Companies offer perks and benefits, also known as “fringe benefits blitz” and sometimes we also call them “perquisites,” to attract and retain talented individuals for employment. While both add to an employee’s compensation package, they have unique characteristics and uses.
In this blog post, we will explain the differences between fringe benefits and perquisites, and discuss their significance and impact on the US workforce.
Fringe Benefits:
So, what exactly do fringe benefits mean? Fringe benefits refer to additional perks and rewards that employees receive beyond their regular salary. They are also known as “benefits in kind.”
These benefits are provided by the employer to create a positive work environment, improve employee morale, and offer a comprehensive compensation package. Fringe benefits can both reduce and increase an employer’s tax liability, depending on the nature of the benefits and the relevant tax regulations.
Common examples of fringe benefits in the US include:
- Health Insurance: Employer-provided health coverage is one of the most crucial fringe benefits in the United States, where healthcare costs can be high.
- Retirement Plans: 401(k) plans or similar retirement accounts with employer contributions are popular fringe benefits that help employees save for their future.
- Paid Time Off (PTO): Paid vacation, sick leave, and holidays are standard fringe benefits that support work-life balance.
- Life and Disability Insurance: Employers may offer life insurance or disability coverage to ensure financial security for their employees and their families.
- Education Assistance: Some companies provide tuition reimbursement or financial aid for employees seeking higher education or skill development.
- Transportation Benefits: Offering subsidized commuting options or transit passes can help employees save on transportation costs.
Read our blog about different types of fringe benefits if you want to know more about them.
As an employee, you should look for these fringe benefits before joining the new company:
Perquisites (Perks):
Let’s talk about perks. Perquisites are non-cash benefits given to employees to show appreciation or recognize their contribution. Unlike fringe benefits, perquisites are generally not tax-deductible for the employer. These are the subsets of fringe benefits, often given to top executives and some special employees in specific roles.
Typical examples of perquisites in the US include:
- Company Car: High-ranking executives or employees who need to travel extensively for work may receive a company car for business and personal use.
- Gym Memberships: Some companies offer gym memberships or wellness programs to promote employee health and well-being.
- Stock Options: Employees might receive stock options as part of their compensation, allowing them to purchase company shares at a predetermined price.
- Executive Benefits: Top-level executives may receive unique perks like club memberships, financial planning assistance, or access to exclusive events.
- Flexible Work Arrangements: Offering remote work options or flexible schedules can be considered a perk, especially in a post-pandemic work environment.
Difference between Fringe benefits and Prerequisite:
Now, let’s come to our main discussion about what is the difference between fringe benefits and prerequisites:
- Purpose:
- Fringe Benefits: The primary purpose of fringe benefits is to enhance an employee’s overall compensation package, making it more attractive for recruitment and retention. These benefits aim to provide essential support, such as health insurance and retirement plans, to improve employee’s financial security and work-life balance.
- Perquisites (Perks): Perks are offered to employees as a gesture of recognition for their exceptional performance or to reward employees in higher-level positions. Perquisites are often considered additional incentives to motivate and retain top talent.
- Tax Implications:
- Fringe Benefits: Fringe benefits are typically tax-deductible for employers, which means the company can deduct the cost of providing these benefits from their taxable income. In contrast, employees generally do not pay taxes on most fringe benefits, making them a tax-efficient way to compensate employees.
- Perquisites (Perks): Unlike fringe benefits, perquisites are usually not tax-deductible for employers. For employees, perks are considered taxable income, subject to federal income tax, social security tax, and Medicare tax. This means employees may incur additional tax liabilities related to the value of the perks they receive.
- Inclusion in Compensation Package:
- Fringe Benefits: Fringe benefits are typically part of a standard compensation package and are offered to employees across different levels within the organization.
- Perquisites (Perks): Perks are often associated with higher-level positions or exceptional performance and may not be offered to all employees. They are generally seen as supplementary to the regular compensation package.
Final Thoughts:
Employees need to understand the difference between fringe benefits and perquisites. This knowledge will help them make better decisions about their compensation packages and get the most value from their employers. While both types of benefits contribute to overall job satisfaction, they serve different purposes and may have distinct tax implications. By being aware of these aspects, employees can better appreciate the true value of their total compensation and plan their finances more effectively.
Employees should always review their benefits package carefully, ask their HR department any questions they may have, and seek professional advice if necessary. This will help them maximize their compensation and have a satisfying career. Remember, a well-informed employee is better equipped to make the most of their work-life balance and financial future.
