Understanding Fringe Benefits and Their Types

Struggling to attract top talent despite offering competitive salaries? The missing piece might be your benefits package. Fringe benefits make up 29.7% of total compensation, yet many employers overlook their impact.

In fact, 88% of employees value health benefits, and 52% say flexibility influences retention. Benefits are no longer optional; they’re essential to hiring and keeping the right people. As teams grow across borders and flexible work becomes standard, structuring the right mix of benefits is more than just a value-add; it’s a compliance and efficiency challenge.

This blog explains what fringe benefits are, their various types, key tax implications, and how to manage them effectively.

What are Fringe Benefits?

Fringe benefits are non-salary perks employers provide in addition to regular pay. These can range from practical items like health insurance, retirement contributions, and commuter stipends to lifestyle perks like gym memberships, free meals, and even pet-friendly offices .

Here’s what makes them powerful:

• Beyond paychecks: They enhance total compensation and job satisfaction.
• Recruitment & retention tool: Many candidates decide based on benefits before salary.
• Reporting requirement: Some are taxable based on their fair market value and must appear on W‑2s .

To illustrate, fringe benefits include:

• Health and dental insurance
• Retirement plans (401(k) matching)
• Commuter benefits (pre-tax transit or parking)
• Tuition assistance or student loan repayment
• Equipment stipends (laptop, home office tools)
• De minimis perks like snacks, occasional meals, and holiday gifts

Some of these perks may be fully or partially tax-exempt, such as health insurance, minor in-kind benefits, and qualified transportation allowances. Others, like personal use of a company car, may be fully taxable.

Let’s explore why they’ve become mission-critical and how they impact your compensation strategy.

Why Fringe Benefits Matter for Global Hiring

Fringe benefits are no longer just an add-on. They’re a critical part of your global hiring strategy.

• Retention: Employees are more likely to stay with employers who offer a well-rounded benefits package, not just a paycheck. Benefits signal long-term investment in employee well-being.
• Compliance: Many countries have strict rules around mandatory benefits like health coverage, paid leave, or retirement plans. Missing these isn’t just bad for morale—it can lead to legal penalties.
• Competitiveness: Job seekers compare benefits across companies. Offering perks like remote work stipends, wellness allowances, or educational support can make your offer stand out in any market.

Let’s explore the different types you can offer to build a stronger, more attractive global package.

Types of Fringe Benefits Employers Can Offer

Fringe benefits come in many forms, ranging from legally required perks to creative, culture-driven incentives. Structuring the right mix depends on your workforce size, location, and the kind of roles you’re hiring for.

A. Mandatory (Statutory) Benefits

Some benefits are required by law, depending on where your employee is based. These typically include:

• Social security contributions
• Health insurance
• Paid time off
• Parental or sick leave
• Retirement fund contributions

Failing to offer these can lead to compliance issues, fines, or failed onboarding in global markets. An EOR can help ensure all required benefits are handled properly.

B. Voluntary (Non-Mandatory) Benefits

These are perks you choose to offer beyond what’s legally required. They help differentiate your company and enhance the employee experience:

• Wellness programs (mental health support, fitness stipends)
• Learning and development allowances
• Home office or equipment stipends
• Flexible work hours or remote-first policies
• Employee discounts or memberships

These benefits improve morale, support productivity, and reflect your company’s culture.

C. Taxable vs. Non-Taxable Fringe Benefits

Fringe benefits may be fully taxable, partially taxable, or entirely excluded from income, depending on the specific type of benefit and how it is provided. The IRS requires that taxable benefits be included in an employee’s income at their fair market value, unless an exemption applies.

Key Considerations:

• Exemptions Have Conditions: While many benefits are excluded from income, each exemption is subject to specific rules. For example, achievement awards are only partially exempt: up to $1,600 for qualified plan awards and up to $400 for non-qualified ones.
• Eligibility Criteria: Some exclusions, such as adoption assistance, dependent care assistance, and employee discounts, may not apply to highly compensated employees unless the benefits are equally available to rank-and-file staff.
• Tax Scope: Although most tax-exempt fringe benefits are also excluded from Social Security, Medicare, and federal unemployment taxes, this is not universally true. Employers must confirm whether a benefit is exempt across all applicable tax types.
• Reporting Responsibility: Employers are required to include the fair market value of any taxable fringe benefits in employees' income for the year and ensure correct treatment in payroll records, especially when operating across different jurisdictions.

Understanding the IRS’s rules around fringe benefits is essential for ensuring compliance and avoiding tax-related complications.

