Define Fringe Benefit

Understanding the concept of fringe benefits is important for employees and employers alike. Fringe benefits can effectively increase the amount of money you receive from your job without increasing your salary. Fringe benefits may be offered as part of your compensation when you get a job or may be negotiated before or after accepting a job offer.

Definition

Fringe benefits include any compensation you receive from your employer outside of monetary compensation or wages. Fringe benefits may also be referred to as perks of employment and can come in many forms.

Types

There are several types of fringe benefits. Employer subsidized health insurance may be offered as a fringe benefit. A company car, a home provided by your employer, access to a company jet, daycare services, company-sponsored education in the form of tuition reimbursement and stock options can all be considered fringe benefits. These benefits are often based upon the number of hours you work, so full time employees are more likely to receive fringe benefits than part time employees in most companies.

Positive Aspects for Employees

Fringe benefits have several positive aspects for employees. The benefits provided may allow employees access to vital services at a lower cost than they would pay on their own. Employer sponsored health insurance may make health insurance far more affordable for the employee not only because the employer is picking up part of the cost, but also because the cost of a group health insurance plan is lower than the cost of an individual health insurance plan. Fringe benefits also allow you to increase the amount of your wages you keep for yourself. If your company provides you with daycare, you do not have to spend that money out of your salary. Company cars, gas cards, homes and other perks have the same result.

Positive Aspects for Employers

Employers can use fringe benefits to attract top talent for their businesses. Offering a great health insurance plan and a company car may recruit employees from competitors who don't offer such perks. Offering fringe benefits can also be cheaper for employers than offering an employee a raise. Also, certain fringe benefits such as stock options can make employees more invested in the company and encourage employees to feel more personally responsible for the company's success.

Considerations

In the United States, certain fringe benefits are taxable while others are not. For example, reimbursement for travel expenses for company business trips is a fringe benefit but it is not taxable. However, a $200 travel mileage allowance that is paid to employees without requiring an accounting of miles driven is considered taxable income. The IRS Taxable Fringe Benefits Guide provides a detailed list of which benefits are taxable and when employers should withhold federal income taxes at a higher amount based on fringe benefits.

References

• Internal Revenue Service: Taxable Fringe Benefit Guide
• Fringe Benefits Management Services Administration