Home Benefits Fringe Benefits: What are they and Can I be Taxed for it?

Fringe Benefits: What are they and Can I be Taxed for it?

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Employers offer fringe benefits as additional compensation to their employees on top of their pay. It can significantly contribute to the employee experience, but can also become a financial strain for the employer. Further, there are also concerns about the taxation of it and whether employees need to pay it. 

In this article, we will answer the following questions:

  1. What are Fringe Benefits?
  2. What are the Examples of Fringe Benefits?
  3. How are Fringe Benefits Different from Core Benefits?
  4. What are the Disadvantages of Fringe Benefits?

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What are Fringe Benefits?

Fringe benefits, also known as employee benefits, are additional compensations provided by an employer beyond an employee’s direct wages or salaries. They can be monetary or non-monetary. Monetary fringe benefits include bonuses, allowances, and retirement contributions. Non-monetary fringe benefits include health insurance, paid time off, and employee discounts.

Fringe benefits are important for both employers and employees. Employers use fringe benefits to attract and retain top talent, boost morale, and improve productivity. Employees value fringe benefits because they can help them save money, improve their health and well-being, and have a better work-life balance.

How it Works in the UK

Fringe benefits in the UK are taxable, but there are a few exceptions. For example, meals provided by employers in a staff canteen are tax-free, and hot drinks and water are also tax-free. Other tax-free fringe benefits include workplace parking, childcare vouchers, and cycle-to-work schemes.

Employers in the UK are required to report any fringe benefits they provide to employees to the HMRC. This is done through the P11D form. Employees are then responsible for paying tax on any taxable fringe benefits they receive.

The taxation of fringe benefits in the UK is complex and depends on a number of factors, such as the type of benefit, the value of the benefit, and the employee’s income tax rate.

Generally speaking, fringe benefits are taxed as income. This means that the employee will pay tax on the value of the benefit at their normal tax rate. However, there are a few exceptions to this rule. For example, some fringe benefits, such as company cars and childcare vouchers, are taxed at a special rate.

What are the Examples?

Some of the most common fringe benefits examples include:

  • Dental Insurance
  • Vision insurance
  • Life insurance
  • Disability insurance
  • Employee stock options
  • Commuter benefits
  • Childcare assistance
  • Tuition reimbursement
  • On-site gym or fitness classes
  • Free meals or snacks
  • Employee discounts
  • Flexible work arrangements

Visit the Redmans Solicitors website for guides on flexible working here and holidays at work here.

How are Fringe Benefits Different from Core Benefits?

Core benefits are the essential benefits that employers are required to provide to their employees by law. These benefits may vary from country to country, but they typically include things like health insurance, paid time off, and retirement contributions.

Fringe benefits, on the other hand, are additional benefits that employers provide to their employees voluntarily. These benefits may be offered to all employees, or they may be offered to select groups of employees, such as executives or employees in certain departments.

Here are some examples of core benefits that employers are required to provide to their employees by law:

  • Health insurance
  • Paid time off (vacation, sick leave, personal days)
  • Retirement contributions
  • Unemployment insurance
  • Disability insurance

What are the Disadvantages?

Fringe benefits can be expensive for employers to provide, and they may not be affordable for all businesses. Additionally, some employees may not value certain fringe benefits, or they may not be able to take advantage of them.

Here are some of the specific disadvantages of fringe benefits:

  • Cost: Fringe benefits can be expensive for employers to provide. This is especially true for benefits like health insurance and retirement contributions. Small businesses may have difficulty affording to offer a wide range of fringe benefits.
  • Complexity: Fringe benefits can be complex to administer. Employers need to keep track of who is eligible for what benefits, and they need to make sure that they are complying with all applicable tax laws.
  • Equity: It can be difficult to distribute fringe benefits equitably among all employees. Some employees may benefit more from certain fringe benefits than others. For example, employees with families may benefit more from childcare assistance, while employees without families may benefit more from a company car.
  • Attraction and retention: Fringe benefits may not be effective at attracting and retaining top talent. Some employees may be more interested in a higher salary or better work-life balance.
  • Utilisation: Not all employees will value or utilise certain fringe benefits. For example, employees who are healthy may not be interested in health insurance, and employees who do not have children may not be interested in childcare assistance.

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Overall, fringe benefits can be a great way for employers to attract and retain top talent, boost morale, and improve productivity. However, employers need to carefully consider the costs and benefits of offering fringe benefits before making a decision.

Here are some tips for employers who are considering offering fringe benefits:

  • Choose benefits that your employees value. Conduct a survey of your employees to find out what fringe benefits they are most interested in.
  • Start small. You don’t have to offer a wide range of fringe benefits right away. Start by offering a few benefits that are popular with your employees.
  • Be fair and equitable. Make sure that all employees have an equal opportunity to benefit from the fringe benefits that you offer.
  • Communicate with your employees. Make sure that your employees know what fringe benefits you offer and how to access them.

If you require advice or guidance on employment law matters head to the Redmans website. To get in touch with our team of expert employment lawyers, click here

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