Fringe benefits provide extra value beyond an employee’s base pay. From health insurance to company cars, these perks help employers attract and retain talent.
Have you ever enjoyed a gym membership courtesy of your employer or gotten extra paid vacation days? If so, you’ve received a fringe benefit. In simple terms, fringe benefits are non-wage perks or additional compensation that employers give on top of regular salaries. They’re the “extras” that make a compensation package more attractive, everything from health insurance and retirement plans to free coffee, company cars, or flexible work hours. Fringe benefits help companies recruit, motivate, and retain high-quality employees by enhancing the overall value of a job offer.
We’ll break down what fringe benefits are, how they work in payroll, common examples (with a handy table!), how to calculate their value, and some interesting regional variations in the U.S., U.K., and EU.
What Are Fringe Benefits?
Fringe benefits (often just called “perks” or employee benefits) refer to any extra benefits an employee receives beyond their standard wage or salary. Instead of direct cash pay, these are indirect forms of compensation that improve an employee’s work life or financial well-being.
For example, a company might provide health insurance, retirement contributions, or a paid gym membership. All of these count as fringe benefits because they have monetary value or personal benefit to the employee, even though they’re not part of the paycheck.
Key points about fringe benefits include:
Additional Compensation: They’re additions to regular pay that offer extra value to employees. Think of fringe benefits as the “bonus” items in a job offer that go beyond the base salary.
Variety of Forms: Fringe benefits come in many forms. Some are tangible (like a company car or free meals), while others are intangible (like flexible working hours or remote work options). They can even include non-cash benefits such as experience-based perks (e.g., tickets to events).
Voluntary vs. Mandatory: Some fringe benefits are required by law in certain jurisdictions (for instance, social security contributions or health insurance in some countries), while others are completely voluntary offerings by employers.
In essence, fringe benefits make up the full package of what an employee gets from an employer. They play a crucial role in how attractive a job is. A competitive salary is great, but many HR professionals know that benefits can be the deciding factor for candidates.
A role offering generous fringe benefits, such as extensive health coverage, ample paid time off, and professional development funds, can often outweigh a slightly higher salary with no perks.
Employers understand this, which is why 41% of business leaders planned to improve their benefits packages in 2025 to boost recruitment and retention.
Fringe Benefits in Payroll
What are fringe benefits in the context of payroll? Essentially, they are tracked forms of compensation that aren’t paid as direct wages but still have monetary value and tax implications. From a payroll perspective, fringe benefits are considered indirect compensation.
They don’t show up as gross pay on an employee’s paycheck, but they cost the employer money and may have tax effects for the employee.
Here’s how HR and payroll teams handle fringe benefits:
Tracking and Recording
Employers keep records of the cost of each employee’s fringe benefits. For example, if the company pays $500 per month for an employee’s health insurance, that cost is tracked as part of the employee’s total compensation. Some costs are fixed (like a monthly insurance premium) and others can vary (like tuition reimbursement up to a certain amount).
Tax Implications
Many fringe benefits are taxable. Meaning the employee may owe income tax on the value of the benefit. Payroll departments are responsible for calculating the taxable value of benefits and withholding the appropriate taxes from the employee’s paycheck.
For instance, if an employer provides a benefit that is deemed taxable (like a gift card bonus or personal use of a company car), the fair market value of that benefit is added to the employee’s taxable income.
Non-taxable benefits (like certain health insurance premiums, up to defined limits) are excluded from taxable income but must meet specific criteria to qualify.
Reporting
The total value of most fringe benefits provided to an employee in a year must be reported on tax forms (e.g., in the United States, on the employee’s W-2 form). This ensures transparency to the employee and tax authorities about how much compensation (in all forms) the employee received. Employers also report these costs in their tax filings and, in some cases, pay additional payroll taxes or contributions on the value of benefits.
It’s important to note the difference between salary and fringe benefits in payroll: salary is the direct cash compensation for work, whereas fringe benefits are not part of salary but are additional costs/benefits associated with employment.
