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What Are Fringe Benefits: Pros, Cons, and Challenges

Learn more about how to make the best decisions when it comes to providing fringe benefits for your business.

Fringe benefits can be an effective approach to providing employees with extra incentives beyond their standard pay that they often need and deserve. Such benefits are typically non-salary, additional compensation packages given to employees beyond their regular salaries.

 

In this blog post, we will go into more detail about what exactly fringe benefits are, the different types of fringe benefits that are available, the potential advantages and drawbacks for providing them in the workplace setting for both employers and employees, plus some challenges associated with implementing these strategies.

 

Regardless of the size or type of your business venture, understanding these considerations is key if you're considering investing in employee wellbeing through a fringe benefit program. Read on to learn more about what fringe benefits involve so that you can decide if they would be beneficial for yourself or your company.

What Are Fringe Benefits?

Fringe benefits, AKA non-wage compensation or ancillary benefit packages, are (non-)voluntary extras that employers offer on top of core wages for performance of services. These additional corporate perks can provide much-needed financial stability to employees while making the company a more attractive place to work.

 

Any compensation package ought to include fringe benefits as an essential element. They can range from employee insurance and retirement plans to company cars and gym memberships. Such rewards can attract top-performing talent to an organization and then keep staff highly motivated, improving workplace morale.

 

Fringe benefits are also often used to set one employer apart from another in competitive job markets. Moreover, they can be tailored to a company's special rules or specific needs – for example, a technology firm might offer additional benefits like access to a gaming room or virtual reality facilities.

How fringe benefits work

Fringe benefits can be provided in a variety of forms, depending on what the employer offers. Most commonly, they are offered as part of an employee’s compensation package or as incentives for meeting certain goals and will be paid or given as an achievement award accordingly.

 

Meanwhile, there are workplace fringe benefits that will be available to all employees (except possibly remote ones) by default – free coffee and snacks in the cafeteria, a billiard or ping pong table in the lounge, or a daycare center to drop the kids off before going to the business premises.

Examples of fringe benefits

Fringe benefits are designed to provide additional financial assistance, motivation, and recognition for every individual employee. Optional benefits often include group-term life insurance coverage and other types, as well as extra financial perks and wellness programs, but some “fringe” benefits are actually required by law.

 

Below is a list of fringe benefit types and some examples of each.

Required fringe benefits

Required fringe benefits are those that employers must provide to their employees by law. Doing so means not only that an organization complies with the law, but also that it demonstrates a commitment to the well being of its workforce. Required perks vary depending on the country and region, but some common fringe benefits follow.

 

Health insurance covers employees’ medical expenses for medication, dependent care assistance, or hospital treatment for an illness or injury occurring anywhere. Workers' compensation insurance, meanwhile, covers lost wages, medical costs, and rehabilitation expenses for employees who become injured or ill on the job.

 

Overtime pay is essential for adequately compensating those who put in extra hours for their hard work. It is usually paid at a higher rate of one and a half, two, or even three times the base salary depending on the overtime being on a night shift, at the weekend, or during a holiday such as Christmas.

 

Minimum wage laws guarantee that all employees receive fair pay regardless of their position or experience level. Parental leave enables working parents to balance their family obligations with work responsibilities by allowing them time off after a child is born or adopted.

Optional fringe benefits

Optional employee benefits are those that employers may choose to offer in addition to the required ones. Providing these non-mandatory fringe benefits enables employers not only to show appreciation for their staff, but also improve life for them in many aspects and make the workplace a more pleasant one.

 

These benefits are any perks like office amenities to improve the work environment, vacation and remote working time to allow employees to rest and recuperate, additional educational assistance with tuition reductions (or refinancing student loan) to support personal and professional development, or yoga classes to promote health benefits and lifestyles.

 

As well as any extra non-obligatory financial incentives, businesses might also choose to offer employee discounts on their own products or services if it is appropriate to do so. This can cost the company less than the recipient saves or even be a no-additional-cost service, so it’s a win-win for both parties.

