What are fringe benefits?

Fringe benefits can help increase employee satisfaction and reduce turnover. Learn about the types of fringe benefits you can offer in this ultimate guide.

Are you looking to offer a standout employee benefits package? Talk to our team to find out how a health reimbursement arrangement (HRA) can help.

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Are you looking to expand your employee benefits offerings?

If you’re researching ways to bolster your employee benefits package, you may have encountered the term “fringe benefits.” Despite the name, offering fringe benefits to employees is common for many organizations.

So, what are fringe benefits, and why should you provide them to your employees?

This guide will define fringe benefits, explain why they’re essential for organizations, and explore the income tax implications of these benefits.

Topics covered in this guide include:

What is a fringe benefit?

A fringe benefit is a form of indirect compensation an employer provides to an employee in addition to their wage or salary.

The term fringe benefit was initially an umbrella term for any benefit that isn’t considered traditional. Many businesses offer traditional employee benefits like group health insurance, dental insurance, vision insurance, life insurance, and retirement. Organizations began to introduce additional benefits to attract and retain talented employees. Now, fringe benefits are synonymous with employee benefits.

t’s important to note the Internal Revenue Service (IRS) defines fringe benefits as a form of payment for services performed by employees and 1099 independent contractors. They have a list of items it categorizes as fringe benefits. However, the IRS doesn’t include traditional employee benefits like health insurance on their fringe benefits list.


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Why offer fringe benefits?

While federal and state laws require some fringe benefits, offering additional fringe benefits to your employees is an excellent way to increase employee satisfaction and reduce employee turnover.

Satisfy federal and state benefits requirements

As an employer, you may need to offer various required federal and state employee benefits. Let’s look at some examples.

Federal benefits requirements include:

  • Unemployment insurance: Employers nationwide must pay a federal unemployment tax to support unemployed workers at the state level.

While not technically a fringe benefit, the Family and Medical Leave Act (FMLA) requires organizations with 50 or more employees to provide unpaid family and medical leave to eligible employees who have worked for at least a year. Additionally, employers and employees must each pay 6.2% of wages up to the taxable income maximum of $168,600 toward Social Security.

State benefits requirements may include:



States/territories where required

Disability insurance

Pays employees who are unable to work due to injury or illness.

California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island

Workers’ compensation insurance

It covers the costs for workers who are injured on the job.

Every state except Texas

Many states also require employers to reimburse their employees for work-related expenses.

Offering an array of fringe benefits to your employees helps your organization satisfy federal and local employee benefits requirements.

Improve employee retention

Fringe benefits help increase employee satisfaction, making employees more likely to stay at your organization instead of looking for new opportunities. In a job-seekers market, employee retention is key. Offering ample fringe benefits that meet your employees’ specific needs creates company loyalty and makes employees feel cared for, improving employee satisfaction.

Attract top talent

Organizations are doing more than ever to attract qualified candidates. If your competitors offer traditional employee benefits, you can win over top talent by adding fringe benefits to your compensation package. Increased employee benefits are a top consideration for job applicants alongside salary.

According to our 2024 Employee Benefits Survey Report, 81% of employees said the employer's benefits package is an essential factor in whether or not they accept a job.

By offering fringe benefits, you can more easily attract your ideal job candidates.

Empower your employees

Within the fringe benefits umbrella, you can offer personalized employee benefits. Personalized employee fringe benefits enable employers to set monthly allowance caps, giving them control over the cost while allowing eligible employees to choose how to spend their allowance. Personalized benefits meet the individual needs of employees while ensuring that your staff spends benefit dollars on the expenses you intended.


Learn how to set up personalized benefits in an hour or less

What are examples of fringe benefits?

Since fringe benefits can include anything from formal employee benefits to in-office perks, there are many types of fringe benefits that you might encounter.

Here are some examples of fringe benefits:

In the following sections, we’ll cover some of the most popular fringe benefits and explain how you can offer them.

Flexible working arrangements and remote work

Flexible working arrangements are becoming a popular perk for employers looking to recruit top talent. Flexible work arrangements include remote work, hybrid work, and flexible hours or schedules.

When employees control their schedules, they’re more likely to find a good work-life balance that allows them to remain healthy and productive in the workplace.

Remote work can help your organization attract top talent. According to Forbes, 98% of workers want to work from home, at least part of the time. As many organizations return to a physical workplace, you can stand out by offering remote or hybrid work.

If your employees work remotely, you can offer them a remote work employee stipend to help cover their expenses.

Remote work stipends are an allowance you give to your employees for their home office setup costs, monthly internet access expenses, and personal cell phone bills if they use their phones for work, among other expenses like coworking space memberships. This can help ensure your employees can access high-speed internet and the tools they need to do their jobs effectively.