Fringe benefits don’t directly increase an employee’s take-home pay, but they increase the overall value of the compensation package. For example, an employee might have a modest paycheck but also receive a company-paid training course worth $2,000. That training is a fringe benefit adding to the employee’s total compensation (and skill set) without boosting the paycheck itself.
For HR managers, understanding fringe benefits in payroll is crucial for compliance. You must ensure proper tax withholding and reporting so neither the company nor the employee faces a nasty surprise at tax time.
Most countries have guidelines or publications to help with this (the IRS in the U.S., for example, publishes an annual Employer’s Tax Guide to Fringe Benefits). In short, fringe benefits matter in payroll because they affect tax calculations and the true cost of an employee.
They might not show up in net pay, but someone has to pay for them and payroll professionals make sure that’s all accounted for correctly.
Common Examples of Fringe Benefits
Fringe benefits can cover almost every aspect of work life. Below is a list of some of the most common (and most desired) fringe benefits that employers offer, along with what they typically include:
| Fringe Benefit | What It Includes |
|---|---|
| Health & Wellness Programs | Medical, dental, and vision insurance plans; wellness initiatives (e.g., on-site health screenings, yoga classes); gym memberships; mental health support programs. |
| Retirement Plans | Employer-sponsored retirement savings such as 401(k) plans with company match, pension plans, or other retirement accounts. |
| Paid Time Off (PTO) | Paid vacation days, holidays, sick leave, and other leave like personal days or family leave. |
| Flexible Work Arrangements | Options like remote work, flexible scheduling, or compressed workweeks. |
| Family & Parental Benefits | Parental leave, adoption leave, childcare assistance or stipends, and dependent care programs. |
| Professional Development | Training and education benefits, such as tuition reimbursement, professional course fees, workshops, conferences, or mentoring programs. |
| Employee Recognition & Perks | Bonuses and awards, performance incentives, employee recognition programs, as well as fun perks like company retreats, team outings, or holiday parties. |
| Commuter & Travel Benefits | Subsidized public transit passes, parking allowances, commuter shuttles, or company vehicles for personal use. |
| Insurance & Security | Life insurance and disability insurance policies paid by the employer, or supplemental insurance such as accident insurance. |
Each organization may offer a different mix of these benefits depending on its budget, culture, and what its employees value most.
How to Calculate Fringe Benefits
To calculate the value of an employee’s fringe benefits, HR professionals often use a fringe benefit rate to express the total cost of benefits as a percentage of salary.
Formula:
Fringe Benefit Rate = (Total Cost of Fringe Benefits / Annual Salary) × 100%
Example:
Annual salary: $75,000
Health insurance: $12,000
401(k) match: $3,750
Paid time off: $3,000
Total benefits: $18,750
Fringe Benefit Rate = ($18,750 ÷ $75,000) × 100 = 25%
This means the employee enjoys an additional 25% of their salary in fringe benefits value.
Regional Variations in Fringe Benefits
United States
Employers provide benefits like health insurance, retirement plans, and paid leave to stay competitive. Tax rules are complex, and most benefits are taxable unless exempt.
United Kingdom
Known as “benefits in kind,” many perks are taxable and must be reported to HMRC. Statutory benefits such as NHS healthcare and generous paid leave reduce the reliance on employer-provided basics.
European Union
Most EU countries mandate extensive statutory benefits, so fringe benefits often focus on extras like company cars, meal vouchers, or a 13th-month salary. Work-life balance perks are highly valued.
Conclusion
Fringe benefits are the hidden paycheck, often accounting for a significant portion of employee compensation once you tally insurance, retirement contributions, paid time off, and other perks. A well-designed program drives satisfaction, loyalty, and productivity.
For HR managers, the key is balancing compliance, cost, and employee needs. The best fringe benefits are those that resonate with employees, whether flexible hours, professional development, or family support. By offering and clearly communicating the value of perks, organizations can build happier teams and stronger businesses.