What Is a Fringe Benefit? (With Importance and Types)

Updated November 8, 2022

Organizations often give their employees additional compensation apart from their typical salaries in the form of fringe benefits. Employers may offer these perks to motivate their workforce, minimize turnover, and recruit qualified individuals. Learning about the different benefits and their importance can serve as your guide when searching for organizations that may be the best fit for you. In this article, we define a fringe benefit, discuss its importance, and list some of its types.

What is a fringe benefit?

A fringe benefit is additional compensation that you can receive aside from your regular salary. Examples of such benefits are free meals, a company phone, and supplemental health insurance coverage. While some of these benefits are mandatory by law, others may serve as a reward for exemplary job performance or help to attract potential candidates.

The kinds of benefits employers offer typically depend on a company or industry. For instance, a restaurant may provide free meals to their employees, while an athletic centre or gym may give their staff access to workout classes for free. A clothes retail store may offer employees discounts on their merchandise.

Types of fringe benefits

When you're looking for a job, you may want to know about the benefits a potential employer offers. The type of compensation employees receive usually varies, and may depend on numerous factors, including the employee's position, the industry in which they work, and the size of the company. Here are several types of fringe benefits you may encounter:

Stock options

Free employee stock options allow you to own a stake in an organization. You can purchase shares and profit as the stock value of a company increases. You may also receive shareholder dividends if a company experiences a profitable year.

Tuition assistance

Companies may offer assistance for your own tuition or for that of your family member. With this kind of benefit, you may continue your education or pursue further studies. This is usually beneficial for both you and the company you work at.

Life insurance

Companies often offer free life insurance coverage. This usually includes accidental death insurance. This is important because it can help you save on insurance premiums, allowing you to use your savings for other expenses.

Supplemental health insurance

Companies may provide you with free eye or dental coverage. This is a common thing people usually look for when considering employment opportunities. These benefits may include coverage for both you and your families or dependents.

Transportation allowance

If you commute to the office by bus or train, the company you work at may offer you a transportation allowance. This may consist of full or partial reimbursement of train or bus rides. It may also cover parking fees or gas reimbursement if you use a car.

Company car

Some companies offer company transportation, especially for executives or people who drive as a primary part of their role. This benefit may include gas allowance and parking fee coverage. The use of a company car can be a great way to save on transportation costs and an effective method for attracting talent to a company.

Company cellular phone or laptop

If your tasks include making phone calls to clients, a company may provide you with a cellular phone. If you use your own device for business purposes, it may reimburse your expenses. Some companies, such as information technology firms, may offer company laptops that you can use for work.

Accommodation

This benefit may include free board and lodging in the case of permanent housing. Companies may also offer free or discounted lodging at hotels or similar establishments if you frequently travel for work. They may also reimburse you for the cost of meals during your travels.

Unlimited paid time off

While most companies offer a set number of paid vacation, some organizations may offer unlimited days off to attract potential candidates. This may depend on your performance at work. For example, if you work in a sales position, you may have the right to a certain number of vacation days whenever you meet your sales quota for a period of time.

Retirement plan contributions

Companies may offer to contribute to a retirement plan on your behalf. You may contribute a percentage of your pay or a flat amount. This is one of the benefits candidates often look for in a company because it helps them save for their own retirement and adds to their financial security.

Interest-free or low-interest loans

A company may give you the opportunity to apply for a loan to meet your financial needs. These loans are usually interest-free for a set period of time, and you may pay them back through salary deductions. This can allow you to use the money you borrowed for an emergency or important purchases.

Childcare reimbursement

There are companies that may offer partial or full coverage of childcare costs while you're at work. Other organizations may also provide on-site childcare facilities. This is a great benefit that can allow you to better balance your professional and personal obligations.

Year-end performance bonus

This is one of the strategies that companies often use for employee retention. A performance bonus is an incentive to improve or maintain your excellent performance so you continue to work for the company. Some companies may also offer a bonus at the end of a project.

Value of fringe benefits

These benefits have a fair market value, which is the same amount that you would pay for them at retail. While some benefits are taxable, others aren't subject to tax. According to the Canada Revenue Agency, the cost of fringe benefits or non-cash compensation to employees may be subject to the goods and services tax. This is equivalent to the harmonized sales tax in certain provinces, such as Prince Edward Island, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador. Here are examples of fringe benefits and their tax status:

Company car: If an employee uses a company car for business and personal purposes, the cost of this benefit is taxable.
Gifts and awards: While most gifts or awards are taxable, there are exemptions, such as when the cumulative value of the non-cash gifts is lower than $500.
Free parking: While free parking an employer provides is taxable, there are some exceptions, such as if an employee is disabled or they regularly use the company car for business.
Medical expenses: While additional medical care plans, such as eye or dental care, are non-taxable, the cost a company incurs for employees' annual medical expenses is subject to tax.
Subsidized meals: Meals that an employer provides in the company cafeteria or dining room aren't taxable if the employees pay a reasonable price for them, but if it's higher than the cost of buying ingredients and preparing and serving the food, the subsidized meals become taxable.

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Importance of fringe benefits

These benefits are an important part of any job, as they can help provide for an employee's long-term financial security, improve their quality of life, and serve as an extra layer of security when unexpected circumstances arise. They can also offer a lot of value. Here are some reasons they can be important to employees and organizations:

Increase employee retention: Employees who enjoy benefits that a company tailors to their needs and preferences are more likely to stay with the organization because they feel appreciated and valued. Offering benefits can also make individuals feel more secure about their job and future, which may result in improved employee retention.
Motivate employees: Offering the right types of benefits can motivate professionals to improve their performance. For example, if employees know that meeting certain goals makes them eligible for extra vacation days or a small bonus, they're more likely to work hard and achieve their desired outcomes.
Keep people healthy: A healthy workforce is usually more productive. When an organization takes care of their employees' health, they're more likely to complete assignments on time and carry out more tasks overall.
Save the company money: Providing benefits can help an organization save money because it often reduces the number of employees who may leave it to work for an employer offering better perks. It may also diminish the number of days off employees take because of health problems, which can help an organization avoid paying for expensive overtime or temporary employees to fill in for those who are unable to work.
Improve the organization's image: This kind of benefits can improve an organization's reputation, showing that it cares about their employees and is willing to invest in their long-term financial security. This often leads to a more loyal workforce and may help in attracting the best talent.
Encourage employee development: Offering benefits can help employees develop their skills and pursue their professional goals. For example, if an organization provides tuition reimbursement, employees are more likely to enroll in educational programs that can help them advance their careers.

Please note that none of the companies, institutions, or organizations mentioned in this article are affiliated with Indeed.

What Is a Fringe Benefit? (With Importance and Types)