Paid time off (PTO)

While many organizations offer vacation time and sick leave, the amount varies significantly.

The United States is one of the only countries without a federal minimum annual leave, the others being Kiribati, Marshall Islands, Micronesia, Nauru, Palau, and Tonga. Even with no federal requirements, the U.S. Bureau of Labor Statistics found that 79% of private industry employees had vacation time.

PTO combines vacation, sick time, and personal time into a single system employees can use to take time off from work. Some organizations use an accrual system based on how many hours an employee works per year and how long they’ve been with the organization, while others provide unlimited PTO on day one.

With unlimited PTO, employees can take as many days off from work as they need as long as it doesn’t heavily impact their work.

Offering PTO to your employees has many benefits. If employees know they can take time off, they’re more likely to see it as an incentive to get work done beforehand. Taking time off also allows your employees to relax and de-stress. They’ll feel refreshed and work more efficiently when they return to work.

Providing ample PTO and sick leave also ensures that employees won’t come to work when they feel ill, preventing the spread of viruses that could threaten your entire workforce.

Tuition and education assistance

With student debt rising, more organizations provide tuition and education assistance benefits. These fringe benefits are desirable to recent college graduates looking for work and those looking to earn a degree.

Some of the most common education benefits are:

  • Tuition assistance and reimbursement
  • Continuing education courses
  • Student loan repayment programs
  • Training programs and seminars
  • Conferences

Most organizations that offer tuition assistance reimburse employees for their tuition upon completion of their courses to encourage employees to continue their education.

Other organizations contribute a certain amount toward their employees’ existing student loans through a student loan repayment program.

Tuition and education assistance are great fringe benefits to offer to your employees. However, you need to prepare yourself for the complexity of these programs.

Another option for providing your employees with education and professional development opportunities is offering an employee stipend. A professional development stipend allows you to give your employees money for their various education-related expenses. This makes it simple to provide a standout education benefit to your employees.

Health benefits

Health benefits remain one of the most sought-after employee benefits. You can choose from various health benefit options, including traditional group health insurance, health savings accounts (HSAs), HRAs, and health stipends.

Due to rising group health insurance costs and healthcare consumerism, many organizations are abandoning traditional group health insurance policies and choosing to provide HRAs instead.

HRAs allow organizations to reimburse employees tax-free for qualifying medical expenses, including individual health insurance premiums and out-of-pocket healthcare costs.

Health stipends are another option for organizations with employees who receive advance premium tax credits (APTC) for their individual health insurance premiums. They allow you to give your employees a taxable monthly allowance for their medical expenses. You can also offer them to international employees and independent contractors.

However, the taxable nature of stipends makes HRAs a better choice for many organizations. A stipend also doesn’t satisfy the ACA’s employer mandate, while an ICHRA can.

See how HRAs and health stipends can help your employees pay for their medical expenses in our free chart!

Some of the most common HRAs are:

  • Qualified small employer HRA (QSEHRA) - Designed for organizations with fewer than 50 full-time equivalent employees (FTEs)
  • Individual coverage HRA (ICHRA) - Great for organizations of all sizes that want to create custom employee classes and monthly allowances
  • Group coverage HRA (GCHRA) - Also known as an integrated HRA, a GCHRA supplements your group health insurance plan, such as a high deductible health plan (HDHP)

Wellness benefits

A wellness benefit is another popular type of fringe benefit that has been increasingly popular in recent years. There are many different wellness benefits available for your employees, which you can include in your holistic workplace well-being program.

Common workplace wellness benefits include:

  • Smoking cessation programs
  • Employee health screenings
  • Nutrition education classes
  • Vaccination clinics
  • Weight loss programs
  • Stress management classes
  • Gym memberships or fitness classes
  • Wellness stipends

One of the best ways to empower your employees to participate in your wellness program is to offer personalized wellness benefits such as wellness stipends.

While it’s a taxable fringe benefit, you can leverage a wellness stipend to reimburse your employees for their wellness expenses, such as gym memberships, fitness classes, exercise equipment, and meditation apps.

Offering a wellness stipend is a simple way to ensure that all current employees can participate in your wellness benefit.

Commuter benefits

Another popular type of fringe benefit is a commuter or transportation benefit. This allows you to alleviate some of your employees’ financial burdens when securing transportation to and from the workplace.

There are various commuter benefits, including mileage reimbursement, gas and fleet cards, providing transit or parking passes, and more.


Find out which benefits are best for your organization

What is a fringe benefit rate?

A fringe benefit rate is a number that represents the proportion of an employee’s total compensation made up of fringe benefits versus the employee’s regular salary. You can calculate the fringe benefit rate by adding your annual benefits costs and payroll taxes and dividing this number by your total annual wages.

