Employee benefits and (especially in
British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries. Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
Fringe benefits can include, but are not limited to: (employer-provided or employer-paid) housing, group insurance (health, dental, life etc.), disability income protection, retirement benefits,
daycare, tuitionreimbursement, sick leave, vacation(paid and non-paid), social security, profit sharing, funding of education, and other specialized benefits.
The purpose of the benefits is to increase the economic security of employees.
The term perqs or perks is often used colloquially to refer to those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority. Common perks are
company cars, hotelstays, free refreshments, leisure activities on work time ( golf, etc.), stationery, allowances for lunch, 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.
Employee benefits in the
United Statesmight include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirementbenefit plans (pension, 401(k), 403(b)); group-term life and long term care insuranceplans; legal assistance plans; adoptionassistance; child carebenefits; transportation benefits; and possibly other miscellaneous employee discounts ("e.g.", movies and theme park tickets, wellness programs, discounted shopping, hotels and resorts, and so on).
Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage up to US$50,000) may be excluded from the employee's gross
incomeand, therefore, are not subject to federal income taxin the United States. Some function as tax shelters (for example, flexible spending accounts, 401(k)'s, 403(b)'s). Fringe benefits are also thought of as the costs of keeping employees other than salary. These benefit rates are typically calculated using fixed percentages that vary depending on the employee’s classification and often change from year to year.
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 benefits (e.g.
golden handshakeand golden parachuteplans).
American corporations may also offer
cafeteria plans to their employees. These plans would offer a menuand 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 the employees are deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the FICAtax, 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 .
The term "fringe benefits" was coined by the
War Labor Boardduring World War IIto describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.
In the UK, Employee Benefits are categorised by three terms:
Flexible Benefits (Flex) and Flexible Benefits Packages, Voluntary Benefits and Core Benefits.
Flexible Benefits most often called a "Flex Scheme" is where employees are allowed to choose how a proportion of their
remunerationis paid. Currently around a quarter of UK employers operate such a scheme. [cite news|publisher=HR Zone|title=Employee Rewards Watch 2008| [url=http://www.hrzone.co.uk/cgi-bin/library.cgi?action=detail&id=7450&dir_publisher_varid=201&t=1] | date=April 15, 2008|author= Thomsons Online Benefits|accessdate=2008-04-26] . This is normally delivered by allowing employees to sacrifice part of their pre-tax pay in exchange for a car, additional holiday, a shorter working week or other similar benefits, or give up benefits for additional cash remuneration. A number of external consultancies exist that enable organizations to manage Flex packages and they centre around the provision of an Intranetor Extranetwebsite where employees can view their current flexible benefit status and make changes to their package.
Voluntary Benefits is the name given to a collection of benefits that employees choose to opt-in for and pay for personally. These tend to be schemes such as the government-backed (and therefore tax-efficient) Bike2Work and Childcare Vouchers (Accor Services, Busybees, Sodexho) and also specially arranged discount schemes for employees such as group ISAs. Employee Discount schemes are often setup by employers as a perk of working at the organization. They can be run inhouse or arranged by an external employee benefits consultant.
Core Benefits is the term given to benefits which all staff enjoy, such as holiday, sick pay and sometimes flexible hours.
In the UK, the employee benefit market is split between larger employee benefit consultancies (Mercers, Watson Wyatt, Towers Perrin, Hewitt), the mid-market (
Buck Consultants, SBJ, [Thomsons Online Benefits] [http://www.thomsonsonlinebenefits.com] , Gissings) and smaller bespoke advice & consultancy organisations. Technology provision is led by companies such as Thomsons Online Benefits.
Fringe Benefits Tax
In a number of countries (e.g.,
Australia, New Zealand, and India) the 'fringe benefits' are subject to the Fringe Benefits Tax(FBT), which applies to most, although not all, fringe benefits.
Advantages of employee benefits
There are a number of advantages to employee benefits for both employer and employee. [cite news|publisher=Great Online Websites|title=The Importance of Employee Benefits Schemes|url=http://www.greatonlinewebsites.com/human_resources1.html| date=March 26, 2008|author= Aetna Universal Insurance Sdn Bhd|accessdate=2008-03-26]
* Helps attracts and retain better qualified employees.
* Provides high risk coverage at low costs easing the company's financial burden.
* Improves efficiency and productivity as employees are assured of security for themselves and their families.
* Premiums are tax deductible as corporation expense, which means savings with quality coverage.
* Peace of mind leading to better productivity as employees are assured of provision for themselves and families in any mishap.
* Employees with personal life insurance enjoy additional protection
* Confidence in company's EB schemes boost staff morale and pride in company
In the UK these benefits are often taxed at the individuals normal tax rate [ [http://www.hmrc.gov.uk/helpsheets/490.pdf 490 (2008) Employee Travel - A tax and NICs guide for employers ] ] , which can prove expensive if there is no financial advantage to the individual from the benefit.
* [http://www.benefitnews.com BenefitNews.com - top trade publication for benefits-related information in the United States and Canada]
* [http://swz.salary.com/mybenefits/layoutscripts/mbfl_start.asp Calculate the value of your benefits based on salary in the US]
* [http://www.voluntarybenefitsdirectory.co.uk/ Directory of UK based voluntary benefits consultancies and research materials]
* [http://www.employeebenefits.co.uk/ Website for UK based Employee Benefits magazine, published by Centaur]
* [http://www.thomsonsonlinebenefits.com/Newsletter/ Free global news service on employee rewards and benefits]
* [http://www.dollarsandsense.org/archives/2007/0907gould.html Access to Paid Sick Days: Vastly Unequal] from
Dollars & Sensemagazine
* [http://www.ifebp.org International Foundation of Employee Benefit Plans] International organization for benefits professionals
* [http://ebn.benefitnews.com Website for Employee Benefit News magazine which is written for US-based employers dealing with HR & Benefits issues]
* [http://eba.benefitnews.com Website for Employee Benefit Adviser magazine which is written for employee benefit brokers/advisers/consultants]
* [http://ebnc.benefitnews.com Website for Canadian Employee Benefit managers and US benefit managers with employees in Canada.]
* [http://smbhr.benefitnews.com Website for SMB Human Resources magazine which is written specifically for HR & Benefit managers in companies with less than 1,000 employees.]
* [http://www.ebri.org/publications/books/index.cfm?fa=fundamentals Fundamentals of Employee Benefit Programs (book available on-line), Employee Benefits Research Institute (EBRI), covers benefit programs in the US]
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