Fringe Benefits are confusing. What exactly is a fringe benefit? Are they all taxable? Are they the same from company to company? Fringe benefits are the large range of work perks you enjoy in addition to your salary. For employees and employers in the 21st-century, fringe benefits are becoming better incentives than just salary-based compensation alone. Let’s break down some of the most frequently asked questions to better understand the world of fringe benefits– and why they are so crucial.
1. What qualifies as a fringe benefit?
The short answer: a lot. Any benefit that your company provides– from a company car and gym memberships to that office fridge full of La Croix– can qualify as a fringe benefit. Fringe benefits are any type of company ‘perk’ that is given to an employee apart from their pay. The longer answer is that, more casually, standard benefits include health and dental insurance as well as vacation time or flexible work arrangements. Fringe benefits are seen more as the added perks to sweeten the deal, and they can vary immensely from company to company.
2. What can be included in my fringe benefits package?
Depending on your employer, fringe benefits packages can include any variety of perks from moving expenses, to employer-provided cell phones, to happy hour drinks in the office on Fridays. Large corporations tend to have more fringe benefits to offer though small businesses are increasingly aware of the importance these packages play in attracting and maintaining employees. Typically a fringe benefits package will cover insurance, vacation, transportation discounts, and any perk that would make working at that company seem more attractive.
For example, Moz (a Seatle-based software company) offers a fringe benefit package of:
- 100% medical, dental, and vision coverage
- 21 days of vacation, in addition to sick/safe leave and 10 holidays
- $3k/yr to spend on paid-vacations
- 4 months of fully paid parental, medical, or family leave
- Full match of 401(k), up to 3% of the employee’s salary
- Stock options
- Paid internet access for the employee’s home
- 150% match of all charitable donations made by the employee
- Subsidized Parking or Transit Passes
- 10 face-to-face annual professional coaching sessions
- Tuition reimbursement up to $2,000 each year
- Daily snacks and beverages for the office
Whereas the Mountain View biotechnology company 23andMe’s package includes:
- Medical, dental, and vision insurance with life insurance,
- Short-term disability
- 401 (k) with employer match
- Vacation/sick leave accrual, along with paid holidays
- In-office fitness classes, treadmill desks, and company bikes to ride
- Intermural after-hours sports teams
- Lunch provided five days a week by an in-office chef
- Food trucks, trivia games, holiday parties
- Stocked kitchen with snacks and beverages
- Tuition reimbursement program for job-related college-level courses.
- Transportation (Caltrain) passes
- Opportunity to bring a dog to work
Most companies these days include a list of potential fringe benefits under the hiring section of their websites. While some of these perks are more financially accessible to large corporations, policies allowing dogs at work or office snacks are manageable to smaller businesses as well!
3. Are fringe benefits considered wages?
Yes and no. Fringe benefits by definition fall outside of an employee’s salary and in terms of taxation, most fringe benefits are exempt from being taxable wages. Of course there are limits to the amount exempt, so some fringe benefits may be considered taxable wages and therefore must be reported as such.
Health and accident benefits, for example, are tax-free and are not considered wages. Similarly, education assistance programs or Master-level courses that an employee takes are not considered wages, unless the amount exceeds a $5,250 per year cap. For a full breakdown of what is considered a taxable wage or not take a look at the IRS’s Guide to Fringe Benefits.
4. Are commuter benefits taxable?
Commuter benefits, for the most part, qualify for exemptions from federal income and payroll taxes as long as they qualify as a “transportation fringe benefit.” For example, a monthly transit pass, qualified parking, or transportation in a commuter highway vehicle would all be tax-free. The rule of thumb to keep in mind is that (as of 2018) up to $260 per month, “for combined commuter highway vehicle transportation and transit passes” provided to an employee may be excluded (Publication 15-B of the IRS). Take a look at our article on commuter benefits for more details.
5. Are company provided gym memberships taxable?
If the gym membership is for an in-company facility, it is considered a tax exemption. This means the gym must be a direct part of your business or leased/operated by your company with your employees being the majority of its users for it to qualify for tax exemption. Otherwise, gym memberships are taxable.
6. Is company-sponsored life insurance taxable?
According to the IRS, company-sponsored life insurance, otherwise known as group-term life insurance, is exempt from taxes if it meets the following conditions:
- It must be provided for a minimum of 10 employees annually.
- It provides an amount of insurance to each employee based on age, years of service, pay, or position in order to prevent individual selection.
- It is provided under a direct or indirect policy that the company carries.
- It provides a general death benefit that is not included in income.
In summary, fringe benefits are some of those reasons we love doing what we do—the added cherries on top of our salary sundaes. And when you align those fringe benefits with your company’s core values, it shows your commitment to those values and allows employees to be proud of their work.