For example, if you paid $10,000 in benefits costs and $60,000 in annual wages for a current employee, then your fringe benefit rate would be 16.67%.

You can use this rate to find your organization's total labor cost. This is useful for determining your budget for additional benefits and yearly expenses. It can also help you easily compare the value of your benefits to those of your competitors.

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IRS rules for fringe benefits

In general, most fringe benefits are taxable income. However, some benefits have a tax-advantaged status.

The Internal Revenue Service (IRS) lists tax-free fringe benefits in Publication 15-B. All other benefits not listed are considered taxable fringe benefits for both employers and employees. We recommend that you work with an accountant or tax professional to determine the taxability of your fringe benefit program.

We’ve included a chart below for easy access to this information.

Fringe Benefit

Income Taxability

Social Security & Medicare Taxability


Accident and health benefits



This excludes Archer medical savings accounts (MSAs) and long-term care insurance.

Achievement awards



$1,600 for qualified plan awards and $400 for those that aren’t qualified plan awards.

Adoption assistance



Capped at $16,810 in 2024.

Athletic facilities



If all use is by eligible employees and their families and the facility is operated by the employer.

Bicycle commuter reimbursement



Tax-free benefits are suspended for income years 2017-2026.

Commuter benefits



$315 per month for transit passes or commuter highway fleet vehicles and $315 per month for qualified parking. Not deductible from income taxes. Employers can exclude payments from wages.

De minimis benefits



A de minimis benefit is any property or service you offer an employee that has so little value that it would be unreasonable to account for it.

Cash allowances and other monetary benefits, like gift certificates, debit cards, or credit cards, are never exempt, regardless of the amount.

Dependent care assistance (DCAP)



$5,000 ($2,500 for married eligible employees who file separately).

Educational assistance



Up to $5,250 per year.

Employee discounts



Up to 20% of the regular price. It can’t be for real estate, investment, or items not normally sold to customers.

Employer-provided cell phones



Must be for substantial business reasons and not offered as a perk.

Flexible spending account (FSA)



In 2024, health FSAs are capped at $3,200 from salary deferrals and $640 for rollover amounts.

Group-term life insurance



Up to $50,000 of coverage.

Health savings account (HSA)



Up to contribution limit for the year (combined employee and employer contributions of $4,150 for self-only and $8,300 for family for 2024).

Catch-up contributions are $1,000 for both eligible individuals and families.

Health stipend




Lodgings on-premises



If it is a condition of employment.




Only if it is on-premises or a de minimis benefit.

Moving expense reimbursement



Only for active-duty members of the U.S. Armed Forces.

Retirement planning services




Tuition reduction



For undergraduate students or graduate students who perform teaching or research.

Wellness stipend




Working conditions benefits





Who can offer fringe benefits?

Any organization with employees can provide fringe benefits. However, some benefits, such as an HRA, require you to meet specific requirements. For example, you can’t offer your employees a QSEHRA if you have 50 or more FTEs. But, no matter your organization’s size or location, an employee fringe benefit is available for you.

How to administer employee fringe benefits

If you’re new to providing fringe benefits to your employees, we can help. At PeopleKeep, we specialize in helping organizations of all sizes offer personalized employee benefits. Our HRA administration software has helped thousands of employers reimburse current employees for the medical expenses most important to their needs.

With PeopleKeep, you can offer your eligible employees one of three types of HRAs: a QSEHRA, ICHRA, or GCHRA. Our experts review your employees’ medical expenses for you, ensuring HIPAA compliance. With our software, you can manage your benefits in minutes each month.

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Interested in offering fringe benefits with PeopleKeep?

Learn how PeopleKeep’s HRA administration solution can help you set up a flexible and personalized health benefits package.


Frequently asked questions

Are fringe benefits included in gross income?

You must include most fringe benefits in your employee’s gross income, but exceptions exist. HRAs, for example, are tax-free. You’ll want to review IRS Publication 15-B for more information about what applicable taxes you must pay when offering benefits.

What fringe benefits are exempt from federal income tax withholding?

Tax-advantaged fringe benefits can include accident and health benefits, achievement awards (up to a certain amount), adoption assistance, use of current employee athletic facilities, commuter benefits (up to a certain amount), dependent care assistance, HRAs, HSAs, education assistance (up to a certain amount), and more. See IRS Publication 15-B for more information regarding applicable taxes.

What is another name for fringe benefits?

Fringe benefits are also called employee benefits, benefits in kind, benefits pay, and indirect compensation.

What can be included in my fringe benefits package?

Your fringe benefits package can consist of nearly all types of employee benefits, including health benefits, employee stipends, paid time off, sick leave, retirement, and more.