Unlocking the Power of Fringe Benefits to Attract Top Talent
Fringe benefits are additions to compensation that companies provide to their employees. While some benefits are available to all employees, others may only be offered to executives. Common fringe benefits can include a company car, paid time off, or a gym membership. Offering an attractive fringe benefits package can be a crucial strategy to recruit, motivate, and retain high-quality talent.
Key Highlights
- Fringe benefits help companies recruit, motivate, and retain top-tier employees.
- Firms in competitive sectors often offer the most attractive benefits.
- Some common perks, such as health and life insurance, are non-taxable, while others are subject to tax at fair market value.
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Understanding Fringe Benefits
Common fringe benefits are frequently included in hiring packages. These perks can consist of health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, employee discounts, employee stock options, and the personal use of a company vehicle.
In some instances, uncommon fringe benefits are tailored to the company’s profile. For instance, PetSmart and Dogtopia operate pet-friendly workplaces, and Ben & Jerry’s treats its employees with free ice cream. High-tech giants like Google and Microsoft offer extraordinary fringe benefits; Google’s parent company Alphabet provides free commuter bus services and gourmet cafeteria access, while Microsoft offers extensive paid maternity and paternity leave.
The Impact of Taxes on Fringe Benefits
Typically, fringe benefits are taxable unless specifically exempted. The recipient includes the fair market value of taxable fringe benefits in their annual taxable income. The Internal Revenue Service (IRS) publishes guidelines detailing fringe benefits that are exempt from income taxes. These exemptions include:
- Accident and health benefits
- Achievement awards (up to $1,600 for qualified awards)
- Adoption assistance
- Athletic facilities
- Commuting benefits
- De minimis benefits
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
- Group-term life insurance coverage
- Health savings accounts (HSA)
- Lodgings on business premises
- Meals
- No-additional-cost services
- Retirement planning services
- Tuition reduction
- Working condition benefits
These exemptions often come with complex conditions. For example, achievement awards must be up to specific values and accessible to all employees to qualify for tax exemption. Exemptions like employee discounts and dependent care assistance are unavailable to highly compensated employees if these benefits aren’t extended to other employees.
Valuing Fringe Benefits
Fringe benefits not specified for exemption are taxable. Exemption rules are complex: for example, working-condition benefits can be taxable for personal use. If an employee uses a company-issued laptop 80% personally and 20% for work, 80% of the laptop’s fair market value is taxable. Generally, fringe benefits should be valued at their fair market value—the amount an employee would pay for the benefit at retail.
Are Fringe Benefits Taxable?
Fringe benefits provided by employers are taxable unless expressly excluded by law.
What Is a Cafeteria Plan?
A cafeteria plan refers to a suite of fringe benefits allowing employees to choose among them. Often, these benefits are funded with pre-tax dollars and may include insurance plans and retirement benefits, akin to choosing items from a cafeteria buffet.
Is a Lifetime Achievement Award Given to an Employee Taxable?
An achievement award may be excluded from taxation as a fringe benefit if it meets specific conditions. It must be valued less than $1,600 and cannot be cash or cash equivalents. Moreover, it cannot include securities like stocks or bonds, nor can the value be attributed to vacations, meals, lodgings, or event tickets.
The Bottom Line
Fringe benefits are valuable incentives designed to attract and retain top talent. These benefits range from paid time off to unique offerings like pet-friendly workplaces and health programs, providing a competitive edge in the job market.
Related Terms: employee stock options, health insurance, fair market value, cafeteria plan, achievement awards.
References
- Ben & Jerry’s. “What’s the Best Part About Working at Ben & Jerry’s?”
- Google. “Benefits at Google”.
- Microsoft. “Benefits”.
- Internal Revenue Service. “Publication 15-B (2023), Employer’s Tax Guide to Fringe Benefits”.
- Internal Revenue Service. “Fringe Benefits Guide”, Page 46.
