanks to major tech companies like Google, Meta, and Microsoft, knowledge workers across the spectrum expect more robust fringe benefits as a part of their new work contract .
Some reasons companies offer fringe benefits include:
As an added hiring and recruiting strategy to attract top talent
Motivation tactic to encourage performance
A means to keep employees learning on the job
Some benefits like health and life insurance aren’t taxed, while others are taxed at a fair market price
Show that you care about your team’s hard work
The goal of offering fringe benefits is to provide your employees with the best work/life balance as possible. This is especially true in the United States, where companies are not required to offer benefits like retirement and healthcare.
If you go above and beyond when creating compensation packages, you will help mitigate the effects of burnout, as well as show your team that you see them as a person, not just another cog in the machine.
Yes, most of the time. Fringe benefits are considered a taxable source of income and should be included in the employee's pay.
One of the best ways to understand if a fringe benefit is taxable in the United States is to research and understand the IRS’s publication 15-B tax guide that lays out exactly what is excluded as a non-taxed benefit.
On-premise meals and services
Health savings accounts
All other benefits are considered part of an employee's income tax withholding and included as part of their salary. Employees are taxed at the fair market value on the benefits when calculating their annual income taxes.
For employers, fringe benefits are considered a write-off. You will still need to keep track of these benefits in your payroll to make sure that you are properly deducting your write-offs at the end of the year.
Thanks to recent legislation in the US over the past 10 years or so, including the Affordable Care Act, employers have to provide more than just federal unemployment and workers compensation to their employees.
Employers in the US are required to provide the following benefits:
Health insurance. If an employer has more than 50 employees, then they are required to include in compensation packages some form of health insurance under the Patient Protection and Affordable Healthcare Act (2010). In some other countries, insurance coverage is offered through social security
Unemployment insurance. This is federally required (per the Unemployment Tax Act) by every employer no matter the size of the company. Unemployment insurance is meant to help as a brief monetary assistance for employees in-between jobs and to help fund the job search. This is sometimes referred to as the federal unemployment insurance mandate.
Workers compensation. Another long-standing requirement, workers compensation must be paid into by employers in case an employee is injured or becomes sick while at work.
Medical leave. Another recent federal requirement, employers with over 50 employees must provide family and medical leave for up to 12 weeks if employed with the company for 1 year. This leave is unpaid.
Health care coverage is one of the more common fringe benefits for employees, even for companies with fewer than 50 employees. Most companies opt to provide their employees with either fully covered health insurance or some sort of health savings plan.
On top of offering extended health insurance plans, companies should also consider offering their employees dental and vision insurance. These two subsets of insurance are not always part of a regular health insurance plan, but they are both necessary parts of healthcare. By giving employees the option to add on dental and vision, you are setting them up for healthy lifestyles.
Pension plans and retirement savings plans help your employees invest long-term in their retirement. Most employers choose to match the contribution that their employees make each month from their paycheck. This is a great way to start building for retirement, and it also helps younger generations think about their future financial goals.
401k’s act as investments accounts for retirement. Employees contribute a percentage of their paycheck to their 401k usually between 3%-6%, and some employers match that contribution at 50% or more. Many brokerages offer financial planning services as well.
Giving your employees reimbursements for money they’ve already invested in their education is a great way to show that you value the hard-work and the pursuit of new knowledge. t Companies like Amazon offer a 95% tuition reimbursement annually for employees who are enrolled in a degree program.
Some jobs may require additional training or degrees, like an MA or MBA, so employers who want certain employees to have this additional training should consider offering some sort of assistance or reimbursement for their employees tuition.
Child-care can be costly, so offering your employees reimbursement or even on-site childcare is a great way to help ease the stress of working full-time with kids, especially for single parents.
For those that commute to work, finding the personal time and money to invest in eating everyday can be an added stressor and expense.
Many companies have begun to offer meals as an additional employee fringe benefit by either having a cafeteria that provides lunch everyday to employees or providing DoorDash or UberEats vouchers. Some companies in the US have stellar cafeteria options (Google and Apple for example).
In some countries, including Mexico and Spain, offering employees meals is much more common. Companies in the United States are just starting to catch up. Bonus points if your cafeteria menu has a wide-range of healthy options to maximize employees' energy and well-being.
Another great employee benefit to offer is the option to take out below-market loans. These are loans that are provided to the employee at a lower interest rate than if they would have gone and applied by themselves. This benefit is also considered a deduction because the difference between the regular market price (AFR) and the reduced rate the employer deducts for the employee’s compensation is how the interest rate is calculated.
This also helps employees invest in their future by buying a home or car.
Employee stock options are a form of equity that your business can give to their employees as a form of compensation. Instead of granting the shares directly, many companies give derivative options instead, which allows employees to buy stocks at a specified price for a certain amount of time. This is a great option for tech startups and other businesses that have hopes of stocks rising above the exercise price.
For privately-held startups, the equity won’t be worth anything unless the company sees an exit (e.g., is acquired or goes public). Most startups offer new employees around 1%.
Although not necessary in every business, companies like Enterprise allow some of their management employees to have a company vehicle that they can use to get to and from work as an additional employee fringe benefit. Some jobs require a lot of travel time to and from job sites, so giving employees this option helps with overall performance and reduces their stress of having to use their own car or find transportation.
Similarly, some companies, like Google, offer transportation through their Google tech shuttle, or offer some form of public transportation reimbursement. Encouraging public transportation helps reduce carbon footprints and also demonstrates that employers are aware of the stress of spending money on commuting everyday.
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There are many different examples of fringe benefits. Some include: meal reimbursements, pension plans, tuition reimbursement, employer-provided cell phones, group-term life insurance, accident and health insurance, dependent care assistance, and use of a company vehicle.
Fringe benefits and benefits can be used interchangeably, as most benefits in the US are not required by law and are therefore considered additional compensation. However, The US department of labor classifies fringe benefits as “contributions by the employer for a third-party or trustee for pension, life insurance, and health insurance.”
These types of benefits are called fringe benefits because they are “on the fringe” and not mandatory. Vacation time, health insurance, and pension plans do not form part of a worker’s base salary.
Most of the time, fringe benefits are taxable and are considered part of an employee's annual taxable income. They must be reported unless the law states otherwise. For the employer, these benefits are considered a tax write-off.