Fringe Benefits 101: What They Are and Why They Matter to Your Business

Fringe benefits are non-wage compensations provided to employees as part of their overall remuneration package. These benefits go beyond regular salaries or wages and can include a wide array of perks like health insurance, retirement plans, paid time off, and more. In addition to the common benefits, some companies go the extra mile by offering unique perks that align with their corporate culture or industry like pet-friendly workplaces, free meals and flexible working arrangements, catering to the growing demand for work-life balance.

Employers may offer fringe benefits voluntarily, or they may be required by law to provide certain benefits, depending on the country and industry. In New Zealand, employers are obligated to contribute to KiwiSaver, a retirement savings scheme, as part of the mandatory fringe benefits. On the other hand, benefits like gym memberships, company cars, or meal vouchers are often optional and can vary between businesses. Additionally, NZ businesses may offer benefits like professional development opportunities or wellness programs to support employee well-being.

Taxable Benefits:

Taxable fringe benefits, such as cash bonuses or employer-provided vehicles for personal use, are included in the employee’s gross income and are subject to taxation.

Nontaxable Benefits:

These are excluded from the employee’s gross income and may include perks like health insurance premiums, educational assistance, or childcare benefits.

Also known as FBT, this is a tax that applies to most non-cash perks provided by employers, termed as taxable benefits. It is paid by the employer, not the employee, and is separate from income tax. The rate and calculation of FBT can vary by country. In New Zealand, FBT is generally calculated on the taxable value of the fringe benefits provided during a specific period.

These FBT rates can vary depending on the calculation method used. As per the current tax guidelines in NZ, the main FBT rate is 63.93% for employers who provide fringe benefits and use the single rate option. However, there are other rates available depending on how the benefits are valued and the method the employer chooses to calculate the FBT, like flat rate or alternate rate calculation that considers the employee’s income tax rate too.

Companies that offer comprehensive benefits packages are often more appealing to potential employees, especially in industries where certain skills are in high demand. By providing such perks, businesses can differentiate themselves from competitors and position themselves as “employers of choice”.

Fringe benefits are more than just perks; they are essential tools for increasing employee morale and productivity. When employees feel valued and supported through benefits like health insurance, wellness programs, or paid time off, they are more likely to be engaged and motivated at work. This increased job satisfaction can lead to higher productivity levels, lower absenteeism, and a more positive workplace culture.

Moreover, offering benefits such as flexible working arrangements or mental health support can help reduce stress and burnout, ensuring that employees remain healthy and productive in the long term.

Apart from the benefits, businesses must consider the cost of providing fringe benefits and the administrative burden associated with managing them. While the benefits can be substantial, particularly in terms of employee satisfaction and retention, they require careful planning and execution.

One of the primary challenges businesses face when offering fringe benefits is the cost. Small businesses with limited budgets may provide a comprehensive benefits package that can be financially burdensome. However, it’s important to weigh the costs against the potential benefits. Offering fringe benefits can lead to significant returns in terms of employee retention, reduced turnover, and enhanced company reputation.

To manage costs effectively, you can consider offering a mix of high-impact, low-cost benefits. For example, flexible working hours or remote work options can be highly valued by employees while requiring minimal financial investment from the employer.

Managing fringe benefits can be complex and time-consuming, particularly for small businesses without dedicated HR departments. Employers must deal with tax laws, do tax accounting to ensure compliance with legal requirements, and administer benefits efficiently. This administrative burden can be a significant challenge, especially when offering various benefits.

However, the use of benefits management software or outsourcing these tasks to a professional accounting firm like ours can help alleviate this burden. This allows you to focus on your core operations while ensuring that your fringe benefits programs are managed effectively.

Businesses must tailor their benefits packages to the specific needs and preferences of their employees. Not all employees value the same benefits, and offering a one-size-fits-all package can lead to dissatisfaction. Regularly surveying employees and seeking their input on which benefits they value most can help employers design a package that meets their workforce’s needs.

For example, younger employees may prioritise benefits like student loan repayment assistance or career development opportunities, while older employees might value retirement planning services or health insurance more highly. By understanding and addressing these diverse needs, businesses can create a benefits package that appeals to a broad range of employees.

Fringe benefits are a critical component of a comprehensive compensation package. However, offering fringe benefits comes with challenges, including cost and administrative complexity, which must be carefully managed. If you’re considering expanding your fringe benefits program or need guidance on navigating the complexities of employee compensation, Premium Accounting Solution (PAS) is here to help. Our team of experts can provide tailored advice and support to ensure that your benefits package aligns with your business goals and meets the needs of your workforce.