Fringe Benefits are compensations to workers other than their salary. These benefits are not part of their basic wage. The primary objective of the Fringe Benefits is the benefit of the workers. These benefits are also known as perks, perquisites or simply benefits. In most countries, the fringe benefits are subject to tax to a limited extent. Some fringe benefits such as accident and health plans and life insurance are specifically exempt from tax. It is said that fringe benefits constitute about 30% of the average executive remuneration. The common type of fringe benefits is that relating to housing, insurance, health, education, vacation, profit sharing schemes etc.
In the United States, fringe benefits typically include relocation assistance, Medicare for the employee and his immediate dependants, retirement benefit plans, 401(k), etc. In addition to the formal fringe benefits, there can also be informal discounts such as tickets for the movies or recreation parks. Fringe benefits can also be given as incentives based on performance.
There are different reasons for the existence of fringe benefits. Some of them are to increase the remuneration to the employee without increasing the wage. This may be necessitated as legislation may limit the maximum wage. Situations such as these may warrant fringe benefits, if the company is to retain the employee. Another advantage of Fringe benefits is that it gives the choice to the employee to a certain extent to choose the kind of benefits. In the United Kingdom for instance, the employee is given the option to choose the pattern of his remuneration. The employee can choose to take a cut in his monthly wage in order to have a vacation or a car. In the future, this kind of flex remuneration is expected to be the norm, rather than the exception.
The term ‘perquisites’ is often used interchangeably with fringe benefits. However, perquisites can sometimes used to refer to facilities such as car, free vacation packages given to employees on the basis of their performance or seniority. Perks are usually emoluments that are not in the form of cash. In many cases, a vacation package or a travel voucher can be a better way of motivating employees than their equivalent in cash.
The Fringe benefits are usually determined as a percentage of the basic wage. The percentage varies with the seniority and position of the employee in the organizational hierarchy. Managements usually have predefined percentages to be awarded to employees each year during their annual appraisals depending on their performance.
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