Work-related fringe benefits

Some other fringe benefits to engage employees and make work life more enjoyable are extra vacation days or time off, complimentary meals or drinks during work hours, break rooms, access to special equipment such as standing desks, and commuter benefits like reimbursed public transportation or parking spaces.

Financial fringe benefits

Other types of financial benefits that may be offered in addition to a base salary include performance-related bonuses, employee stock options, and profit sharing plans. Objective-based bonuses are often given out when specific goals set by the employer are met or exceeded by an employee, giving an extra sense of motivation.

 

A stock option gives them the ability to own equity in the company, which can result in big payouts if the value of the business increases over time and thus provide extra incentives for hard work. Profit sharing plans, meanwhile, let employees benefit directly from the success of the company based on certain criteria set by managers.

 

There could also be retirement planning services such as 401(k)s or covering pension plan costs to assist employees with their future financial security. Objective-based bonuses are one-off payments or rewards for excellent performance or long-term service, encouraging dedication and loyalty among employees.

Advantages of fringe benefits

Almost all types of fringe benefits have advantages for both employers and employees alike. The main principle of offering these perks is to make members of staff happier so that they work more efficiently and want to stay at the company for longer.

 

For employers, fringe benefits are an effective method of attracting talent whilst also keeping current employees satisfied and engaged with their work thanks to the positive effect on morale. As a result, the organization can expect improved performance and increased employee satisfaction across the board.

 

For employees, fringe benefits contribute to making work more rewarding financially while providing additional resources that can improve quality of life both inside and outside of the workplace. As such, this is a great approach to reward and motivate employees and maintain a healthy workforce.

 

Ultimately, these benefits are not only advantageous to employees but they also make companies more attractive to potential customers and investors in the long run.

Drawbacks and challenges of fringe benefits

One of the biggest and most obvious disadvantages of offering fringe benefits from an employer’s perspective is that they can be expensive to provide. This means that they must weigh up the cost of fringe benefits with reasonable estimates against the potential, above mentioned advantages that they bring.

 

The main difficulty of implementing fringe benefits is that not all employees will gain equally, and so they may feel like they are not being treated on a par with their colleagues. It’s possible that this could create tension among staff members if perks are perceived as being unfairly distributed or given only to certain individuals.

 

For example, employees with families may find it more difficult to make use of certain benefits like athletic facilities, while those who work remotely would not avail of commuter perks. On the other hand, those with children could benefit from paternity leave and child care, while remote employees save on transport costs regardless.

 

Taking this a step further, fringe benefits can even create legal issues if they are not allocated in a reasonable manner. It’s possible for some employees to feel that their rights are being violated due to unequal access or treatment based on race, gender, age, etc. This could have serious negative financial and reputational consequences.

 

Implementing a fair fringe benefit system can therefore be a difficult juggling act that takes time, effort, and employee input to perfect. This simply might be a bridge too far for some businesses to bother with, in which case they may decide to stick to offering only the required fringe benefits or provide cash equivalents to certain perks.

 

There can also be legal issues regarding taxable income and taxable fringe benefits. For example, de minimis benefits are perks that may be deemed too low value to be accounted for or taxed. This means that applying the correct employment taxes and deciding what is subject to federal income tax withholding can be a hard process.

Conclusion

Offering fringe benefits is an effective method for employers to reward and motivate their employees, improving their job satisfaction levels. The knock on effects of this are increased morale and greater productivity, which in turn lead to greater success and more chance of attracting highly-skilled workers then keeping them motivated.

 

That said, fringe benefits can be expensive to provide and also present challenges related to unfair treatment that in extreme cases can even lead to legal disputes. Employers should thus weigh up the costs and potential pitfalls before offering such perks, being careful to distribute them fairly and subject to the correct income taxes.

 

However, with careful consideration, employers can use fringe benefits effectively and efficiently as part of a successful hiring and retention program. Armed with all of the information that has been presented in this article, you now have everything you need to know in order to start offering and reaping the rewards from fringe benefits.