Employee Benefits

What It Means

Employee benefits, also known as fringe benefits, are the compensation an employee receives in addition to an hourly wage or annual salary. Common forms of fringe benefits include health insurance (a fund designated to help employees pay for medical expenses in the event they become ill or injured), paid vacations, and retirement pensions (annual payments made to former employees after they retire).

Although their overall value is generally secondary to an employee’s wages, fringe benefits do have a monetary value for employees. For example, businesses that offer health insurance benefits usually charge employees only a nominal amount to subscribe to the program. Employees who decline membership in their company’s health insurance program would generally pay a great deal more for individual health insurance. In this sense fringe benefits serve as an indirect means of offering employees greater financial gain.

Employers often offer additional fringe benefits, also known as perquisites, or perks, to attract highly qualified employees. Typical perks for upper-level or senior employees include expense accounts (an additional allowance of funds allotted for business-related travel, dining, and entertainment), use of a company car, and personalized stationery.

When Did It Begin

The modern practice of offering employee benefits began during the Great Depression (a period of economic hardship that lasted from 1929 until about 1939). In 1929 Justin Ford Kimball, a former school superintendent in Dallas, Texas, accepted a job as an administrator at Baylor Hospital. In a short time Kimball began to notice that a lot of the hospital’s unpaid bills belonged to teachers. Because he had been an educator, Kimball knew that teachers earned too little to pay the bills. To remedy the problem he created a fund that allowed teachers to pay a small portion of their salary (only 50 cents a month) toward mutual health coverage. As a result of Kimball’s efforts, teachers in Dallas became the first American employees to receive a group health insurance plan as part of their contract. First known as the Baylor Plan, Kimball’s group insurance later became known as the Blue Cross hospital insurance plan.

The term fringe benefits originated during World War II. At this time, in the midst of continued economic difficulties, the government imposed strict limits on wage increases as a means of controlling the flow of financial resources. To retain employment levels in the face of these limitations, the National War Labor Board (an organization dedicated to negotiating disputes between business and labor interests) created a system of fringe benefits to help offset the losses suffered by workers receiving low pay. After the war offering fringe benefits became standard practice in most industries.

More Detailed Information

Employee benefits are generally regarded to be an important incentive when people are deciding whether to accept a particular job. Most companies offer their full-time employees (those employees who work at least a standard number of hours per week, usually 40 hours, though perhaps fewer hours at certain companies) some form of health insurance, generally at a reduced cost to the employee. In some instances labor unions obtain employee benefits for their members by negotiating collective bargaining agreements, or contracts, with employees. For the most part these bargaining agreements will pertain to such issues as health insurance; paid sick leave, also known as sick days (an employee will continue to be paid if he or she becomes ill); or the creation of day-care facilities for employees with young children. In other situations employers offer prospective employees fringe benefits on their own initiative.

The main advantage of offering fringe benefits is that it allows employers to attract the most qualified candidates for certain jobs, particularly if several companies are interested in hiring a specific individual. Unique, specialized benefits for highly skilled or senior employees generally fall under this category. These benefits can range from the general, such as stock options (agreements through which employees have the right to purchase stock, or shares, in the company’s ownership) and profit sharing (additional cash payments based on the company’s profitability), to highly personal, often unusual perks. For example, contracts between professional sports teams and athletes often include provisions for travel allowances, additional game tickets for family members, personal chefs, and masseuses. One of the most extensive fringe benefits package in the history of professional sports was created in December 2006, when the Boston Red Sox (a professional baseball team) signed a young pitcher from Japan named Daisuke Matsuzaka. In addition to a yearly salary of $8.67 million, the team also provided Daisuke with housing, a translator, a personal assistant, a physical therapist, a massage therapist, and between 80 and 90 flights to Japan over the course of the six-year deal.

Recent Trends

Toward the end of the twentieth century, as the American labor force became more diversified, companies started devising innovative forms of fringe benefits tailored to meet the evolving needs of their employees. Examples include on-site day-care centers, which allow parents to return to work after having children, and tuition-reimbursement programs, as a way of encouraging employees to pursue higher education.