Fringe Benefits vs. Legally Required Benefits
Fringe benefits are important aspect of employment. Attractive fringe benefits package will translate into higher employee retention. This will help reduce employee turnover and will benefit the company in the long run.
Required Company Benefits: As of 2008, federal and state governments require small businesses to pay the following taxes and insurance:
• FICA or Social Security: This is a retirement tax which is 6.25 percent of the employee’s gross income. Maximum payment is $90,000. Employees pay a matching 6.25 percent. For sole proprietors, they could pay 15 percent.
• Medicare: The computation is 1.45 percent of the employee’s gross salary.
• SUTA or State Unemployment Tax Act: SUTA provides unemployment benefits to laid off employees. The rates vary depending on the type of business, employment history and other factors.
• FUTA or Federal Unemployment Tax Act: often combined with SUTA. It levies .8 percent tax to support unemployment.
• Worker’s Compensation: Pays for injuries incurred at work. The price is based on the company’s yearly payroll.
These taxes have to be paid monthly or quarterly. You could face penalties or an audit for non-payment.
Common Fringe Benefits
These are not compulsory fringe benefits but companies offer some or most of them to employees:
Health Insurance: Employees are required to select one plan, usually on the first day of the calendar year. The health plan is usually paid annually.
Prescription Card: Employees can take prescriptions to an approved drugstore, which send the bills to the insurance company.
Dental Insurance: The policy must delineate the preventative and diagnostic dental work covered and other dental services provided.
Life and Accidental Insurance: Life and accident policy is computed based on the salary. Employees can buy additional insurance at their expense.
Vision Insurance: The plan allows employees to choose from a preselected list of optometrists, eyewear centers, or ophthalmologists.
Disability Insurance: Disability insurance is very expensive. Many pre-existing conditions are not covered or there is a waiting period before the coverage kicks in.
Educational Assistance: Employees are reimbursed for pursuing continuing education courses. Undergraduate and graduate course expenses are also reimbursed. All courses must be approved before enrollment so they can be reimbursed.
Retirement: This is an important benefit for the future of employees.
Paid Time Off (PTO): Employees are allowed paid time off each year which is necessary to prevent employee burnout.
Extended Illness Benefit (EIB): This is part of a fringe benefits package for employees with major medical condition or who figure in an accident. EIB is available after the employee has used up all PTO.
Company Paid Holidays: On the average, state government allows 12 days and for for-profits 8 days of paid holidays each year.
Health Savings Account (HSA) or Flexible Spending Account (FSA): Employees may request a portion of their monthly paycheck as a pre-tax deduction for expenses not covered by insurance such as orthodontic work, emergency room visits, etc. The amount deducted needs to be used by year-end or the employee loses the contribution.
Profit Sharing: The company allocate some of profits to employees when the company does well.
Other Fringe Benefits: Include discounts for car loans, free/reduced rate to a health club, child care or elderly care, parking reimbursement, travel or meals for business-related work, relocation, other insurance; computers and other benefits.
The company can choose to implement any combination or all of the common fringe benefits. Fringe benefits could be a factor in retaining employee loyalty. Entrepreneurs, therefore, should give this matter due consideration.