Effectiveness of Fringe Benefits

Fringe Benefit

A fringe benefit is a form of pay for the performance of services in addition to stated play that were provided by an employer to an employee. In a number of countries the 'fringe benefits' are subject to the Fringe Benefits Tax (FBT), which applies to most, although not all, fringe benefits.

These terms for a fringe benefit:

1. Taxable – means the benefit is included in the employees' wages and reported on Form W-2, and generally is subject to Federal income tax withholding, social security, (unless the employee has already reached the current year wage base limit) and Medicare. An employer’s matching contribution is required for social security and Medicare. An example is bonuses that always taxable because no IRC section excludes them from taxation.
2. Nontaxable – Excluded from wages by a specific IRC section; for example, qualified health plan benefits excludable.
3. Partially taxable - Part is excluded by IRC section and part is taxable. Benefits may be excludable up to dollar limits, such as public transportation subsidy or parking.
4. Tax-deferred – Benefit is not taxable when received, but subject to tax later. For example, employer contributions to an employee's pension plan may not be taxable when made, but retirement distributions may be taxed when made to the employee.

A benefit provided on behalf of an employee is taxable to an employee even if the benefit is received by someone other than the employee, such as a spouse or a child. If an employee's wages are not normally subject to social security or Medicare taxes (for example, because the employee is covered by a qualifying public retirement system), any taxable fringe benefits would also not be subject to social security or Medicare taxes. The Fringe Benefits was created to provide governmental entities with a basic understanding of the tax issues related to employee fringe benefits and reporting under the Internal Revenue Code and other Federal tax regulations and procedures.

Working Condition Fringe Benefits

Working condition fringe benefits include property or service which, if the employee had paid for, he or she could have deducted the cost as a business expense on his or her individual income tax return. Therefore, if the cost of an item is deductible by an employee as a business expense, it may be excludable from the employee’s wages as a working condition fringe benefit if provided by the employer.

Discussions

The imposed fringe benefit is ideally in favor on the side of the employees based on the advantages presented. It will dramatically hit the mining industry, knowing that in mining, the danger is everywhere. The employees need assurance and securities not only for them but also covering the future of their family. Basically, a company that is not that stable in the industry provides limited benefits to cover all of their employees. And taking the mining industry as a major player in the area, the company has to assure not only the company’s future but also the small miners that risking their life.

Fringe benefits affect the relative costs of regular and overtime hours. They play a key role in determining the equilibrium employment and hours, and the speed at which employers adjust employment to equilibrium. Increases in fringe benefits in recent years induced employers to schedule considerable overtime while simultaneously laying-off workers.The fringe benefit generally, comprises the whole labor in terms of the hours allotted. Meanwhile, it is transversal to create such loss in the company’s income but it is inclined for a minimum loss. The company’s decision usually lies between the choice of losing a small profit and the loss of a great employee. The common choice which is also the most democratic is choosing the latter.

References

Aetna Universal Sdn Bhd. (2008). “The Importance of Employee Benefits Schemes”. [Electronic version] http://www.greatonlinewebsites.com/human_resources1.html [Accessed 21 July 2009].

Federal, State, and Local Governments. The Internal Revenue Service. (2009).Taxable Fringe Benefit Guide. [Electronic version] http://www.irs.gov/pub/irs-tege/fringe_benefit_fslg.pdf [Accessed 21 July 2009].

Smyth, D. & Karlson, S. (1991) The Effect of Fringe Benefits on Employment Fluctuations in U.S. Automobile Manufacturing. The Review of Economics and Statistics, Vol. 73, No. 1, pp. 40-49. Abstract from http://www.jstor.org/stable/2109685 [Accessed 21 July 2009].

U.S. Bureau of Labor Statistics Division of Information Services. (2008). “BLS Information”. [Electronic version] http://www.bls.gov/bls/glossary.htm [Accessed 21 July 2009].