Fringe benefits are an effective way to recruit and retain workers. But unless your business has an unlimited budget, you have to pick and choose.
- Fringe benefits are a great way to lure and retain talent.
- Health insurance, retirement plans and paid time off top the list of desired benefits, but employees want other benefits too.
- Companies have to be ready and willing to adapt their benefits to the moment. For example, commuter benefits worked before COVID-19, but free home internet may be a better option now.
- This article is for business owners thinking of adding fringe benefits to their employee offer package.
Recruiting and retaining top talent requires more than a competitive salary. Today's employees also want fringe benefits.
Fringe benefits are the perks other than monetary compensation that employees get from your business. They run the gamut from health insurance to commuter discounts, and they can be a powerful way to retain employees.
Fringe benefits aren't free. Unless your business has an unlimited budget, you have to pick and choose which to offer. To help you decide, here's a look at some of the top fringe benefits employers can't ignore.
What are fringe benefits?
Fringe benefits have been around for more than 80 years. They were created in response to the Stabilization Act of 1942, in which Franklin D. Roosevelt froze wages and prices. Employers couldn't increase the base salary of workers, but they could offer employees fringe benefits. Today, fringe benefits encompass any nonmonetary reward companies offer to their employees, be it health insurance or a free gym membership. [Looking for a one-stop shop to handle all your employee benefits and HR needs? Check out our review of the best PEO service providers.]
Key takeaway: Fringe benefits were born out of a wartime action as companies looked for ways to further compensate employees when they couldn't raise salaries. Today, they are common and include standard benefits like health insurance as well as smaller perks.
Examples of fringe benefits
Options for fringe benefits abound. Most are not legal requirements, but they can be vital to employee retention.
"To be competitive and attract and retain talent, employers have to offer benefits," Katie Brennan, an HR knowledge advisor for the Society for Human Resource Management, told Business News Daily. "Most employers are going to offer medical insurance, paid vacation and retirement benefits."
Health insurance, paid sick and vacation time, and access to a retirement savings plan top the list of must-offer perks, without a doubt. But they aren't the only common fringe benefits. A host of other benefits can lure talent your company's way.
This fringe benefit enables employees to put pretax dollars aside to cover the cost of commuting to and from work. They can use the money for public transportation, qualified parking costs, and carpooling or vanpooling. In some states, including New York and California, commuter benefits are a legal requirement, said Moses Balian, HR consulting manager at Justworks.
Technology and office equipment
To keep teams connected and productive, some employers pay their employees' mobile phone and internet bills. Many companies supply their employees with computers, laptops or other gear to use for work.
Body and mind wellness programs
A trending fringe benefit in 2020, a wellness program gives employees access to free or discounted tools to maintain both their physical and mental health. This could be a free gym membership, a meditation app, or a smoking cessation program, to give just a few examples.
"A lot of companies are thinking outside the box, especially in the current environment, asking themselves, 'How do I support the holistic well-being of my workforce?'" said Erika Zauner, founder and CEO of wellness company HealthKick. "We've seen companies send meal kits to employees, give them access to mindfulness apps, and provide access to home online fitness options."
Some companies help cover the cost of employees' tuition, continuing education courses, textbooks or other educational material.
Health savings accounts (HSAs)
Available when a company offers a high-deductible health insurance plan, this is a savings account that enables employees to put away pretax income for medical costs. HSAs are an important fringe benefit in 2020 as employers offer high-deductible health plans to save money.
"HSAs do not have limits on spending," Balian said, which makes these plans particularly attractive to employees. "If you don't need your contributions in a particular year, you can use it next year."
With this fringe benefit, employers cover some of the costs associated with adoption, child care, dependent care and parental leave. Family care has been a big focus during the pandemic, with millions of children learning remotely. Some companies have stepped up by providing stipends to help with increased child care expenses.
