What Are Fringe Benefits—and Should You Offer Them? (With Examples by Industry)

Contrary to popular belief, cash isn’t always king when it comes to employee retention. While base salary is certainly an important factor in job satisfaction, a Forbes Advisor survey found that 26% of small business owners believe employees quit to attain better benefits and 62% of businesses have changed their benefits packages in the past year.

If it’s been a while since your company has reviewed its fringe benefits, now’s the perfect time to see how you stack up against other companies that may already be on your employees’ and top candidates’ radar.

What constitutes a high-quality benefits package is ever-changing. If your HR department isn’t keeping tabs on what perks are table stakes—and which will really wow top talent—it may be more challenging to hit your company’s hiring and retention targets.

Every company has its own unique needs and priorities. No matter what you decide will work best for your people, you can rely on BambooHR’s Benefits Administration to make the entire process a breeze for HR and employees alike. Read on to discover some of the most sought-after benefits that can help your business remain competitive in a crowded market.

What Are Fringe Benefits?

Fringe benefits are any perks that supplement an employee’s regular salary. They're more commonly referred to as employee benefits, and examples include health insurance and retirement plans.

Fringe benefits could make or break a candidate’s decision to accept your job offer (or whether they’ll apply in the first place). In fact, 68% of job seekers want to know what companies have to offer, but 36% of HR professionals admit their company doesn’t disclose benefits information up front. On top of supercharging your recruiting efforts, benefits also influence how long employees will stick around.

Taxable Fringe Benefits

According to the IRS, “Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it.” If the recipient is your employee, the benefit is generally subject to taxes and must be reported on Form W-2. However, if the recipient is an independent contractor or partner, the benefit is not taxable but may need to be reported on Form 1099 or Form 1065, respectively.

Additionally, IRS Publication 15-B notes several non-taxable fringe benefits, including:

• Accident and health benefits
• Adoption assistance
• Employee stock options
• Health savings accounts (HSAs)
• Tuition reimbursement
• Employer-provided cell phones
• Meals
• And more

How to Calculate Fringe Benefits

The fringe benefits rate shows how employee wages correlate to the perks they’re offered. This percentage can help you evaluate if your benefits package is both competitive in the market and cost-effective for your business. For example, according to the US Bureau of Labor Statistics, benefit costs accounted for 29.4% of total compensation in the private industry in June 2023. Knowing your rate also helps you determine how many employees your company can afford at any given time.

Fringe Benefits Rate for Salaried Employees

To calculate your fringe benefits rate for salaried employees, divide an employee’s yearly benefits cost by their annual salary and multiply that number by 100. The equation is as follows:

(Total Fringe Benefits Cost / Annual Wage) X 100 = Fringe Benefits Rate

For the total fringe benefits sum, make sure to include unemployment insurance, health insurance, and any other required and elective benefits in your compensation package.

To illustrate, if an employee’s yearly benefits are valued at $25,000 and their annual salary is $100,000, the fringe benefits rate would be:

($25,000 / $100,000) X 100 = 25%

This means your company is paying an additional 25% to the employee on top of their yearly salary.

Fringe Benefits Rate for Hourly Employees

The benefit rate for hourly employees is calculated in the same way as salaried employees but with one extra step. Since they’re paid hourly, you’ll first have to calculate their annual wage. Do this by multiplying their hourly rate by the number of hours worked per week and the number of weeks in a year.

For example, if an employee’s hourly rate is $45 and they work 40 hours each week, their annual salary would be:

$45 X 40 Hours X 52 Weeks = $93,600

Then, let’s say their benefits total $15,000 per year. The fringe benefit rate for this employee would be:

($15,000 / $93,600) X 100 = 16.03%

So, your company is paying an additional 16.03% to the employee on top of their yearly wage.

Fringe Benefits Examples by Industry

As candidates and employees generally view benefits like health insurance as a must-have, it's in a company's best interest to offer additional incentives to stand out. Like what, you ask? Well, that depends on your industry and other factors, such as company size, what your competitors offer, and what today's jobseekers and employees personally value.

