Employee benefits and (especially in
British English
British English (BrE, en-GB, or BE) is, according to Lexico, Oxford Dictionaries, "English language, English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in ...
) benefits in kind (also called fringe benefits, perquisites, or perks) include various types of non-wage compensation provided to
employees in addition to their normal
wage
A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', '' prevailing wage'', and ''yearly bonuses,'' and remune ...
s or
salaries
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis.
...
.
Instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a "
salary packaging
Salary packaging (also known as salary sacrifice or salary exchange) is the inclusion of employee benefits (also called fringe benefits) in an employee remuneration package in exchange for giving up part of monetary salary. Such arrangements are ...
" or "salary exchange" arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
Examples of these benefits include: housing (employer-provided or employer-paid) furnished or not, with or without free utilities; group insurance (
health
Health, according to the World Health Organization, is "a state of complete physical, mental and social well-being and not merely the absence of disease and infirmity".World Health Organization. (2006)''Constitution of the World Health Organiza ...
,
dental,
life
Life is a quality that distinguishes matter that has biological processes, such as Cell signaling, signaling and self-sustaining processes, from that which does not, and is defined by the capacity for Cell growth, growth, reaction to Stimu ...
etc.);
disability income protection;
retirement benefits;
daycare
Child care, otherwise known as day care, is the care and supervision of a child or multiple children at a time, whose ages range from two weeks of age to 18 years. Although most parents spend a significant amount of time caring for their child(r ...
;
tuition
Tuition payments, usually known as tuition in American English and as tuition fees in Commonwealth English, are fees charged by education institutions for instruction or other services. Besides public spending (by governments and other public bo ...
reimbursement;
sick leave
Sick leave (or paid sick days or sick pay) is paid time off from work that workers can use to stay home to address their health needs without losing pay. It differs from paid vacation time or time off work to deal with personal matters, because sic ...
;
vacation
A vacation (American English) or holiday (British English) is either a leave of absence from a regular job or an instance of leisure travel away from home. People often take a vacation during specific holiday observances or for specific festi ...
(paid and unpaid);
social security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
;
profit sharing;
employer student loan contributions;
conveyancing
In law, conveyancing is the transfer of legal title of real property from one person to another, or the granting of an encumbrance such as a mortgage or a lien. A typical conveyancing transaction has two major phases: the exchange of contrac ...
;
long service leave
In Australia, long service leave (LSL) is a period of additional paid leave granted to employees who have completed an extended period of service with an employer. Under Australian law, most employees are entitled to long service leave if they wo ...
; domestic help (servants); and other specialized benefits.
The purpose of employee benefits is to increase the economic security of staff members, and in doing so, improve
worker retention across the organization. As such, it is one component of
reward management
Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.
Reward management consists of ana ...
.
Colloquially, "perks" are those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well or have seniority. Common perks are
take-home vehicle
A company car is a vehicle which companies or organisations lease or own and which employees use for their personal and business travel. Take-home vehicle is a vehicle which can be taken home by company employees. Depending on the company, compan ...
s,
hotel
A hotel is an establishment that provides paid lodging on a short-term basis. Facilities provided inside a hotel room may range from a modest-quality mattress in a small room to large suites with bigger, higher-quality beds, a dresser, a re ...
stays, free refreshments, leisure activities on work time (
golf
Golf is a club-and-ball sport in which players use various clubs to hit balls into a series of holes on a course in as few strokes as possible.
Golf, unlike most ball games, cannot and does not use a standardized playing area, and coping ...
, etc.),
stationery
Stationery refers to commercially manufactured writing materials, including cut paper, envelopes, writing implements, continuous form paper, and other office supplies. Stationery includes materials to be written on by hand (e.g., letter pape ...
,
allowances for
lunch
Lunch is a meal eaten around the middle of the day. It is commonly the second meal of the day, after breakfast, and varies in size by culture and region.
Etymology
According to the ''Oxford English Dictionary'' (''OED''), the etymology ...
