Payroll Accounting: What are fringe benefits?

During World War II, the U.S. government faced a major problem: inflation. With factories producing equipment for the battlefield, goods were harder to come by for everyday Americans. That meant that costs increased significantly, and lawmakers tried to help tackle inflation by limiting the maximum hourly wages a worker could receive through the Stabilization Act of 1942. The idea was that by putting a ceiling on what workers could earn, it could impact other areas of the economy and reduce inflation. Employees weren't happy about that move – and neither were business owners. Companies struggled to hire and keep talented workers without the appeal of a higher paycheck or raises, so they began offering extra incentives that were “on the fringe" of cash wages, like paid vacations and pensions. Acting as a kind of creative loophole, these benefits complied with the law, provided employees something valuable, and also gave employers the workers they needed.
Today, Fringe Benefits are an integral part of employee compensation and often have a significant influence on the cost of the employee but also on employee satisfaction. Fringe benefits can be fully or partially paid by the employer and be taxable, partially taxable or non-taxable to the employee. Some of the most common fringe benefits are health insurance (cost is often shared by employer and employee), and retirement benefits but can include many, many other perks. This topic may be covered in your homework or in unit exams.

Ask yourself: Do you understand why fringe benefits are offered by employers and the requirements for a benefit to be considered a fringe benefit?

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