A while back Unum polled employees to determine which benefits they valued most. In today’s tough job market, small employers are challenged to offer a number of benefits in order to compete for talent with other employers…large corporations and small businesses. Nonetheless, there are many desired benefits that won’t break the bank.
Here are the top 15 fringe benefits in demand and the tax and practical implications of offering them so you can decide which of these benefits to offer now.
Paid family leave
The poll found this employee perk to be the top one desired, with 58% identifying it as such.
Tax implication. If you are not required by state or local law to offer paid leave for family or medical reasons but do so, you can take a federal tax credit for continuing to pay at least 50% of regular pay during this period. The credit had been set to expire at the end of 2019 but was extended through 2020. Note: The Spending Measure that passed in December gives federal workers up to 12 weeks of paid leave time, which is an indication that mandatory paid leave in the private sector isn’t far behind.
Flexible/remote work options
According to the poll, 55% of respondents wanted this benefit. With technology, remote work is more feasible than ever. But employers need to think about the benefits and burdens to the company
Tax implication. This is essentially a no-cost benefit. But employers may want to reimburse their remote workers for certain costs, such as high speed internet access. Using an accountable plan for this purpose allows the employer to deduct the reimbursement without incurring employment tax costs.
Professional development
For this perk, 39% said they wanted it. Offering this perk can bring not only employee satisfaction, but added performance for the company.
Tax implication. If you have a written education plan (nothing very formal is required), you can reimburse employees tax free up to $5,250 annually even if the courses they take are not job related. If courses are job related, then you don’t need a written plan and all of the reimbursements are tax free. Because they’re tax free, you don’t owe employment taxes on them, even though you can deduct the reimbursements.
Sabbatical leave
Employees may like (38%) a break from work to pursue some personal interests. In 2018, only 15% of employers offered sabbaticals, and only 5% offered paid time off. As a practical matter, small businesses can’t afford to lose any member of the team for an extended period of time, so leave time is restricted to vacations, sick days, and personal days.
Tax implication. Any paid compensation for time off is treated the same as regular compensation (i.e., taxable to employees and subject to employment taxes).
Gym membership or onsite fitness center
While employees (36%) like this benefit, it’s unlikely that small employers can offer it is any meaningful way. Onsite facility? Highly unlikely. Reimbursement for gym membership? Probably unlikely.
Tax implication. Reimbursement of gym membership is not tax deductible, even though the cost of an onsite facility is deductible. The reimbursement is simply additional compensation.
Student loan repayment
This is a biggie for some employees (35% prefer it), particularly, but not exclusively, millennials. It’s estimated that about 4% companies now offer this perk.
Tax implication. Employer payments currently are treated as taxable compensation. However, the IRS has indicated that 401(k) plans may be able to be used for some loan repayment. And there have been numerous bills in Congress to transform employer student loan assistance into a tax-free benefit, so keep an eye out.
Onsite health snacks
In terms of preference, 28% of poll respondents like to have healthy snacks provided by an employer. This isn’t a pricey perk and it’s easy to provide.
Tax implication. Even though the benefit seems modest, the tax law only lets you deduct 50% of the cost.
ID theft protection
The poll found that 28% of respondents want this perk.
Tax implication. If you offer the perk after experiencing a data breach, it’s a tax-free fringe benefit. If you merely offer it as a routine protection, it’s taxable to employees.
Financial planning resources
Employees (27%) want employers to provide them with financial planning guidance. A report several years ago found that a financial wellness benefit could save $3 for every dollar an employer spends. How? Reduced absenteeism and worker disability costs.
Tax implication. Whether the benefit is tax free depends on what it covers. For tax preparation assistance, it’s taxable. But for retirement planning in connection with an employer-provided qualified retirement plan, it’s tax free.
Fitness goal incentives
Wellness programs are desired by some employees (18%).
Tax implication. Use care in crafting a wellness program so you don’t run afoul of various federal laws against discrimination, health information confidentiality and more. Taxwise, the cost may or may not be taxable to employees.
Public transit assistance
Some employees (16%) want help paying for their commute. In some locations, this means reimbursement for monthly transit passes.
Tax implication. Employees are not taxed on the reimbursement up to a set dollar amount ($270 per month in 2020). However, an employer cannot deduct the reimbursement. But the employer could set up a salary reduction arrangement to enable employees to pay for their own monthly passes on a pre-tax basis.
Pet insurance
About 15% said they’d like pet insurance. Of course, offering this benefit could create resentment from employees who don’t have pets, so it’s probably better when offering this to do so through a menu of benefits.
Tax implication. This is a taxable fringe benefit, so you deduct this as additional compensation.
Pet friendly offices
About 15% would like to bring their pets to work. Just be sure to have a pet policy.
Tax implication. Taxwise, there’s no cost/deduction involved.
Health coaching
Some employees (14%) would like health guidance from an employer.
Tax implication. See fitness goal incentives above.
Dedicated volunteer hours
Some employees (12%) like paid time off to pursue volunteer activities. A 2018 report found that 25% of companies offer this perk.
Tax implication. This benefit is no added cost to you. Determine when times of the year are slow to permit employees some time off.
Conclusion
Review your budget and your current benefits offering to determine whether to add additional benefits. Work with your CPA or other tax adviser to know how additional benefits will impact your tax picture.
