How to Use Tax-Free Fringe Benefits to Amp Up Employee Recruitment and Retention

As a company, you can do plenty to make your business a more appealing place to work, and you can do even more to enhance the loyalty and satisfaction of your current employees.  A Harvard Business Review article emphasized the importance of “reinforcing the right reasons for staying”. Creating conditions compatible with an employees’ values for working and living can include altering the work environment, providing more recognition, or investing in training. Tackling the aspect of an employee’s offer is also a way to go about instilling company loyalty. 

While salary may be an obvious factor on the mind of employees, it has been shown in recent years that offering a valuable benefits package is just as important. People like to feel appreciated, wanted, and supported, and will be more likely to remain with your company for years if they feel secure in their position. One way to help your employees to feel more secure and loyal to your company is by offering additional benefits, something many professionals will give up higher salaries to receive. 

Please note, we are not a law firm or accountant firm. This is for informational purposes only. For information on tax and legal matters, we suggest consulting with an attorney or CPA who is knowledgeable about your industry and needs as an employer.

Non-Taxable Fringe Benefits

Fringe benefits are additions included in an employee’s hiring package on top of the compensation. Examples of these can include a variety of insurances, employee discounts, stock options, tuition assistance, paid lunches, fitness reimbursements, or even pet-friendly work environments. According to the IRS, any fringe benefit you provide an employee is taxable and needs to be accounted for. However, there are exclusions to this that companies can focus on to bolster an offer package and keep employees loyal, happy, and retained. These are known as non-taxable fringe benefits.

Non-taxable fringe benefits are particularly attractive to employees since these include employer-provided benefits that they won’t have to pay taxes on. Offering non-taxable fringe benefits helps your employees to keep a larger portion of their salaries while still receiving all the support they need, helping them to lead more financially secure and happy lives.
 
De minimis (minimal) benefits 
De minimis benefits are considered tax-free because they are items or services offered by the employer that have so little value it would be difficult to account for. Under this section of IRS code, employers would be able to incorporate things such as occasional meals, snacks, and company parties, or gifts like tickets to events or holiday gifts. While these added benefits are minimal, hence the name, they make a big impact on office culture and employee morale. When paired with recognition and regular feedback, it was found that companies had 31% lower voluntary turnover than those with ineffective programs.

Dependent care assistance
Taking care of your employee’s family helps you take care of your employee. Childcare and dependent assistance ranked second on benefits that employees could not live without. Employers are able to cover the first $5,000 of dependent care assistance. This applies in a variety of situations and can cover children under the age of 13 as well as children or spouses who cannot mentally or physically care for themselves.

Educational assistance
Building new skills or earning degrees is a benefit that can attract and keep employees. The IRS allows an employer to make up to $5,250 in tax-free contributions each year to an employee’s educational expenses. This could mean covering tuition, class fees, or learning materials like textbooks. The way the funds are distributed is up to the employer, for example, you could give employees money in advance to cover classes, give employees money as reimbursement after classes are completed with passing grades, or split the money by giving them half the funds to start with and the remainder after successfully completing classes. 

To keep these benefits non-taxable, these funds are only for the employee to further their own skills or in education only for work. This means it doesn’t cover family members. While it can’t cover the children of your employee’s high school education, it can be used to help your employee achieve their own diplomas. In addition, educational assistance can also be used retroactively to pay off loans that employees may have taken out in the past for school. This can be done by adding money to each paycheck that is used specifically for student loan debts. 

Athletic facilities
Employee wellness happens outside of the workplace as much as it does in the workplace. Access to exercise benefits ranked in the top 15 most popular benefits desired by employees. Unum, a benefits provider, found that a third of employees desired company-paid gym memberships or access to a fitness center on the job site. While paying for memberships can come out of your employee’s paycheck, building an in-office gym is a non-taxable option that companies can look into to boost their appeal. In-office perks come at no cost to employees but are shown to be desired by almost 80% of employees when looking at job benefits they want.

Employee discounts
Partnering with other companies and service providers to offer discounts to retailers, hotels, amusement parks, etc. is enticing to include in an hiring package. These discounts can range  up to 20% off and may apply to discounted Disney World tickets or contribute to their next Apple shopping trip. A study found that more than a third of employees who didn’t already have company discounts wanted it. Employee discount programs can go a long way and it is easier for companies to take on these low cost-per-employee fees to curate discounts that their work staff will be interested in. 

A complete list of other benefits excluded from income taxes includes:

• Access to athletic and health facilities.
• Accident and health benefits.
• Achievement awards.
• Adoption assistance.
• Educational assistance.
• Employee stock options.
• Employee discounts.
• Employer-provided cell phones.
• Financial planning support.
• Group-term life insurance coverage.
• Health savings accounts (HSAs).
• Health coaching.
• Identity theft insurance.
• Lodging on your business premises.
• No-additional-cost services.
• Pet insurance.
• Public transit cards.
• Retirement planning services.
• Student loan reimbursement.
• Transportation (commuting) benefits.
• Tuition reduction and reimbursement.
• Working condition benefits.
• Workspace and work furniture options.

There are other benefits you should take into consideration if your goal is to create a world-class, competitive workplace that fosters growth and loyalty and allows you to recruit the most talents and qualified team possible.

• Charitable matching gifts program.
• Company car.
• Unlimited paid time off.
• Four-day work week.
• 401k retirement savings program.
• Fully paid health, dental, vision, and life insurance.
• Coffee bar, snacks, and on-site meals.
• Flexible schedule and remote days.
• Performance-based bonuses.
• Paid Volunteer Time Off

​Please note, we are not a law firm or accountant firm. This is for informational purposes only. For information on tax and legal matters, we suggest consulting with an attorney or CPA who is knowledgeable about your industry and needs as an employer.

Learn more about how you can support your employees and help them lead happier, healthier, more prosperous lives by visiting Blackbird Philanthropy Advisors online today and checking out our blog!