Fringe benefits are a type of compensation business owners provide to employees. Rather than paying an employee a higher salary, which will cost owners at tax time, a customized and competitive benefits package will not only attract talent, it will help retain staff. Employees at small businesses often cannot afford to have a larger chunk taken off their pay check for income tax and will likely be happy with an offer of perks like a health and wellness plan in exchange. It is a well-known fact that content employees are more productive, motivated, and are sick less often.
An extensive list of fringe benefits is tax exempt and most perks are also free of Social Security, Medicare, and Federal Unemployment taxes. Appealing to both employees and business owners, they include: accident and health benefits, achievement awards, athletic facilities, 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), lodging on business premises, meals, moving expense reimbursements, no-additional-cost services, retirement planning services, commuting benefits, tuition reduction, and working conditions benefits.
In the United States, some benefits are federally-mandated for government agencies and companies with fifty or more staff. One such policy is the Family and Medical Leave Act (FMLA), which gives employees the right to an unpaid leave of absence of up to 12 weeks if they are sick, caring for an ill loved, or have a newborn baby.
Unlike the FMLA, providing health and retirement plans are up to the business owner. Both group life and health insurance are attractive benefits for employees with varying family and life dynamics.
Group life insurance allows an individual employee to assign financial assistance to beneficiaries in the event of his or her death. Business owners usually pay less for group packages, rather than individual plans. The process is simple and is typically issued at the time a new hire starts the job. All it takes is having an employee fill out and sign a form. A physical exam is not required in the United States because the insurance company takes the risk by leveraging all employees in its pricing plan.
Health insurance is an additional cost that is often difficult to factor into a budget when an employee has to divvy out their earnings on other priorities to make ends meet. When offered as part of a job, it could make the difference between accepting or declining the position. Health insurance typically provides reimbursement for expenses related to medical needs and surgical procedures and are tax-free. For the payer, the cost incurred on health insurance is deductible.
Health and Wellness Benefits
To encourage mental and physical health of employees, gym memberships or an on-site facility is often the way to go. It is particularly beneficial for companies that specialize in healthy living because those are the types of individuals who are attracted to the job. If someone who already has a busy life with family, career, and volunteer obligations, having an option to work out on company time will be seen as a bonus. The added endorphin boost during the day will break the doldrums of sitting at a desk all day and provide a shot of energy…both of which translates to greater production.
Students both young and mature who are looking to increase their chances of a career move or promotion are sometimes motivated to attend school or take online classes while working full-time. As the price of post-secondary education and training continues to skyrocket, this might not be possible without financial assistance. Business owners are picking up on this trend at increasing rates and it is a topic being discussed at corporate conferences. According to research from the Lumina Foundation, tuition assistance for employees tends to pay for itself.
A hungry employee is not a productive employee. That is not what the Cafeteria Plan applies to, however. A Cafeteria Plan encompasses the employee options of health and accident insurance, monetary bonuses, tax deferrals, and retirement assistance and is customized to individual needs. The flexibility is attractive to an employee pool comprised of various needs and lifestyles. By opting for a Cafeteria Plan, an employee’s overall income is reduced, as is his or her tax bracket and amount company is required to pay in Federal and State taxes.
The stock market savvy employee will be enticed with an option to invest in the company for which they are working. It also makes people feel more vested in an organization in more than just a financial way. An Employee Stock Option allows workers to purchase shares of the company. They buy-in at a predetermined price, so when the stock price increases, both the investor and shareholder benefits.
De Minimis Tax Rule
A rule that employers should be aware of is the De Minimis Tax Rule. It is used for low value services or in-kind benefits used by employees for which the cost of accounting is impractical. The rule includes small items that are excluded from some sections of the IRS section 132(a)(4), such as snacks, gifts, overtime transportation costs, use use of the photocopier.
Company Gifts and Services
Offering a competitive and unique fringe benefits package is a simple way companies attract the right talent for specific industries. Potential top employees in the high-tech industry may be more inclined to lean toward a company that provides staff with iPads, cell phones, and other job-related gadgets. Others might prefer a friendly work environment where coworkers are encouraged to take breaks, complete with free snacks and refreshments. In highly competitive fields, an employer is often required to ante up the perks, but it is the bottom line that will benefit in the long run.
Many small businesses, especially in the retail industry, find success recruiting and retaining keen employees by offering discounts to employees. The idea behind it is to keep workers happy and engaged in the company, help promote the product through word of mouth, and invest in personnel without having to spend a lot of money. Employees can also end up using their discount to seek products and browse store aisles, becoming a potential long-term customer.
Employees continue to come back to work every day when they are rewarded for their hard work, receive free gifts or perks, and are protected by a comprehensive health and wellness package. This small investment by company owners can reap larger rewards for long-term business success.