What are fringe benefits?
Fringe benefits are a form of compensation given to employees that goes beyond their normal wages and pay. It might take the form of a paid gym membership, or discounted private health insurance.
Businesses normally offer fringe benefits to attract talented employees and set themselves apart from rival employers. Giving fringe benefits is also an effective way of rewarding all your employees’ hard work and can improve staff retention rates.
Who receives fringe benefits?
Employers will give various employees fringe benefits depending on the circumstances. For example, some fringe benefits might be given to all of a business’s employees universally.
In other circumstances, an employer might give specific employees fringe benefits based on:
Reaching a certain level of seniority.
Reaching certain levels of performance and achievement.
Length of service with the same employer.
What can employers offer?
Fringe benefits can take many forms. Normally they are non-monetary, although sometimes fringe benefits come as financial reimbursements.
Some common examples of fringe benefits include:
Allowing an employee to use a work car for private purposes.
Giving an employee a discounted loan.
Giving a private health insurance rebate.
Paying an employee’s gym membership.
Providing free entertainment by way of tickets to concerts, movies or sporting events.
Discounts on products and services bought from specific businesses.
Reimbursing an expense incurred by an employee, such as school fees and child support payments.
Providing benefits under a salary sacrifice arrangement with an employee.
It’s also common for employers to give staff fringe benefits that are personalised to the business. For example, Ben & Jerry’s rewards all its staff with free ice cream, while Nike employees are allowed to buy as much of the brand’s footwear, apparel and sports equipment at a discount of 50%.
What are the advantages?
Offering fringe benefits as part of an employer value proposition can help businesses attract the best talent and give them the competitive edge over rival employers. Prospective employees will often look at the total benefits package an employer is offering, meaning fringe benefits can be a pivotal factor when candidates are deciding whether to accept a job offer.
In the longer term, fringe benefits are one of the most effective ways to retain staff. Providing fringe benefits rewards the efforts of your staff, improves job satisfaction and reduces employee turnover. Simply put, a staff member who feels properly valued is more likely to stay with your business.
More broadly, giving your staff fringe benefits increases morale and productivity. Offering additional incentives can give your employees the motivation to perform their best work. As a business owner, you should think of fringe benefits as an investment rather than an unwanted expense.
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Do you have to pay fringe benefits tax?
In short, most of the time. According to Australian tax law, the employer is responsible for paying the correct amount of tax to the Australian Tax Office (ATO) on any fringe benefits provided to employees.
Employers are liable to pay fringe benefit tax (FBT) on most of the benefits they give to their employees, families, or other associates. Even if the benefit is provided by a third party, FBT still applies.
The taxable value of a fringe benefit determines the amount of FBT that must be self-assessed and paid for each financial year (April 1 to March 31).
For help figuring out the FBT your business owes for tax purposes, you can use the FBT calculation guide on the ATO website.
Employers can normally make income tax deductions for any FBT tax paid. Additionally, GST credits can also be claimed for goods or services offered as fringe benefits. In some circumstances, non-profit organisations may also qualify for special FBT concessions.
For larger businesses with more extensive fringe benefit offerings, it is often advisable to get tax advice from a registered tax agent.
Tax exempt fringe benefits
As an alternative to a regular fringe benefit, a small gift can make a big difference when it comes to rewarding your employee’s efforts.
Best of all, many small one-time gifts are exempt from tax. In fact, you may already be exempt from paying fringe benefits tax on certain gift items.
A fringe benefit is defined as a minor benefit if:
It has a value of less than $300.
The benefit is provided infrequently and irregularly.
Other terms and conditions also apply. For more information about the concession see the Minor Benefits Exemption Guide by the ATO.
Frequently Asked Questions
What is not considered a fringe benefit?
Some examples of employee compensation not considered fringe benefits include:
- Payments considered dividends under Division 7A.
- Wages, salary and commission.
- Payment of penalty and overtime rates.
- Shares that are purchased under approved employee share acquisition schemes.
- Payments made during redundancy or termination of employment (gifting or selling a company car at a discount to an employee when terminating employment).
- Employer contributions to superannuation funds.
- Benefits you have provided to contractors or volunteers.
- Exempt benefits. For example, certain benefits are provided to religious practitioners by their religious institutions.
Employsure helps thousands of businesses motivate their employees to perform their best work. If you need trustworthy workplace relations or health & safety advice, our 24/7 Advice Line is free of cost for all Australian business owners. Call 1300 651 415 today to get all your questions answered.