Employees who feel appreciated and valued are more productive and loyal. They also help contribute to a positive work culture, which can have a direct impact on how they do their job and interact with your customers.
Happy employees usually equal happy customers.
Competitive compensation is just one component that workers consider when evaluating their job satisfaction.
Benefits play a key role. Benefits are so important that 41% of business leaders said they will focus on improving benefits in 2025.1
Workers rank health insurance and 401(k) plans as top benefits, according to a survey commissioned by SurePayroll® By Paychex.2 Mental health benefits and tuition assistance also placed high in the survey.
These benefits, and others, are often called fringe benefits.
What Are Fringe Benefits?
Fringe benefits generally refer to additional compensation beyond an employee’s regular pay. These benefits may include anything from health insurance, retirement plans and paid time off to perks like gym memberships and company cars.
Employers often use fringe benefits to attract, motivate and retain employees with offerings to help enhance their quality of life.
How Fringe Benefits Work
Generally, fringe benefits are taxable to the employee. Taxable fringe benefits must be reported on an employee’s W-2 and are subject to withholding and employment taxes. The IRS offers guidance in Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
Fringe benefits can also be non-tangible, such as a flexible work schedule.
Bottomline, the employer decides what benefits will be offered, which employees are eligible for each benefit and how much of the benefit an employee may receive.
Taxable Fringe Benefits
Common examples of taxable fringe benefits include personal use of a company car, bonuses and paid vacation. The IRS considers these benefits a form of income, so employers need to properly account for them in payroll taxes.
Non-Taxable Fringe Benefits
Nontaxable fringe benefits are not subject to payroll taxes because they meet specific IRS guidelines, or they fall below certain thresholds. Non-taxable fringe benefits can include health insurance premiums paid by employers, educational assistance up to certain limits, and employee discounts.
How to Calculate Fringe Benefits
In general, the usefulness of a fringe benefit is based on its fair market value (FMV).
According to the IRS Fringe Benefit Guide, the taxable amount of a benefit should be reduced by any amount paid for by the employee. If an employee has a taxable fringe benefit with an FMV of $300 and the employee pays $100 for the benefits, the taxable fringe benefit is $200.
Types of Benefits
Any benefits employers are legally required to offer are not considered fringe benefits.
Legally Required Benefits
The federal government requires businesses to provide certain benefits.
- Medicare
- Social Security
Some industries and states may also require employers to provide certain benefits, such as paid sick leave, which some employers choose to meet with their existing PTO plans. Review your local and state laws or consult with benefits professionals on which benefits are required in your area.
15 Small Business Employee Benefits
For many employees—current and prospective—a company’s benefits package can heavily influence whether an employee stays at a company or accepts a job offer. Benefits can also enhance employee morale.
Benefits can help fill the gaps that compensation alone may not cover, providing employees with added security and peace of mind.
Health insurance is a cornerstone of fringe benefits that employees rely upon. Retirement plans are a close second. Small businesses have the opportunity and flexibility to customize fringe benefits to match their budget and their worker’s needs.
Here are 15 fringe benefits for small business owners to consider:
- Health Care Coverage. Employers can choose from health insurance options such as traditional group health plans, high-deductible health plans (HDHPs), and health savings accounts (HSAs). Some employers explore self-funded health plans, which provide flexibility in managing costs and customizing coverage options.
- Retirement Savings Plans. Offering access to 401(k) retirement plans—with or without employer matching—can help employees prepare for a more secure future.
- Paid Time Off. Consider how you want to set up paid time off for vacation, sick time (required in some jurisdictions) and personal days for your employees.
- Employee Assistance Programs (EAP). For many, EAPs can serve as a lifeline during critical times. The programs can help address issues ranging from mental health and substance abuse to financial and legal advice, depending on the service selected.
- Tuition Assistance. Financial support for education can help employees continue learning and, if interested, earn a college degree. Another choice includes assistance with student loan repayment.
- Flexible Work Arrangements. Flexible, hybrid, job-share and remote work options can boost employee satisfaction and help employees enhance work-life balance.
- Wellness Programs. Things like gym memberships, yoga classes and health screenings can support employees in their pursuit of healthier lifestyles.
- Parental Leave Policies. Supporting new parents with paid maternity and paternity leave can help reinforce your commitment to your employees, their families and their work-life balance. It’s important to note paid maternity and/or paternity leave is required in some states.
- Childcare Assistance. Consider if you can subsidize childcare or offer childcare on-site for the children of your workers.
- Professional Development Opportunities. Invest in your employees’ growth by providing access to training sessions, workshops and conferences. This can help your workers develop skills and help show your interest in helping them advance in their careers.
- Employee Recognition Programs. Recognizing achievements through awards, bonuses or public acknowledgment can enhance morale, inspire employees to excel and contribute to the success of your business.
- Financial Wellness Resources. When employees face financial stress, it can impact their productivity. Offering financial wellness programs such as budgeting workshops or access to professional debt management advice can alleviate this pressure so they can focus on their future.
- Pet-Friendly Policies. Consider implementing pet-friendly policies, such as offering pet insurance or allowing pets at work.
- Employee Discounts. Offer discounts on products or services your company offers. Consider partnering with local businesses to offer discounts to each other’s employees for products and services.
- Commuter Benefits. Support employees with their daily commute by offering transit passes or parking subsidies. For those who bike to work, provide bike storage or a maintenance stipend. This can help offset the financial burden of commuting.
Selecting the Right Fringe Benefits for Your Business
Figuring out the right set of fringe benefits for your business depends on your budget, your company culture and the needs of your employees.
Cost matters.
One approach is to identify low-cost, high-impact employee perks that resonate with your team. In some cases, flexible work arrangements are more meaningful than more expensive perks.
Simplify Payroll and HR
You’re an expert in your field. You don’t need to be one in payroll and HR. You can get back to your business with the easy and reliable solutions from SurePayroll® By Paychex.
We can help you quickly and easily pay your employees, calculate and pay your payroll taxes, and tackle HR tasks and compliance challenges.
1 2025 Priorities for Business Leaders, Paychex, includes responses from 600 U.S. business and HR leaders employing 5 to 499 people. The survey was conducted in July 2024 by Bredin, Inc.
2 Data from a survey conducted by OnePoll, on behalf of SurePayroll, in August 2023, with a panel of 2,000 employed Americans.
