What are fringe benefits?

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?
• Why offer fringe benefits?
• What are examples of fringe benefits?
• What is a fringe benefit rate?
• IRS rules for fringe benefits
• Who can offer fringe benefits?
• How to administer employee fringe benefits
• Fringe benefits FAQs

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:

• Health insurance: The Affordable Care Act’s (ACA) employer mandate requires organizations with 50 or more full-time equivalent employees (FTEs) to provide affordable health insurance that meets minimum essential coverage (MEC) and minimum value. But, group health plans are often too expensive and rigid for small employers to offer. Alternatively, employers can offer a health reimbursement arrangement (HRA) such as the individual coverage HRA (ICHRA).

• 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:

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:

• Health benefits like health insurance and HRAs
• Wellness programs
• Paid time off (PTO) and sick leave
• Tuition assistance or reimbursement
• Retirement planning benefits
• Use of a company car or cell phone
• In-office perks like free meals, snacks, or coffee
• Commuter benefits
• Child care services
• Rewards and recognition programs
• Flexible work hours and remote work
• Employee stock options

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.

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.

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.