, and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.
Managerial perspective
The Bureau of Labor Statistics, like the International Accounting Standards Board, defines employee benefits as forms of indirect expenses. Managers tend to view compensation and benefits in terms of their ability to attract and retain employees, as well as in terms of their ability to motivate them.
Employees – along with potential employees – tend to view benefits that are mandated by regulation differently from benefits that are discretionary, that is, those that are not mandated but are simply designed to make a compensation package more attractive. Benefits that are mandated are thought of as creating employee rights or entitlements, while discretionary benefits are intended to inspire employee loyalty and increase job satisfaction.
Canada
Employee benefits in
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
usually refer to employer sponsored life, disability, health, and dental plans. Such group insurance plans are a top-up to existing provincial coverage. An employer provided group insurance plan is coordinated with the provincial plan in the respective province or territory, therefore an employee covered by such a plan must be covered by the provincial plan first. The life, accidental death and dismemberment and disability insurance component is an employee benefit only. Some plans provide a minimal dependent life insurance benefit as well. The healthcare plan may include any of the following: hospital room upgrades (Semi-Private or Private), medical services/supplies and equipment, travel medical (60 or 90 days per trip), registered therapists and practitioners (i.e. physiotherapists, acupuncturists, chiropractors, etc.), prescription requiring drugs, vision (eye exams, contacts/lenses), and Employee Assistance Programs. The dental plan usually includes Basic Dental (cleanings, fillings, root canals), Major Dental (crowns, bridges, dentures) or Orthodontics (braces).
Other than the employer sponsored health benefits described above, the next most common employee benefits are group savings plans (Group RRSPs and Group Profit Sharing Plans), which have tax and growth advantages to individual saving plans.
United States
Employee benefits in the United States include
relocation assistance;
medical, prescription, vision and dental plans; health and dependent care
flexible spending account
In the United States, a flexible spending account (FSA), also known as a flexible spending arrangement, is one of a number of tax-advantaged financial accounts, resulting in payroll tax savings. One significant disadvantage to using an FSA is th ...
s;
retirement
Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload.
Many people choose to retire when they are elderly or incapable of doing their j ...
benefit plans (pension,
401(k)
In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of the ...
,
403(b)
In the United States, a 403(b) plan is a U.S. tax-advantaged retirement savings plan available for public education organizations, some non-profit employers (only Internal Revenue Code 501(c)(3) organizations), cooperative hospital service organiz ...
);
group term life and
long-term care insurance
Long-term care insurance (LTC or LTCI) is an insurance product, sold in the United States, United Kingdom and Canada that helps pay for the costs associated with long-term care. Long-term care insurance covers care generally not covered by health ...
plans; legal assistance plans; medical
second opinion
A second opinion is an opinion on a matter disputed by two or more parties.
Law
In legal cases, a second opinion which contradicts the opinion of a jointly retained expert may be disregarded as not being impartial.
Consumer rights
In cas ...
programs,
adoption assistance;
child care
Child care, otherwise known as day care, is the care and supervision of a child or multiple children at a time, whose ages range from two weeks of age to 18 years. Although most parents spend a significant amount of time caring for their child(r ...
benefits and
transportation
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, ...
benefits; paid time off (PTO) in the form of vacation and sick pay. Benefits may also include formal or informal employee discount programs that grant workers access to specialized offerings from local and regional vendors (like movies and theme park tickets,
wellness programs, discounted shopping,
hotel
A hotel is an establishment that provides paid lodging on a short-term basis. Facilities provided inside a hotel room may range from a modest-quality mattress in a small room to large suites with bigger, higher-quality beds, a dresser, a re ...
s and
resorts, and so on).
[Taxable Fringe Benefit Guide]
. ''Internal Revenue Service''. 2012.[What Is An Employee Discount Program?]
. ''Abenity''.
Employers that offer these types of work-life perks seek to raise employee satisfaction, corporate loyalty, and worker retention by providing valuable benefits that go beyond a base salary figure.
