Fringe Benefit

views updated May 21 2018


Next to wages, fringe benefits are the most important method businesses use to entice workers to accept or stay in jobs. Fringe benefits, also known as "employee benefits," can be provided voluntarily by employers, required by law, or won through collective bargaining negotiations between companies and employees. Fringe benefits can be generally divided into those offered individually, such as 401(k) retirement plans, and those offered to employees as a group, such as daycare facilities or free lunch. Most employee benefit plans traditionally offered three basic benefits: health insurance, a retirement plan or pension, and additional benefits, such as stock option plans or life insurance. A crucial advantage of fringe benefits to businesses was that the Internal Revenue Service (IRS) allowed firms to deduct benefits as an employee compensation expense from the taxes they owe. Similarly while employees had to pay taxes on any increases in their salaries, their benefits were not taxed.

In the late 1990s, medical benefits and flex-time allowing workers to choose their daily work scheduleswere the two most important fringe benefits for U.S. job seekers. Medical benefits comprised the single most costly benefit for employers. A special class of fringe benefits were "perks" (short for perquisites ), which were usually offered only to senior-level employees. Perks included mobile car phones, executive parking, company cars, and even chauffeured limousines or a company jet.

In the United States, fringe benefits became much more common after collective bargaining became common in the 1930s and 1940s, giving workers the power to persuade businesses to improve working conditions. During World War II (19391945), government-mandated wage and price controls prevented companies from giving raises, so they relied on fringe benefits to recruit and reward employees. Fringe benefits accounted for 17 percent of the total compensation of blue-collar workers by 1951, and 30 percent by 1981. In the 1980s employee benefit reforms introduced by President Ronald Reagan (19811989) had the unintended effect of complicating the national fringe benefits system, and in the 1990s innovations like customizable "cafeteria" health, insurance, vacation plans, and SIMPLE (Savings Incentive Match Plan for Employees) benefits simplified benefits choices. During the tight job market of the 1990s, employers began offering a more creative mix of fringe benefits, including club memberships, legal services, home offices, and errand services. Among the most sought-after benefits were stock options, or shares in an employer's stock. During the stock market boom of the 1990s some fast-growing companies boasted that their stock options had turned secretaries and other non-management workers into millionaires.

fringe benefit

views updated May 29 2018

fringe ben·e·fit • n. an extra benefit supplementing an employee's salary, for example, a company car, subsidized meals, health insurance, etc.