There are many benefits to consider when one is deciding to take or offer a position within a company. These benefits can range from different insurance coverages, company cars and bonus plans. In this article, we will discuss “fringe” benefits and what exactly this type of benefit covers.
Fringe benefits are non-cash compensation benefits to the employee. This covers employee discounts, no-additional-cost services, company cafeteria and meal plans, qualified transportation, qualified retirement planning services, gyms and athletic facilities, “working condition fringes,” and “de minimis fringes.”
An employee could receive an employee discount. For example, if working at a department store, the employee might receive 10% off any item purchased in the store. How does this benefit the employee? The discount received on the merchandise purchased is as good as cash to the employee, plus the employee would not have to pay any taxes on the 10% discount received. This is also a benefit for the employer because the employer still makes a profit on the items sold, but does not bear the cost of marketing. The employer also benefits because the merchandise purchased is usually allowed to be worn on the job, which enables the products purchased to receive free promotion. The employee discount benefit can also be offered to non-active employees, i.e., retired, disabled, spouses, and dependent children.
An employee, for example, could receive a no-additional-cost service if applying for a flight attendant job. The employee would accumulate miles that could be used to fly standby. This would benefit the employee because it would cost nothing or very little to fly. Flying standby would cost the employer nothing, because the employee could only fly if the seat has not been purchased. The no-additional-cost service could also be offered to non-active employees, i.e., retired, disabled, spouses, and dependent children.
An employee could receive a meal plan or eat in the company cafeteria daily without charge. This is an obvious benefit to the employee—he gets a free lunch. This is also a benefit to the employer for several reasons:
- The employees are able to visit with each other, often talking business and sharing ideas to make business run smoother.
- Time is saved by the employee not leaving the office to go to a nearby restaurant.
- The employer may be able to deduct the cost of daily lunches from the company’s taxable income.
An employee may receive qualified transportation. For example, if the employee lives in a large city with a transit station, a transit pass may be provided for public or private use. The qualified transportation could be beneficial for a commuter highway vehicle or qualified parking. These services are beneficial to the employer because they are fully tax-deductible.
An employee could receive qualified retirement planning services. This allows the employee and their spouse to deduct from their taxes the cost of any retirement planning services performed on their retirement plan. This does not include accounting, tax preparation, or brokerage services.
An employee may receive access to a gym or athletic facility. This is tax-free to the employee if the facility is located on the employer’s premises, operated by the employer, and only if the facility is used by employees, spouse, or dependent children.
An employee could receive services referred to as “working condition fringes.” For example, if the employee is asked to go off the employer premises for a length of time to do some work, the employer would have to provide the transportation. Once the employee was finished doing business at the other location, the employee would pay for the extended stay himself and report that cost as a business expense deduction. This way it keeps the employer from having to pay any taxes on the business trip and the employee would receive an all expenses paid trip.
An employee also may receive “de minimis fringe” benefits. De minimis benefits are considered to be “among the small things.” These types of items are the coffee, soft drinks, occasional donuts and sports tickets, etc. These benefits are the ones taken for granted by most employees.
As you can see, there are many potential benefits to be considered when searching for a job or hiring a new employee. When trying to make a decision on taking or offering a job, keep these things in mind. For more information, contact Henssler Financial at 770-429-9166 or [email protected].