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.
Some of these benefits are: housing (employer-provided or employer-paid), group insurance (health, dental, life etc.), disability income protection, retirement benefits, daycare, tuition reimbursement, 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 take-home vehicles, hotel stays, 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 Canada might include additional health coverage that are not included in the provincial plan such as (medical, prescription, vision and dental plans); health and dependent care; retirement benefit plans (in addition to Canada Pension Plan (CPP); group-term life and long term care insurance plans; legal assistance plans; transportation benefits; and possibly other miscellaneous employee discounts wellness programs, discounted shopping, hotels and resorts, and so on.
Employee benefits in the United States might include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans; legal assistance plans; adoption assistance; child care benefits; 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 income and, therefore, are not subject to federal income tax in 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 handshake and golden parachute plans).
American corporations may also offer cafeteria plans to their employees. These plans would offer a menu and 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 FICA tax, 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 Board during World War II to describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.
Employee benefits provided through ERISA are not subject to state-level insurance regulation like most insurance contracts, but employee benefit products provided through insurance contracts are regulated at the state level.
In the UK, Employee Benefits are categorised by three terms: Flexible Benefits (Flex) and Flexible Benefits Packages, Voluntary Benefits and Core Benefits.
Flexible Benefits, usually called a "Flex Scheme", is where employees are allowed to choose how a proportion of their remuneration is paid. Currently around a quarter of UK employers operate such a scheme. . 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 Intranet or Extranet website where employees can view their current flexible benefit status and make changes to their package. Adoption of flexible benefits has grown considerably over the five years to 2008, with The Chartered Institute of Personnel and Development additionally anticipating a further 12% rise in adoption within 2008/9.. This has coincided with increased employee access to the internet and studies suggesting that employee engagement can be boosted by their successful adoption..
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, Fideliti, KiddiVouchers, Imagine, Early Years Vouchers Ltd) 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 recent years many UK companies have used the tax and national insurance savings gained through the implementation of salary sacrifice benefits to fund the implementation of flexible benefits. In a salary sacrifice arrangement an employee gives up the right to part of the cash remuneration due under their contract of employment. Usually the sacrifice is made in return for the employer's agreement to provide them with some form of non-cash benefit. The most popular types of salary sacrifice benefits include childcare vouchers and pensions.
In a number of countries (e.g., Australia, New Zealand, Pakistan and India) the 'fringe benefits' are subject to the Fringe Benefits Tax (FBT), which applies to most, although not all, fringe benefits.
In the UK these benefits are often taxed at the individuals normal tax rate , which can prove expensive if there is no financial advantage to the individual from the benefit.