PRM/U5 Topic 3 Fringe Benefits
Fringe benefits are a type of compensation provided to an employee outside of his normal wage or salary. Many years ago, employers began to understand that potential employees give great consideration to the wage or salary offered. In an effort to tempt a qualified individual to accept employment with the company, rather than going to a competing company, many employers began offering non-wage compensation in addition to the actual salary offered.
These fringe benefits, often in the form of employer-paid life and health insurance policies, retirement benefits, and other things that might aid in the recruitment of top quality, skilled workers. In fact, fringe benefits play a large role in keeping workers motivated to do quality work and increase production. Some fringe benefits may be classified as taxable income by the IRS.
Types of Fringe Benefit
Many employers offer employees an array of fringe benefits in addition to their salaries. Also considered “job-perks,” these benefits cost employers, who pay for such perks, and are therefore considered a portion of the employees’ salaries on their books, even if the benefits are not in the form of money, such as bonuses. There are many types of fringe benefit, and which types are offered often depends on the type of employer, and value of the employee’s position.
- Taxable Fringe Benefits
According to the IRS, any fringe benefit provided by an employer may be taxable, unless it is specifically excluded from taxation. The IRS provides specific information regarding fringe benefits, including which are considered taxable. Some of the fringe benefits that may be taxable under certain situations often include payment of, or reimbursement for, things in an excessive amount. These include:
- Excessive Moving Expenses – if an employer reimburses or pays for an employee’s moving expenses, when the move was less than 50 miles from the employee’s current residence, may be taxed.
- Excessive Mileage Reimbursement – employer reimbursement for business-related driving of the employee’s private vehicle may be taxable if the total exceeds the IRS’ standard mileage rate.
- Expense Reimbursement – expense amounts reimbursed to an employee with the employee’s sufficient accounting, may be taxable.
- Clothing Reimbursement – employer reimbursement for clothing that is not strictly for work on the job, but which is suitable for everyday street wear, is taxable.
- Working Condition Benefits – any equipment or supplies purchased by an employee that is used for work purposes exclusively, it is tax free. If the item is used for any personal purpose at all, it is taxable.
- Excessive Education Expenses – Educational assistance for education that is not job-related, or which the amount exceeds the IRS allowable amount is taxable.
- Awards and Prizes – Employee awards and prizes that are given in cash, are taxable, unless they are given to charity in the employee’s name. Valuable non-cash awards may also be taxable, unless the value is minimal.
Non-Taxable Fringe Benefits
There are many types of non-taxable fringe benefits that may be offered to employees without increasing their tax burden. Some of the most common tax-free types of fringe benefit provided to employees by private and public businesses include:
- Insurance Coverage- Insurance coverage is perhaps the most common fringe benefit provided to employees, though the structure of how insurance is paid for has changed in recent years. Insurance coverage may include employer-paid life insurance, health insurance, and short or long-term disability insurance. When an insurance coverage fringe benefit is offered, the employer most commonly shares the cost of premiums at a certain percentage, thus reducing the amount for which the employee is responsible. Of course, insurance coverage may be offered entirely at the employer’s expense. Some employers also offer health savings accounts to their employees, often matching the employees’ contributions to the plan.
- Childcare Assistance- Childcare assistance is one fringe benefit that comes in handy for many families, and may increase attendance at work, as well as productivity. This is because parents have additional responsibilities in ensuring their children are well cared-for while they are at work. Many large employers are offering on-site childcare, either free of charge, or at a discounted price. This allows parents to concentrate on their work, knowing their children are close by, and being cared for. Some smaller employers, while unable to maintain an on-site daycare facility, offer a cost-share for daycare.
- Physical Fitness- Some employers make it a priority to ensure their employees have access to gyms or fitness centers in order to promote a healthy lifestyle, which in turn increases attendance and productivity. Some companies maintain on-site fitness centers, where employees can work out on breaks or other off times, while others offer paid gym memberships, or memberships at a discounted price.
- Education Assistance- Education assistance in the form of tuition reimbursement, or other assistance in adding to an employee’s education or skill set, is one of the more popular types of fringe benefit offered by employers. Helping an employee gain new job-related skills or knowledge helps the company, as the employee is then able to work at a different level in his current position, or may become able to advance into new areas of the business.