So you’ve started your new company and things are going fairly well. You’re meeting your sales goals, customers are happy with your services, and you’ve started hiring a few employees in order to meet all the demand. You know you don’t yet have significant cash flow to pay your employees a whole lot more than you already do but you want to show you appreciate their contributions to your success. What if there was a way to provide additional benefits to your employees without increasing compensation, breaking the bank, and potentially receive tax savings? Great news, there is a way and its called a fringe benefit.
A fringe benefit is a remuneration provided to an employee, by the employer, for the employee’s services. Fringe benefits come in a variety of shapes and forms. Some fringe benefits are shaped around health and wellness. While others deal with financial wellbeing or rewarding employees for certain actions. However, all fringe benefits are a great way for an employer to directly contribute to their employee’s company satisfaction without costing the company significant expenditures or increasing the employee's taxable income. Let’s discuss some of the common fringe benefits available.
1. Group-Term Life Insurance
Employers can provide up to $50,000 worth of term life insurance to their employees without the value paid for such a plan being included in the employee’s gross income. This can be a great value to your employees including those who don’t want to burden their families with end of life expenses.
2. Retirement Planning Services
Have you ever wanted to help your employees plan for their financial future but don’t know where to start? Current tax law allows an employer to provide retirement planning services to employees and their spouse without the value of such services being included in the employee's gross income. If the service is offered to your employees, it is important not to discriminate towards your “highly compensated employees.”
3. Achievement Awards
What better way to recognize the great work that your employees do than to provide a reward for their services. Did you know that you can recognize your employees for their long service to your company or their impact on the safety of your organization without triggering a tax impact on the employee? There are certain limitations including not providing cash and a limit on the value of the non-cash award, so be sure to consult with a tax attorney for assistance in developing a plan.
4. Employee Discounts
Have you ever considered providing a discount to your employees for the product or services that you offer to nonemployees? Great, there is a way to do that without having to increase your employee’s taxable income. An employer can provide a discount, of up to 20%, on the services they offer to nonemployees without a tax impact on the employee. In addition, an employer can provide a discount on merchandise or other properties offered to the public but there are certain limitations on the amount of the discount available.
5. De Minimis Benefits
Want to wish your employees a happy birthday, happy holiday, or celebrate a special event in their lives but not sure whether or not you have to include that in their income? An employer can provide small non-cash gifts to their employees for special occasions without having to include the value of the gifts in the employee's income. The gifts should be nominal in value in order to avoid tax implications for your employees. In addition, an employer may provide occasional celebrations including holiday and summer parties without trigger a requirement to report the value of the event as income to their employees.
6. Employer-Provided Family & Medical Leave
In December 2017, Congress introduced a new tax provision in order to encourage employers into providing time off for their employees in order to deal with family-related matters including the birth of a child, deal with a sick child or parent. Under the new law, employer’s can take a business tax credit of up to 12.5% of wages paid to employees, who are on leave, if the employee is paid at least 50% of their wages during up to 12 weeks of leave. In addition, a credit of up to 25% is available if an employer pays wages over 50%. There are limits to how much the employee can have earned during the tax year so be sure to consult with a tax attorney in order to understand how to best implement such a plan.