There are many things to consider when offering an applicant a position within your company. The salary of the position is probably the first thing a potential candidate will look for. After the position’s salary, the benefit package that you offer will be a key to attracting and hiring new employees. Any additional benefits or perks that an employer offers an employee beyond financial compensation are known as fringe benefits. This could be a benefit as important as a paid time off package or as small as a gym membership discount. Furthermore, it is important to understand how to track and report your company’s fringe benefits to maintain compliance.
What are fringe benefits?
Fringe benefits are any additional benefits or perks that a company provides to its’ employees other than the employee’s pay. Examples of fringe benefits include:
- Health Insurance
- Workers Compensation
- Retirement Plans
- Family Medical Leave
- Health Savings Accounts (HSA)
- Vacation Time
- Tuition Reimbursement
- Travel/Mileage Reimbursement
- Commuter Benefits
- Meal Compensation
There are other types of fringe benefits, but these are the most common examples. A key takeaway is that fringe benefits are not just the small and uncommon perks, they can be important benefits to offer your employees, such as health insurance and retirement.
Why offer fringe benefits?
It is important to offer a combination of fringe benefits to your employees to foster employee engagement and retainment. Most companies are offering additional benefits to their employee beyond just financial compensation. For this reason, certain businesses stand out above the competition to potential applicants. Depending on your financial situation, offering a few or many fringe benefits can go a long way towards making your company attractive to current and future employees.
Additionally, there are potential tax savings that businesses can receive when offering fringe benefits. Certain benefits that offer tax deductions to businesses could result in huge savings for small businesses. A few deductions to be aware of include:
- Health insurance tax credits – small business that qualify can receive tax credits based on their contributions towards employees’ health insurance premiums. In Maine, certain business will be eligible for tax credits through the Maine Small Business Health Insurance Premium Support Program.
- Retirement plan tax credits – certain tax credits are available when a business starts a 401(k) for their employees. These credits are both available to the business owner on their personal tax returns and the business.
Are fringe benefits taxable?
In regards to tax compliance, certain fringe benefits are considered taxable by the IRS (IRS Taxable Fringe Benefit Guide) while others are not. Employers must withhold state and federal income tax as well as pay FICA taxes on those benefits that are considered taxable. Subsequently, taxable benefits must be reported on an employee’s W2. Knowing the differences between taxable and tax-exempt can save your business potential tax penalties.
First, examples of taxable benefits include:
- Moving expenses paid above actual incurred expenses
- Vacation expenses
- Personal use of employer-provided vehicle
- Group term life insurance above $50,000
Secondly, examples of non-taxable benefits include:
- Accident and health benefits
- Achievement awards
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
- Retirement planning services
- Commuter benefits