HomeProductsHRM/PayrollFringe Benefits: Definition, Types, and Importance

Fringe Benefits: Definition, Types, and Importance

It is wrong for a company to believe that all it can offer its employees is a salary at the end of the month. The company needs to know that workers are human beings whom you must motivate and encourage from time to time. And they only respond better to a working environment that treats them well. Therefore it is significant for you to offer fringe benefits to your employees regardless of the amount you give them monthly as a salary.

What are fringe benefits?

These are extra benefits used in supplementing money wages or salary for employees. At times, employers give additional incentives to all workers in a company. But at times, companies give them to only those at executive levels. And some are awarded to compensate employees for costs related to their work, while others are for general job satisfaction.

Types of fringe benefits

These fall into two categories. The first category consists of incentives given by law, and the second category includes those offered at the employer’s consideration.

1. Demanded by law

This is the first and compulsory category of extra incentives. It intends to offer employees medical assistance. It also alleviates them from economic hardships when they lose employment and render them with retirement income during retirement. Therefore, the following are the compulsory extra incentives that employers are required to provide:

Health insurance

The first and legal type of extra incentive is health insurance. In the United States, it is in the Patient Protection and Affordable Care Act that health insurance falls. It mandates businesses with fifty or more employees to offer them health insurance or risk a penalty. The insurance required covers visits to primary care physicians, specialist doctors, and emergency care.

Unemployment insurance

Besides, it is demanded by law to give your worker’s unemployment insurance. The federal Social Security Act of 1935 made programs nationwide that are administered by state governments. It requires employers to pay a federal and state unemployment tax to the Department of Labor, which provides wages, training, and career guidance to employees who become unemployed due to no fault of their own. Such benefits provide monetary assistance to unemployed citizens who meet the requirements of the act.

Medical leave

In addition, the Family and Medical Leave Act 1993 is a United States labor law that requires employers to provide employees with job protection and unpaid leave for qualified medical and family reasons. The FMLA allows eligible employees to take up to 12 workweeks of unpaid leave during any 12 months to care for a new child, care for a seriously ill family member, or recover from a critical illness.

Worker’s compensation

Furthermore, employee compensation is the role of the Labor Department in the United States to assist employees who get injuries at their workstations or acquire an occupational disease. Employees receive medical treatment, wage replacement benefits, rehabilitation, and other benefits. The compensation requirements vary by state, and injured employees need to contact their state worker’s compensation board.

2. Not demanded by law

Under this second category, the employer gives extra incentives at his or her own will. Most of these incentives require the employer to pay taxes, but with certain exceptions. These include but are not limited to achievement awards, athletic facilities, educational assistance, employee stock options, and lodgings on business premises.

Importance of employee-benefit

Having seen what fringe benefits are and the categories in which they fall, there are three significant benefits of extra incentives to workers as discussed below:

1. Retention of employees

In the first place, it helps you in retaining your workers. Those additional incentives to workers on top of their salary keep them motivated. For example, employees in a company where they give sick leave are likely to stay longer than those who do not have such an incentive.

2. Engagement of employees

Besides, the provision of incentives encourages employee engagement. Many of the companies provide incentives after the completion of given objectives and goals. Workers need to make sure that there is engagement to achieve the set goals and objectives.

3. The welfare of the employee

Additionally, it promotes the wellness of workers. The provision of incentives like; Sick leave, life insurance, and commuting benefits ensures the wellbeing of workers. Therefore extra incentives to some extent enable and promotes the wellness of workers.

In summary, fringe benefits help satisfy workers both physically and mentally. Therefore companies must operate with engaged and contented employees.

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I am a student at Bina Nusantara University in the faculty of Business. I am pursuing a bachelor's degree in Business Management and Marketing. My Date and Place of birth is 22-04-1995 and Mbale City respectively. And lastly my country of origin is Uganda.


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