Fringe benefits are also thought of as the costs of retaining employees other than base salary. The term "fringe benefits" was coined by the
War Labor Board during
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
to describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.
Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage up to $50,000) may be excluded from the employee's gross
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
and, therefore, are not subject to federal
income tax
An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
. Some function as tax shelters (for example, flexible spending, 401(k), or 403(b) accounts). These benefit rates often change from year to year and are typically calculated using fixed percentages that vary depending on the employee’s classification.
Normally, employer-provided benefits are tax-deductible to the employer and non-taxable to the employee. The exception to the general rule includes certain
executive
Executive ( exe., exec., execu.) may refer to:
Role or title
* Executive, a senior management role in an organization
** Chief executive officer (CEO), one of the highest-ranking corporate officers (executives) or administrators
** Executive dir ...
benefits (e.g.
golden handshake and
golden parachute plans) or those that exceed federal or state tax-exemption standards.
American
American(s) may refer to:
* American, something of, from, or related to the United States of America, commonly known as the "United States" or "America"
** Americans, citizens and nationals of the United States of America
** American ancestry, pe ...
corporations may also offer
cafeteria plan
A cafeteria plan or cafeteria system is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between differe ...
s to their employees. These plans offer a
menu
In a restaurant, the menu is a list of food and beverages offered to customers and the prices. A menu may be à la carte – which presents a list of options from which customers choose – or table d'hôte, in which case a pre-established seque ...
and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by employees is deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the
Federal Insurance Contributions Act tax
The Federal Insurance Contributions Act (FICA ) is a United States federal payroll (or employment) contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for reti ...
(FICA), such as 401(k) and 403(b) contributions; however, health premiums, some life premiums, and contributions to flexible spending accounts are exempt from FICA.
If certain conditions are met, employer provided meals and lodging may be excluded from an employee's gross income. If meals are furnished (1) by the employer; (2) for the employer's convenience; and (3) provided on the business premises of the employer they may be excluded from the employee's gross income per section 119(a). In addition, lodging furnished by the employer for its convenience on the business premise of the employer (which the employee is required to accept as a condition of employment) is also excluded from gross income. Importantly, section 119(a) only applies to meals or lodging furnished "in kind." Therefore, cash allowances for meals or lodging received by an employee are included in gross income.
Qualified disaster relief payments made for an employee during a national disaster are not taxable income to the employee. The payments must be reasonable and necessary personal, family, living, or funeral expenses that have been incurred as a result of a national disaster. Eligible expenses include medical expenses, childcare and tutoring expenses due to school closings, internet, and telephone expenses. Replacement of lost income or lost wages are not eligible.
Employee benefits provided through
ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) (, codified in part at ) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax eff ...
(Employee Retirement Income Security Act) are not subject to state-level
insurance regulation Insurance law is the practice of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especial ...
like most insurance contracts, but employee benefit products provided through insurance contracts are regulated at the state level. However, ERISA does not generally apply to plans by governmental entities, churches for their employees, and some other situations.
Under the
Obamacare
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Pres ...
or ACA's
Employer Shared Responsibility provisions, certain employers, known as applicable large employers are required to offer minimum essential coverage that is affordable to their full-time employees or else make the employer shared responsibility payment to the
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
.
Private firms in the US have come up with certain unusual perquisites.
In the United States paid time off, in the form of vacation days or sick days, is not required by federal or state law.
[ Despite that fact, many United States businesses offer some form of paid leave. In the United States, 86% of workers at large businesses and 69% of employees at small business receive paid vacation days.
]
United Kingdom
In the United Kingdom, employee benefits are categorised by three terms: flexible benefits (flex) and flexible benefits packages, voluntary benefits and core benefits.
"Core benefits" is the term given to benefits which all staff enjoy, such as pension, life insurance, income protection, and holiday. Employees may be unable to remove these benefits, depending on individual employers' preferences.
