What incentives does an employer have in offering fringe benefits?

More often than not, employers offer employees benefits above and beyond an agreed-upon wage or salary. In addition to a paycheck, employees receive compensation by way of fringe benefits. These company perks can include group life, health and disability insurance options; dependent care; tuition reimbursement or education assistance; and retirement plan contributions and matching contributions. Common fringe benefits such as these are tremendously beneficial to employees, but offering these perks as a bonus can be an advantage to the employer as well.

In the current economy, new businesses are starting up each and every day. With a great deal of competition among similarly focused companies, employers can find it challenging to attract quality recruits based on salary alone. When employers offer bonus compensation through common fringe benefits and benefits that may not be available through a competitor, it has a greater chance at recruiting the level of talent in prospective employees it needs or wants.

Competition can present an issue for a number of companies, not only in the realm of product or service similarity or mission focus, but also in terms of employee retention. Employees who are newer to the workforce are more likely to have the technological prowess that makes them a target for recruitment from competition, while more seasoned employees can be attractive to competing businesses for their knowledge of a specific industry. Employers wanting to retain high-quality talent are then incentivized to offer employees more than just an increase in salary or hourly wage each year. Fringe benefits can play a vital role in keeping current employees content with their work environment, while keeping the competition from poaching top talent.

One of the greatest incentives for employers when it comes to offering fringe benefits to employees is the financial advantage a company can reap. The majority of common fringe benefits are not treated the same as conventional compensation through wages or salary, and therefore can present an opportunity for tax deductions for employers. For instance, if an employer offers a health insurance plan for which it pays the majority of the plan premiums for its employees, those premium payments are generally tax deductible as an insurance expense for the employer.

Additionally, offering fringe benefits instead of an increase in annual salary or hourly wage can be much less taxing on a company’s bottom line. For example, offering employees a discount on fitness center access or a transportation stipend each month does not take away a great deal of capital for the employer. These low-cost benefits save employers from the vast expense of increased wages each year while providing employees a benefit they can easily use and appreciate. Common fringe benefits offer a great deal of leverage for employers as recruitment, retention and cost-savings tools.