In the business world, employee compensation has never been as simple as paying a standard salary or hourly wage. There always have been extra compensation, commonly known as fringe benefits, in addition to your regular payroll.
Not only are fringe benefits extremely tricky from a tax perspective, they also can be complex and challenging in order to create the right employee morale in your workplace.
The term itself is deceiving. Paid vacations and bonuses are technically a fringe benefit but they are so commonly offered in many sectors that they are considered standard compensation.
In the case of health insurance, employers aren't required to provide coverage by healthcare reform but certain employers may be assessed penalties if they don't and if a full-time employee goes to a marketplace and receives a premium tax credit.
Setting the Environment
A company must decide what type of environment it wants to set for its employees. If it wants to stand out among its competition, it could decide to offer more non-standard compensations that also fit into the lexicon as fringe benefits.
repayment of student loans
use of a timeshare condominium or company car or jet
All of these compensations are not expected by prospective employees and serve as a lure to attract the best employees. They may serve partially as replacements for salary, or wholly as additions.
All of these fringe benefits generally are treated as forms of salary but your accountant will give you the best advice according to state and federal law as to how they are reported.
Besides the complexity of how fringe benefits are taxed and categorized, a company also must assess how these perks will change over time and how they can keep them under control, on top of the regular company payroll.
Most companies decide to start slow with the fringe benefits:
In general, companies offer the smallest fringe benefits packages to lower-level employees who are just starting with the company. These employees typically do not have the experience or developed skills employers associate with higher compensation.
Businesses offer the biggest packages to top executives who have been with the company for a significant period. This means that employees usually get better benefits over time.
Changes to packages often occur at the end of the year, the end of the fiscal year or during annual employee reviews.
Fringe benefits should be viewed by the company as an opportunity to set it apart and make a statement to employees. They should be offered with lots of advance thought and structured to benefit the company in the long-run.