Difference between revisions of "Employee benefits"
Latest revision as of 19:32, 28 February 2008
Employee benefits are non-wage compensations provided to employees in addition to their normal wages or salaries. Where an employee exchanges (cash) wages for some other form of benefit, this is generally referred to as a 'salary sacrifice' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree.
Fringe benefits can also include, but are not limited to the following: (employer-provided or employer-paid) housing, group insurance (health, dental, life etc.), income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation (paid (esp. teaching) and non-paid), social security, profit sharing, funding of education and other specialized benefits. The purpose of the benefits is to increase the economic security of employees.
The term "perks" is often used colloquially to refer to those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority. Common perks are company cars, hotel stays, free refreshments, leisure activities on work time (golf, etc.), stationery, allowances for lunch, and – when multiple choices exist – first choice of such things as job assignments and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.
Benefits in the US
Employee benefits in the United States might include relocation assistance, medical, prescription, vision and dental plans; health and dependent care flexible spending accounts, retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans, legal assistance plans, adoption assistance, child care benefits and possibly other miscellaneous employee discounts (e.g. movies and theme park tickets, discounted shopping,hotels and resorts, and so on).
Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage up to US$50,000) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax in the United States. Some function as tax shelters (for example, flexible spending accounts, 401(k)'s, 403(b)'s). Fringe benefits are also thought of as the costs of keeping employees other than salary. These benefit rates are typically calculated using fixed percentages that vary depending on the employee’s classification and often change from year to year.
Normally, employer provided benefits are tax-deductible to the employer and non-taxable to the employee. The exception to the general rule would include executive benefits (e.g. golden handshake and golden parachute plans) which usually exceed the IRS maximum allowed and therefore, the executive would have to pay income tax for the excess amount. Because of this many look to IRS Help for solutions.
American corporations may also offer cafeteria plans to their employees. These plans would offer a menu and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by the employees are deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the FICA tax, such as 401(k) and 403(b) contributions; however, health premiums, some life premiums, and contributions to flexible spending accounts are exempt from FICA.
A prominent sub industry has developed to cope with employee benefits such as Foundation Strategies, which creates benefits programs tailored to fit particular business environments.
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