Flexible benefits, often called a "flex scheme", is where employees are allowed to choose how a proportion of their remuneration is paid or they are given a benefits budget by their employer to spend. Currently around a third of UK employers operate such a scheme. How flexible benefits schemes are structured has remained fairly consistent over the years, although the definition of flex has changed quite a lot since it first arrived in the UK in the 1980s. When flex first emerged, it was run as a formal scheme for a set contract period, through which employees could opt in and out of a selection of employer-paid benefits, select employee-paid benefits, or take the cash. In recent years increasing numbers of UK companies have used the tax and national insurance savings gained through the implementation of salary sacrifice benefits to fund the implementation of flexible benefits. In a salary sacrifice arrangement an employee gives up the right to part of the cash remuneration due under their contract of employment. Usually the sacrifice is made in return for the employer's agreement to provide them with some form of non-cash benefit. The most popular types of salary sacrifice benefits include childcare vouchers and pensions.
A number of external consultancies exist that enable organisations to manage Flex packages centred around the provision of an Intranet or Extranet
An extranet is a controlled private network that allows access to partners, vendors and suppliers or an authorized set of customers – normally to a subset of the information accessible from an organization's intranet. An extranet is similar to ...
website where employees can view their current flexible benefit status and make changes to their package. Adoption of flexible benefits has grown considerably, with 62% of employers in a 2012 survey offering a flexible benefit package and a further 21% planning to do so in the future. This has coincided with increased employee access to the internet and studies suggesting that employee engagement
Employee engagement is a fundamental concept in the effort to understand and describe, both qualitatively and quantitatively, the nature of the relationship between an organization and its employees. An "engaged employee" is defined as one who is ...
can be boosted by their successful adoption.
"Voluntary benefits" is the name given to a collection of benefits that employees choose to opt-in for and pay for personally, although as with flex plans, many employers make use of salary sacrifice schemes where the employee reduces their salary in exchange for the employer paying for the perk. These tend to include benefits such as the government-backed (and therefore tax-efficient) cycle to work, pension contributions and childcare vouchers and also specially arranged discounts on retail and leisure vouchers, gym membership and discounts at local shops and restaurants (providers include Xexec). These can be run in-house or arranged by an external employee benefits consultant.
Fringe benefits tax
In a number of countries (e.g., Australia, New Zealand
New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
and Pakistan
Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's fifth-most populous country, with a population of almost 243 million people, and has the world's second-lar ...
), the 'fringe benefits' are subject to the Fringe Benefits Tax A fringe benefits tax (FBT) is taxation of most, but not all fringe benefits, which are generally non-cash employee benefits. The rationale behind FBT is that it helps restore equity and fairness to those employees who do not receive such benefits ...
(FBT), which applies to most, although not all, fringe benefits. In India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
, the fringe benefits tax was abolished in 2009.
In the United States, employer-sponsored health insurance was considered taxable income until 1954.[Employer-Sponsored Health Insurance and Health Reform]
at National Bureau of Economic Research
The National Bureau of Economic Research (NBER) is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic c ...
.
Disadvantages
In the UK, benefits are often taxed at the individual's normal tax rate,490 (2008) Employee Travel – A tax and NICs guide for employers
/ref> which can prove expensive if there is no financial advantage to the individual from the benefit.
The UK system of state pension provision is dependent upon the payment of National Insurance Contributions
National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their famil ...
. Salary exchange schemes result in reduced payments and so are may reduce the state benefits, most notably the State Second Pension.
See also
* Benefit incidence
* Novated lease
A novated lease is a motor vehicle lease which has been novated, that is, the obligations in the contract have been transferred from one party to another.
A lease is novated with a three way agreement (''Deed of novation'') between the lessee, ...
* Income in kind
Income in kind, or in-kind income, is income other than money income. It includes many employee benefits and government-provided goods and services, such as toll-free roads, food stamps, public schooling, or socialized medicine.
Types of Incom ...
References
{{DEFAULTSORT:Employee Benefit
Tax terms