Employee benefit

From Wikipedia, the free encyclopedia

Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, 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 also include, but are not limited to the following: (employer-provided or employer-paid) housing, group insurance (health, dental, life etc.), income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid (esp. teaching) 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 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, 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.

1 United States
2 United Kingdom
3 Fringe Benefits Tax
4 See also
5 External links

[edit] United States

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 and possibly other miscellaneous employee discounts (e.g. movies and theme park tickets, 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 would include executive benefits (e.g. golden handshake and golden parachute plans) which usually exceed the IRS maximum allowed and therefore, the executive would have to pay income tax for the excess amount.

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.

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. {See John W. Haizlip, "A Study of Fringe Benefits", unpublished masters thesis, US Naval Post Graduate School, 1964.}

[edit] United Kingdom

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 remuneration is paid. 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. A number of external consultancies exist that enable organisations 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. In the UK, Motivano is the largest provider of Flexible Benefits administration.

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 schemes and also specially arranged discount schemes for employees.

Employee Discount schemes are often setup by employers as a perk of working at the organisation. They can be run inhouse or arranged by an external employee benefits consultant. In the UK, the biggest employee discount scheme is Reward Gateway run by Asperity Employee Benefits, who provide services for employees at the BBC, Next Retail Ltd and British Airways.

Core Benefits is the term given to benefits which all staff enjoy, such as holiday, sick pay and sometimes flexible hours.

[edit] 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.