Fringe Benefit Taxation and Reporting: What Employers Need to Know

Offering fringe benefits is great, but if you don’t handle taxation and reporting correctly, you risk compliance issues, audits, and penalties.

A. Understanding Taxable vs. Non-Taxable Benefits

The IRS classifies many common fringe benefits as taxable unless they fall under specific exemptions. Here's a quick breakdown:

• Non-taxable: Health insurance, employer retirement contributions, de minimis benefits (e.g., occasional snacks, small gifts), and educational assistance (up to $5,250 annually).
• Taxable: Company cars (for personal use), housing stipends, gym memberships (unless provided on-site), and cash allowances not tied to actual expenses.

B. Valuation of Fringe Benefits

Taxable benefits must be reported at their fair market value, which is the amount that the benefit would cost someone to purchase independently. Employers must calculate and report this amount accurately for both federal income tax and payroll tax purposes.

C. W-2 Reporting

If a benefit is taxable, it typically appears in Box 1 of the employee’s Form W-2 and may also show up in Boxes 3 and 5 for Social Security and Medicare wages. Mistakes here can lead to IRS penalties or employee frustration during tax filing.

D. Withholding and Payroll Implications

Employers are responsible for withholding the appropriate taxes on fringe benefits, including:

• Federal income tax
• Social Security and Medicare taxes
• FUTA (Federal Unemployment Tax), where applicable

This means your payroll system must be equipped to handle benefit-related calculations, reporting, and deductions.

While offering attractive benefits is important, managing the tax and compliance side is equally critical.

Let’s look at best practices to help you stay consistent, compliant, and competitive across regions.

Best Practices for Offering Fringe Benefits Across Borders

Offering fringe benefits to a global workforce requires strategy, consistency, and local awareness. These best practices help ensure your benefits are well-structured, compliant, and aligned with employee expectations.

A. Benchmark Benefits by Role and Location

What’s considered standard in one country might be seen as generous or lacking in another. Research benefits rules across locations and tailor offerings accordingly. Consider:

• Market expectations
• Industry benchmarks
• Employee demographics (e.g., family support, wellness needs)

B. Document Everything Clearly

Lack of clarity causes confusion, especially with remote teams. Your offer letters, contracts, and employee handbooks should:

• Clearly list all fringe benefits
• Outline eligibility, limits, and tax treatment
• Include how and when benefits are accessed

Clarity reduces misunderstandings and protects you legally.

C. Ensure Payroll and Tax Consistency

Work closely with your payroll provider to:

• Accurately classify and report all taxable benefits
• Automate deductions and contributions
• Stay compliant with changing tax rules across jurisdictions

D. Regularly Review and Adjust

Employee needs change, and so do tax codes. Reassess your benefit offerings annually to:

• Identify gaps or low-utilization perks
• Adjust for new roles, markets, or laws
• Align with business goals and talent retention strategies

Following these best practices helps you build a benefits program that not only supports your people but also scales with your team.

Examples of Fringe Benefits

Fringe benefits offered can vary across companies and industries. Here are a few common examples:

1. Employee Stock Options

Employees have the option to purchase company stock at a discounted price. This benefit allows employees to share in the company’s growth, aligning their interests with the business's success.

2. Transportation Assistance

Employers may offer assistance with commuting costs, such as full or partial reimbursements for public transportation, parking, or fuel. This is particularly valuable for employees with long or expensive commutes.

3. Free or Discounted Meals

Some companies provide free meals or snacks at the workplace or offer discounts for food services. This encourages social interaction among employees and helps save on food expenses during work hours.

4. Health Insurance

Employer-provided health insurance is a common benefit that can significantly reduce healthcare costs. Depending on the plan, it may cover a range of health services, including doctor visits, prescriptions, and dental or vision care.

5. Retirement Plan Contributions

Employers may contribute to retirement plans, such as 401(k) or RRSP, helping employees save for their future. Matching contributions are often a key aspect of these plans, providing long-term financial security.

These benefits are valuable for attracting and retaining employees, enhancing job satisfaction, and supporting overall well-being.

Conclusion

Managing fringe benefits across borders can feel like navigating a maze of compliance, taxation, and local expectations. Without the right structure, you risk non-compliance, disengaged employees, and missed talent opportunities.

But it doesn’t have to be this way. With the right benefits package, you can attract top talent, ensure compliance, and keep your teams engaged, without the administrative burden.

Wisemonk is your ideal partner for developing a comprehensive and compliant benefits strategy. Let us handle the complexity of global benefits, tax management, and employee compliance, so you can focus on scaling your team and growing your business. Talk to Wisemonk today to streamline your global benefits administration.