401(k) matching contributions
Access to a 401(k) plan has become a standard expectation for job seekers. Beyond providing access to a plan, companies can match a certain percentage of their employees' 401(k) contributions. If a business can't afford to offer a matching component, it could provide employee stock options or higher compensation instead, Balian said.
Some companies go to great lengths to lure top talent, even covering a portion of the moving costs for new hires who need to relocate. For instance, the employer could defray the expenses for packers, movers or temporary housing.
Nothing motivates employees more than recognition and a monetary reward. Cash bonuses for hitting a sales target or completing a project can be a great way to boost goodwill among the staff.
Work-life balance is a top focus of many job seekers, and providing flexible work hours is one way to help them achieve it. This is one of those fringe benefits that won't cost you anything and can go a long way in retaining workers.
Employee assistance program
This benefit is designed to help employees with personal problems that could impede their productivity. EAPs have traditionally focused on helping employees with alcohol and drug addiction, but they can also help employees with relationship, financial, wellness and legal issues.
Key takeaway: Must-have fringe benefits include health insurance, retirement savings and paid time off. Others are nice perks, such as flextime, free wellness programs, commuter benefits, education reimbursement and technology stipends.
Taxable vs. nontaxable fringe benefits
Fringe benefits may not cost your business much money, but there can still be tax consequences to offering perks. Some are taxable fringe benefits to the employee and require you to withhold taxes. According to the IRS, any fringe benefit provided to employees is taxable income and must be included in the employee's wages unless the law excludes it. The good news is that the law excludes a lot of employee fringe benefits.
Taxable fringe benefits
- Cash awards and prizes
- Mileage reimbursement that exceeds the IRS standard
- Moving expenses
- Excessive education reimbursements
- Apparel allowance
- Club membership
- Tickets and passes to events with no business purpose
Nontaxable fringe benefits
- Accident and health insurance
- Achievement awards
- Adoption assistance
- Athletic facilities
- De minimis fringe benefits
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
- Group-term life insurance coverage
- Health savings accounts (HSAs)
- Lodging on your business premises
- Retirement planning services
- Tuition reduction
Key takeaway: There are tax consequences for some fringe benefits. Fringe benefits that won't affect your business's or employees' taxes include accident and health insurance, employee discounts, educational assistance, and retirement planning services.
Do businesses have to offer fringe benefits?
Outside of unemployment insurance, workers' compensation and disability insurance, employee benefits aren't compulsory. Small business owners don't have to provide them, but they make good business sense to offer.
The more perks you give employees, the more likely they are to stay. Take health insurance as one example. In a poll of small business employees conducted by Zenefits, 50% said health insurance is the main reason they remain in their current jobs. Meanwhile, 70% said they're unlikely or very unlikely to accept a job that doesn't offer health insurance. Beyond health insurance, 48% said they're staying put because of other perks, while 28% left a job because of poor benefits.
No company can afford to offer every employee benefit out there, but they should provide the ones that make sense for them. The last thing you want is to invest in a wellness program that your employees barely use. It's incumbent on you as the business owner to offer fringe benefits that speak to the demographics of your employees and the company's mission. A company focused on education should provide tuition reimbursement, just as a business with a lot of families should offer flextime and access to a family assistance program.
"Companies are finding bagels and foosball is fun, but that's not why people stay," said Tracy Cote, chief people officer at Zenefits. "They stay for a variety of reasons, and one is if the employee fringe benefits are good enough."
It also pays to be flexible and nimble, adapting your benefits to changing times. For example, Zenefits used to offer a qualified transportation fringe benefit, but when working at home became the norm, it shifted to internet and cell phone reimbursements instead.
"We traded one fringe benefit for a more relevant solution," Cote said.
Key takeaway: Companies aren't required to offer benefits beyond workers' compensation, disability insurance, and unemployment insurance, but they still should. Fringe benefits are a great recruitment and retention tool if you choose the right ones for your company and are willing to change with the times.