What Are Fringe Benefits? Types and Benefits You Should Know
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Fringe Benefits Tax, what are fringe benefits, what is fringe benefits tax, RFBA

What Are Fringe Benefits? Types and Benefits You Should Know

Fringe benefits are any bonuses that employers give to their employees. Some people call them “benefits,” others call them “perks,” and some refer to them as “primarily anything besides wages.” Whatever you call it, fringe benefits serve a purpose for both employee and employer, but what is the purpose?

This article explores some common types of fringe benefits in use today, along with these plans’ basic and common perks.

What Are Fringe Benefits?

Fringe benefits are not mandatory costs employers must pay, but they may be included in the total amount of the package. It can also be called employee benefits or non-wage compensation.

These are any additional compensation an employer offers employees as part of their salary package

The term “fringe” comes from the fact that these benefits do not have to be paid by the employer and can be an added benefit.

Some companies even offer stock options or bonuses based on the company’s performance over time.

These benefits help employers attract and retain qualified employees who would otherwise be tempted to go elsewhere for higher pay or more attractive benefit packages.

What is the Fringe Benefits Tax?

A fringe benefits tax is a tax levied on employers who provide their employees with certain benefits. The benefit may be in the form of a monetary payment or may be in the form of an in-kind benefit. The FBT rate is the percentage at which the value of the benefit is taxed. The FBT year is the period for which FBT is assessed, usually the same as the tax year.

The FBT year is the period for which FBT is assessed, usually the same as the tax year. The tax year in Australia runs from 1 July to 30 June, and the FBT return must be lodged with the Australian Taxation Office (ATO) by 31 March of the following year.

The taxable value of benefits is reported on an employee’s payment summary at the end of the financial year and is included in their assessable income for tax purposes. The payment summary is a document that outlines an employee’s total earnings, deductions, and taxes for the financial year.

The value of these benefits is included in the employee’s taxable income and is taxed at the FBT rate, which is currently 47%. The FBT liability is the amount of FBT that an employer must pay based on the value of the benefits provided. The FBT liability is reported on the employer’s tax return and is separate from the income tax liability.

What is a Reportable Fringe Benefits Amount (RFBA)?

A reportable fringe benefits amount (RFBA) is the grossed-up value of all taxable benefits and allowances provided to an employee in the preceding calendar year. It is calculated by multiplying all taxable benefits and allowances by the employer’s marginal tax rate.

What is Included in an RFBA?

In addition to the basic salary packaging or wages paid to employees, the following amounts must be included in an RFBA:

  • Employer-paid CPP contributions, EI premiums, and income tax deductions;
  • Employer contributions to registered pension plans
  • And employer contributions to a group sickness or accident insurance plan that provides limited coverage for any sickness or accident disability benefit.


Why do Companies Offer Fringe Benefits?

Fringe benefits are important in employee compensation packages because they help companies attract and retain high-performing workers. They also help companies create a positive company culture and build loyalty among employees, who may be more likely to stay with the company for longer. Companies offer different types of fringe benefits:

To Improve Employee Morale and Satisfaction

This is a way to show employees you care about them. In fact, according to the Society for Human Resource Management (SHRM), “the most effective fringe benefits are those that show a commitment to employees.”

To Attract and Retain Top Talent

To compete for top talent, offering a competitive compensation package is important. This includes salary, bonuses, and other monetary rewards, but it also includes other rewards like health benefits, retirement plans, and paid time off. For example, if you offer more vacation days than your competitors in the same industry, you’ll likely attract better employees who want to work at companies that value their time off.

To Promote Employee Well-being and Work-life Balance

Flexible work hours, telecommuting options, job sharing, and other workplace benefits can help employees balance their personal lives with their professional responsibilities. Employees who have flexible work hours or telecommuting options tend to be happier, more productive workers than those who don’t have these options available to them.

To Show Appreciation and Recognition for Employee Contributions

Employees who receive bonuses or other rewards for good performance can feel more motivated than those who don’t receive such recognition from their companies. Bonuses often go hand-in-hand with promotions — if you want your employees to feel appreciated and recognised for their contributions, consider offering bonuses to show your gratitude for hard work done well!

Ensuring the Financial Well-being of Employees

Fringe benefits are an important part of employee compensation. They allow employees to focus on their jobs and provide financial, physical, and psychological security. However, they also help companies recruit top talent and retain their best people. To do this, companies need to understand what employees want and how they can use fringe benefits to support diversity and inclusivity in the workplace.

To Enhance Employee Loyalty and Commitment to the Company

This is an important part of employee compensation. They allow employees to focus on their jobs and provide financial security. However, they also help companies recruit top talent and retain their best people. To do this, companies need to understand what employees want and how they can use fringe benefits to support diversity and inclusivity in the workplace.

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Examples of Fringe Benefits

If you’re looking for a job, you may have heard about fringe benefits. These are benefits that employers offer to attract and retain employees. Some of the most common types of fringe benefits include;

Payment For Time Not Worked

Fringe benefits include payments made to an employee for time not worked, such as vacation pay, paid holidays, and paid sick days. These payments do not affect federal income taxes but may affect state income taxes.

Welfare And Recreational Facilities

Fringe benefits include welfare and recreational facilities that an employer may provide to its employees as a perk of employment. The IRS does not consider these fringe benefits as taxable income since they are part of the employee’s compensation package. However, employers can only provide perks for management personnel or highly compensated employees to avoid paying for them out of their pockets.

Workers’ Compensation

Employees injured on the job can receive compensation through workers’ compensation insurance. An employee must have been injured on the job to receive this benefit. The policy covers any medical costs associated with an injury and lost wages. Some employers choose to have their own workers’ compensation policies, while other businesses are required by law to purchase a policy through a private insurance provider.

Unemployment Insurance

Unemployment insurance is another social welfare programme that can provide financial support to employees who lose their jobs through no fault of their own. Unemployment insurance is designed to help workers who are unemployed because they were laid off or fired from their jobs find new employment and avoid falling into poverty. 

At the same time, they search for new employment opportunities. Unemployment benefits typically last between 26 and 47 weeks, depending on your state and the type of work you were doing before losing your job.

Employee Security

Employers may offer employee security as part of their compensation package. This includes health coverage and life insurance policies. Some employers even provide short-term disability insurance or long-term disability insurance in case an employee gets sick or injured before they retire.

Medical Leave

Many employers offer paid medical or compensation leave to help employees recover from illnesses or injuries. This can be especially helpful if you need time off to recover from a serious illness or injury, such as heart surgery or cancer treatment. You can use this time off to recover at home without taking unpaid leave from your job or losing your health insurance coverage through COBRA (Consolidated Omnibus Reconciliation Act).

Pension Scheme

A pension scheme is a plan by which an employer contributes money to an employee’s pension fund, paying the employee a retirement income when they reach retirement age.


A sabbatical allows employees to take time away from their job for educational or personal reasons. For example, if an employee works at a university, they could take a year off from their job to do research in another country and earn money from teaching students there. Since this would be considered an educational experience, it may qualify as a fringe benefit.

Final Words

Fringe benefits include payments or cash equivalents to employees for which the employer doesn’t have to pay social security taxes. The idea behind this tax break is that employees will be motivated to work harder with greater loyalty by getting direct access to this money.

Employeeconnect is a valuable cloud HR software that provides insight into your employees, their traits, and their performances. Reserve a free demo now!

Byron Conway

Content Coordinator at EmployeeConnect