Employee Fringe Benefits Help You Attract Talent

Employee Fringe Benefits Make Your Company a More Attractive Employer

As economic conditions remain unsteady, companies of all sizes are seeking ways to grow without taking on excessive risk. One way to do so is by making sure you can attract talented employees and then, even more importantly, retain them for the long haul.

However, talent shortages continue to plague businesses across industries, even at the largest “brand name” companies. In fact, a new survey of more than 2,000 CFOs conducted by U.S. Bank shows that a lack of talent tops the list of risks cited by finance leaders.

Offering fringe benefits or perks can be a great way to help your company compete for top candidates. After all, in an environment where everyone is feeling the squeeze of high prices, job seekers are eager to receive benefits. They’re looking for options that help supplement their wages and make life more affordable.

As a business owner, you’ll want to make the right decisions when it comes to what kinds of fringe benefits to offer. And you’ll want to understand how they impact your company financially. BGM’s business and tax advisory services are designed to help you understand issues like these and make the right decisions.

Common Fringe Benefits

Fringe benefits are often part of the basic hiring package. Common examples include health insurance, life insurance, reimbursements for child care, employee discount programs, tuition assistance programs and employee stock options.

Plenty of companies offer less common fringe benefits that fit with their brand. For example, some pet stores are known to let employees bring pets to the office. A candy shop might reward employees with free candy. You could consider offering unique perks that make sense for your business, too.

Are Fringe Benefits Taxable to the Employee?

Taxation of fringe benefits is governed by Code Section 132 of the Internal Revenue Code. Per the IRS, “any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it.”

Fortunately, the law does indeed specifically exclude a long list of fringe benefits from taxation. We will discuss non-taxable fringe benefits later in this article.

How Should Employers Report Taxable Fringe Benefits?

If the person receiving the fringe benefit is your employee, the benefit is usually subject to employment taxes and must be reported on Form W-2. There are special rules you as the employer can use to withhold, deposit and report such taxes. This is something the BGM team can help you with as part of our impact client services subscription or our outsourcing accounting services group.

If the person receiving the fringe benefit is a freelancer, contractor or other non-employee, they would generally not be part of your employer plan. You may pay them revenue for the benefits, but the revenue is not subject to employment taxes.

As an employer, you’ll need to estimate the fair market value of the fringe benefits you provide to all employees; that way, you can withhold and deposit the right amounts during the year.

You can report taxable fringe benefits per pay period, monthly, quarterly, semi-annually or annually. When reporting, add the value of the fringe benefit to the regular wages paid during the reporting period, then calculate income tax on that amount.

Can Employers Deduct the Cost of Fringe Benefits Provided to Employees?

With limited exceptions, employers can deduct the cost of fringe benefits provided to employees. Here are some examples:

• When your business pays health insurance premiums for employees, employees don’t need to pay tax on those premiums, and the premiums are deductible for the business.
• If you purchase a car for an employee’s personal use, the employee will be taxed on the fair market value of that use. You as the employer would be able to depreciate the vehicle based on current depreciation rules.
• If you provide housing to an employee, the employee will be taxed on the fair rental value of the housing, and you as the employer can deduct the expenses associated with providing the housing.

Non-Taxable Fringe Benefits

Section 2 of IRS Publication 15-B provides a complete list of non-taxable fringe benefits. One of the biggest advantages of offering these benefits is that your business can deduct them even though your employees don’t have to pay taxes on them.

Non-taxable fringe benefits are not subject to income tax, Social Security tax, Medicare tax or unemployment tax. Aside from health insurance, they are not reported on Form W-2. Some benefits, however, are only exempt up to certain dollar amounts.

The BGM team can give additional insight on how these perks generally get reported on the accounting side and what documentation you may need. For example, certain benefits require that the company have an “accountable plan” in place so that all employees know about the benefit and have equal opportunity to take advantage of it.

The IRS’s list of non-taxable fringe benefits includes:

• Accident and health benefits
• Achievement awards
• Adoption assistance
• Athletic facilities
• De minimis (minimal) benefits
• Dependent care assistance
• Educational assistance
• Employee discounts
• Employee stock options
• Employer-provided cell phones
• Group-term life insurance coverage
• HSAs
• Lodging on your business premises
• Meals
• No-additional-cost services
• Retirement planning services
• Transportation (commuting) benefits
• Tuition reduction
• Working condition benefits

You can get creative in offering benefits other than the ones listed above. For example, you could allow employees to work flexible hours, dress casually on certain days or leave a little early on slow days. These little perks don’t cost you anything, but they can boost morale and make your people feel appreciated.

Offering Fringe Benefits Doesn’t Have to Be Complicated

Many of the businesses we advise are concerned that they may not be able to properly administer a fringe benefit program. They’re often particularly worried about complying with all the rules regarding health insurance and retirement accounts.

There is good news on that front: Health insurance and retirement plans are generally administered by third parties at a fraction of the cost of administering them internally. In fact, there is an entire industry called Third-Party Administration, or TPA, in the retirement and benefits world. TPAs handle your plan and ensure that it remains compliant with ever-changing rules and regulations.

How Fringe Benefit Programs Increase Job Satisfaction and Make Your Company a Desirable Place to Work

We’ve spent a lot of time in this article talking about the financial aspects of fringe benefits, but now, let’s return to what we said at the very beginning. Fringe benefits help you compete for talent and keep your current talent happy. How?

• Improving their quality of life and peace of mind through things like health insurance and retirement plans
• Helping employees feel appreciated, which breeds a sense of loyalty and dedication
• Reducing their financial stress through things like childcare benefits
• Motivating employees to want to do well
• Creating a culture where employees are valued as people, not just as workers who contribute to the bottom line

Get Advice and Guidance on All Aspects of Fringe Benefits

At BGM, we advise clients of all sizes on the tax implications of fringe benefit programs. Our tax and business advisors can help you understand the potential tax impact on both the company and your employees.

We can share what experiences we’ve seen our clients have, and we can connect you to the right third-party administrators to make your ideas come to life. That way, you can focus on running your business.

And, of course, as a firm rooted in the accounting world, we’ll help you make choices that best fit your unique tax position and tax goals—now and into the future.