Fringe Benefits: What Are They?
Fringe benefits are non-salary perks or benefits that are given to employees.
Paid by employers, they are used by companies to attract, retain, and motivate staff. They can come in many forms and vary from company to company. While it’s not cash, fringe benefits are still subjected to tax in Australia, under the Fringe Benefits Tax Act 1986. Work perks have been used for decades to entice potential candidates, and for some workers, they are what keeps them at a company for longer. The great thing about perks is that they don’t need to be extravagant or flashy to be effective (but with that being said, they should be consistent).
Types of Fringe Benefits
Fringe benefits can come in all shapes and sizes. They are flexible and can be as general or specific to your company as you like. Some come in the form of dental care or private health insurance, gym memberships, meals, a company car, car parking, transportation subsidies, concert tickets, and childcare, to name a few. On paper, one isn’t better than the other; it’s more of a personal preference for employees and as to which they find most desirable based on their personal circumstances.
Earlier, it was mentioned that the cost is on the employer, and for the most part, that is true, especially with the tax. However, employers can reduce the amount taxed if employees contribute to the benefit. For example, if an employee contributes 70% of the money towards the benefit, say health insurance, the company would only have to pay tax on the remaining 30% of the price.
Are Fringe Benefits Worth It?
Work perks and benefits do help attract, retain, and motivate employees. In a candidate-driven market, this is crucial. It’s no secret that it’s hard to keep employees these days. There’s so much competition, and the once traditional and widespread “one company for life” loyalty is rare. The market has changed and the generational values are different. The average Australian changes jobs 12 times in their lifetime. With benefits making 75% of employees more likely to stay at their company, these stats side-by-side make it impossible to ignore the power of work perks.
On the recruitment side, job openings in Australia are at an all-time high. 2022 wasn’t just the year of the tiger but also the year of the candidate. With more jobs than people to fill them, it’s hard to stand out. A benefit (or two) could tip the odds in your favour. In a survey, 66% of workers said that a work benefit is the most determining factor in choosing a job. Perks have always been a selling point for jobseekers, but now? They’re more important than ever.
Disengaged employees cost your company money, and on the flip side, engaged employees bring in the profits. A Gallup study found that highly engaged companies experience a 23% increase in profitability. Conversely, lower-engaged companies had a 41% decrease in quality (defects) and an 81% increase in absenteeism. Absenteeism is estimated to cost the Australian economy $44 billion in direct costs per year; for businesses, each day a worker misses costs $578 per employee. The Employee Happiness Index 2019 found that employees that were most satisfied with their benefits estimated their own level of engagement as 11.5% higher than their peers.
Tax Implications of Fringe Benefits
In Australia, fringe benefits are subject to a tax that is borne by the employer, even if the benefit is supplied by a third-party through an arrangement with the employer. Any contribution paid by the employee towards the fringe benefit will reduce the final employer’s FTB liability. Calculating Fringe Benefit Tax (FBT) can be difficult, as their thresholds and rates differ between the types of benefits. An FBT rate of 47% applies to the grossed-up taxable value of the fringe benefits provided by the employer.
FBT return is due for lodgement and payment for self-preparers and tax agents who lodged by paper no later than 21 May (or first business day after). If the return is lodged by the tax agent electronically, then the due date for lodgement and payment is 25 June. Failing to do so on time or incorrectly or worse, falsely, could incur penalties.
If you are planning to provide fringe benefits to your employees, make sure you understand your taxation obligations as an employer. Given the tricky nature of FBT it can be difficult to remain compliant without the help of an expert.
Some fringe benefits are exempt from tax. They can vary from protective clothing, to work-related items provided primarily for the use in the employee’s employment, to retraining employees, to electric vehicles. To see what exemptions you can claim, you can visit the ATO website here. Electric vehicles are the latest to receive exemption status and it will be in place until 2025.
Best Practices for Offering Fringe Benefits
Before offering benefits, there needs to be a discussion on which benefits to offer and how they will serve both the employees and the company. This should be done with the HR team as they know the employees best and will be responsible for administering the benefits. A plan should also be formulated that takes into account and/or includes the following:
- Company budget (and not just for this year but for consecutive years)
The last thing you want is to take benefits away from employees or be inconsistent with the benefits.
- Needs of the employee and employer
There’s no point of having benefits or perks that employees won’t use and that won’t be of benefit to your company.
- Internal Communications Plan
Benefits are a waste if they aren’t being utilised by your employees. Educating employees on the perk/s that are on offer and how to use them effectively is key to increasing the value of your offerings.
- External Communications Plan
Benefits are an excellent tool for attracting talent. You should have a plan as to how to advertise this to potential candidates, it could make the difference in attaining or losing great talent.
- How the benefits will be evaluated
Things change. Sometimes benefits lose their attraction, evaluating their effectiveness is essential to keeping them relevant and “fresh” for your employees.
Fringe benefits are an invaluable tool for companies. They have been proven to attract, retain, and motivate employees. With the war for talent still raging, it’s crucial for companies to stand out against their competitors. And this isn’t just for landing candidates but also for keeping your best talent from changing organisations.
However, to ensure that these benefits are being utilised, you need to evaluate their effectiveness, educate staff on how to make use of them, and communicate and advertise them internally and externally. It’s also crucial to be aware of the fringe benefits tax that you will be liable to.
Consulting with an expert can save your company time, money, and peace of mind. With the power of work perks, it’s not a question of if but when to implement a benefits plan.