Check out these five industries and their popular fringe benefits to help you win over—and keep—top talent:

Construction

While large construction companies are generally well-established, it can be common for smaller firms to overlook benefits that employees value. In this physically demanding industry, health, life, and disability insurance, paid leave, and employer-matching retirement plans are sought after. Other unique benefits include project- and administrative-based incentives.

Since the construction industry has one of the highest employee turnover rates, averaging about 25% annually, a generous compensation package can help improve retention and team productivity which prevents costly retraining. Plus, performance-based bonuses can motivate teams to beat completion deadlines while staying under budget. Administrative-based incentives are also worth considering since leveraging software can provide structure to employee workflows and give leadership real-time data to inform business decisions.

Finance

In a survey conducted by Quartz, 101 of the most influential financial companies were asked to disclose their employee benefits. Of those who responded, notable perks included adoption or surrogacy and tuition reimbursement, gender reassignment support, and extended leave policies influenced by the COVID-19 pandemic.

As the survey notes, the average parental leave in the financial industry is 8.3 weeks, so many organizations offer fully paid leave for 16 weeks or more to attract top candidates and satisfy current employees. Additionally, offering financial assistance with adoption, fertility care, and more helps to foster a culture that advocates for women and their partners.

Healthcare

As healthcare workers sacrifice so much to nurse their patients back to health, it’s key for organizations to pour back into their employees with high-quality benefits. In addition to health insurance, meaningful perks include wellness support (e.g., free gym memberships and mental health apps), paid time off (PTO), student loan assistance, and commuter benefits.

Healthcare organizations offer these benefits to support employees’ holistic wellbeing and encourage them to take their PTO to avoid the burnout that’s common in these high-stress settings. What’s more, student loan repayment is an attractive benefit as many staff members likely have an overwhelming amount of debt. And while remote work has become more normalized due to the pandemic, healthcare workers generally don’t have that luxury. Providing fuel stipends or free bus passes and metro cards can help ease the burden.

Nonprofit

While many nonprofit employees are driven by mission over salary, more organizations are competing with corporate employers for top talent by offering enticing advantages. Common benefits include onsite meals, bonuses for exceeding fundraising goals, and PTO to share their expertise in speaking engagements. To help employees plan for their professional and financial futures, many nonprofits also offer education reimbursement and financial management services like budget planning.

By reducing employees’ personal expenses, such as groceries, tuition, and financial services fees, nonprofit organizations can help improve work-life balance and make up for a modest salary compared to what corporate competitors offer. Moreover, motivating incentive programs that promote better performance are mutually beneficial for the employee and nonprofit organization.

Technology

Swimming pools and bowling alleys and rock climbing, oh my! Aside from the jaw-dropping office spaces the tech industry is known for, other common perks include fully paid healthcare, fertility and adoption benefits, wellness incentives, and unlimited time off.

With tech giants like Microsoft and Adobe leading the way in employee satisfaction, it’s becoming table stakes for competitors to offer comparable packages to secure talent. Plus, by offering fully paid healthcare and supporting those wishing to grow their families, employers can foster greater peace of mind among staff members and make a meaningful difference in their lives.

Improve Your Employee Benefits Strategy

Although fringe benefits are an added business expense, they’re well worth the investment in the long run. Your company will be better positioned to attract top candidates, boost employee satisfaction, and retain workers. By offering in-demand perks, you’re allowing employees to take care of themselves and their families while preparing for the future—which can lead them to become more personally invested in your company’s success.

While it’s clear to see why fringe benefits are good for business, managing benefits programs is no easy feat! Manually monitoring onboarding elections and open enrollment information in multiple places can drain your HR department’s time and energy.

The good news is that maintaining employee benefits no longer has to be a painstaking process. With BambooHR’s Benefits Administration, the whole experience is in one easy-to-use interface, right at HR’s fingertips. What’s more, employees have a user-friendly and holistic view of their favorite perks, delivering a win-win solution for everyone.