What are Fringe Benefits?

Definition

A fringe benefit supplements an employee’s salary by providing a benefit that exceeds what is required or expected. Fringe benefits are often viewed as ‘perks,’ distinguishing them from other benefits that may be mandatory (required by law) or supplementary (expected as part of the salary package).

Different Types of Benefits

Let’s have a look at what the different types of benefits include in the UK:

Mandatory Benefits

Mandatory benefits are those benefits that are legal requirements in the UK. These include the following:

• pension payments
• holiday pay
• sick leave
• maternity, paternity and adoption leave

Supplementary Benefits

In certain industries, employees will expect supplementary benefits as part of their core benefits package. As a result, whether something is considered a supplementary benefit or a fringe benefit varies between industries. Some examples of the types of benefits that can be included in supplementary benefits are:

• health insurance and private healthcare
• life assurance
• critical illness cover
• income protection
• working-from-home expenses scheme
• employee assistance programmes such as those offering counselling services
• employer-funded retirement schemes

Fringe Benefits

Fringe benefits are generally considered perks that are not essential to offer an employee but will enhance their experience of working for the company and make them more likely to be productive in their work and to emain in their position for longer. Examples of fringe benefits include:

• paid leave for an employee’s birthday
• company car or compensation when personal vechiles are used for work
• cafeteria subsidies or vouchers for food
• employee discount schemes such as gym membership or money off at certain retailers
• tax-free childcare schemes
• financial support for training, learning and development
• financial support for relocation costs

Note that some benefits will be considered supplementary by some companies and fringe by others, depending on the industry norms. Some places will consider a specific benefit to be essential to the salary package wheras others will view it as a nice addition.

Why Include Fringe Benefits

All benefits added to an employee’s salary package play a significant role in ensuring that employees feel supported in their work and understand that the company values what happens in their personal lives (including their own health, family, and future plans) as well as their contributions at work.

Building on mandatory and supplementary benefits by offering fringe benefits can impact organisations in several positive ways:

Supports recruitment and retention: fringe benefits can provide extra reasons an individual might want to work for a company and give employees reasons to remain there.

Demonstrates a commitment to work-life balance: fringe benefits can be aligned with your employees’ interests and personal circumstances to help them in their well-being. This can boost morale and productivity as well as reduce absenteeism and stress-related illnesses.

Contributes to employee satisfaction and career development: fringe benefits that focus on training or learning new skills not directly related to the role can help employees develop themselves in ways that benefit them and, often, the company in the long run.

Enhances the working environment: fringe benefits, such as gym membership, access to counselling services, and free massages, can show that employers care about the mental and physical health of the employees. Demonstrating the company’s commitment to their employees in this way can help to create a more positive working environment.

Improve the economic situation of employees: fringe benefits that help them with their living costs can make employees save money and a big difference to their stress levels, which can help them concentrate better on their roles and be more productive.

Can help with salary discussions: while fair pay is essential for employees, fringe benefits can impact how they feel about the overall benefits package that they are offered. As a result, additional fringe benefits can be part of a new compensation package and potentially offset increases in salaries.

Lastly, in some cases simply providing the fringe benefits ensures that employees are not dissatisfied by the fact that they are not provided. The fact fringe benefits exist helps to counter employee dissatisfaction.

Are Fringe Benefits Taxable?

In the UK, most fringe benefits are taxable. However, there are exemptions:

• offering free or subsidised meals to all employees at workplace canteens or vouchers to cover the cost of these meals
• workplace parking
• workplace nurseries or employee-supported childcare schemes
• cycle-to-work schemes that are open to all employees

Tips to Consider with Fringe Benefits

When looking at the fringe benefits your company offers, it is helpful to think about the following:

Know your workforce. understanding what drives your employees and what matters to them means you can identify the best and most effective benefits, ensuring they have the most business impact. For example, fringe benefits that support flexible working arrangements can often significantly enhance employees’ abilities to perform their roles.

Try to be flexible and inclusive: fringe benefits must meet the needs of as many employees as possible, which means considering those with additional needs and ensuring the benefits themselves can be used in a flexible way.

Use the benefits to enhance the company culture: fringe benefit programs are a good opportunity to develop aspects of company culture that senior leadership considers important, such as supporting good mental health with free counselling services or a growth mindset culture with bursaries for training.

Examples of Fringe Benefits

In addition to the more typical fringe benefits we have listed above, some companies will offer more uncommon fringe benefits. Here are some fun examples from around the world:

• Ben & Jerry’s provides employees with free ice cream every day.
• Workers at AirBnB get travel credits for each quarter that expire if they are not used within the timeframe.
• Google offer free massages to employees.
• Nationwide Insurance has a scheme where companies can provide their employees who are pet owners with free pet insurance.