In a competitive market, employers have to try a lot of things to stand out. When the talent pool is shrinking and there are skilled labour shortages, business owners and employers have to look beyond conventional perks and offerings. There are several ways that Aussie employers consider attracting talent in the workforce. One common way that employers try to attract new talent is by offering fringe benefits. Fringe benefits are quite commonly used in Australia and provide employers that extra edge they need to stand out among their competitors.
In this guide for employers, we explain what fringe benefits are, why employers need to understand and use fringe benefits, examples of fringe benefits, and ways Peninsula can help you.
Understanding fringe benefits
Fringe benefits are a form of compensation given to employees that goes beyond their normal wages and pay. It might take the form of a paid gym membership, or discounted private health insurance. An employer may offer fringe benefits in the form of additional benefits, in addition to their salary or wages. To qualify as a ‘fringe benefit’, it must be provided in the respect of employment. Basically, this means that the fringe benefit should be connected to the employee’s job or services rendered by them for their employer.
Businesses normally offer fringe benefits to attract talented employees and set themselves apart from rival employers. Giving fringe benefits is also an effective way of rewarding all your employees’ hard work and can improve staff retention rates.
Fringe benefits are not in cash. Fringe benefits do not include any salary or wages and are subject to income tax. The rules on fringe benefits are complex and you need to know them if you offer it to employees.
Receiving fringe benefits
Some fringe benefits might be given to all of a business’s employees universally.
In other circumstances, an employer might give specific employees fringe benefits based on:
- Reaching a certain level of seniority.
- Reaching certain levels of performance and achievement.
- Length of service with the same employer.
Examples of fringe benefits
Fringe benefits can take many forms. Normally they are non-monetary, although sometimes fringe benefits come as financial reimbursements. These can include:
- Allowing an employee to use a work car for private purposes.
- Giving an employee a discounted loan.
- Giving a private health insurance rebate.
- Paying an employee’s gym membership.
- Providing free entertainment by way of tickets to concerts, movies or sporting events.
- Discounts on products and services bought from specific businesses.
- Reimbursing an expense incurred by an employee, such as school fees and child support payments.
- Providing benefits under a salary sacrifice arrangement with an employee.
It’s also common for employers to give staff fringe benefits that are personalised to the business. For example, Ben & Jerry’s rewards all its staff with free ice cream, while Nike employees are allowed to buy as much of the brand’s footwear, apparel and sports equipment at a discount of 50%.
Accommodation
Accommodation is also a fringe benefit. Sometimes an employer will provide an employee a place to live. Usually, an employer will offer a house or apartment free of charge or at a significantly reduced rate.
There are some rules that apply to accommodation fringe benefits:
- Record keeping: Employers must keep records of any accommodation provided for tax keeping.
- Fringe Benefits Tax (FBT): Employers may need to pay tax on the value of accommodation provided.
- Living away from home allowance (LAFHA): If an employee lives away from their usual residence for work, they might be eligible for this allowance, potentially exempt from FBT.
- Relocation costs: Costs related to employee relocation can sometimes be exempt from FBT.
Advantages
Offering fringe benefits as part of an employer value proposition can help businesses attract the best talent and give them the competitive edge over rival employers. Prospective employees will often look at the total benefits package an employer is offering, meaning fringe benefits can be a pivotal factor when candidates are deciding whether to accept a job offer.
In the longer term, fringe benefits are one of the most effective ways to retain staff. Providing fringe benefits rewards the efforts of your staff, improves job satisfaction and reduces employee turnover. Simply put, a staff member who feels properly valued is more likely to stay with your business.
More broadly, giving your staff fringe benefits increases morale and productivity. Offering additional incentives can give your employees the motivation to perform their best work. As a business owner, you should think of fringe benefits as an investment rather than an unwanted expense.
Fringe benefits tax
According to Australian tax law, the employer is responsible for paying the correct amount of tax to the Australian Tax Office (ATO) on any fringe benefits provided to employees.
Employers are liable to pay fringe benefit tax (FBT) on most of the benefits they give to their employees, families, or other associates. Even if the benefit is provided by a third party, FBT still applies.
The taxable value of a fringe benefit determines the amount of FBT that must be self-assessed and paid for each financial year.
For help figuring out the FBT your business owes for tax purposes, you can use the FBT calculation guide on the ATO website.
Employers can normally make income tax deductions for any FBT tax paid. Additionally, GST credits can also be claimed for goods or services offered as fringe benefits. In some circumstances, non-profit organisations may also qualify for special FBT concessions.
For larger businesses with more extensive fringe benefit offerings, it is often advisable to get tax advice from a registered tax agent.
Tax exempt fringe benefits
As an alternative to a regular fringe benefit, a small gift can make a big difference when it comes to rewarding your employee’s efforts.
Best of all, many small one-time gifts are exempt from tax. In fact, you may already be exempt from paying fringe benefits tax on certain gift items.
A fringe benefit is defined as a minor benefit if:
- It has a value of less than $300.
- The benefit is provided infrequently and irregularly.
Other terms and conditions also apply. For more information about the concession see the Minor Benefits Exemption Guide by the ATO.
Understand your responsibilities with Peninsula
Having access to benefits, perks, and fringe benefits can retain talent and ensure your workforce is sturdy. At Peninsula, we know the help your business may need in employment relations and workplace health and safety. Our specialists offer insights into explaining fringe benefits. Call for free initial advice on 1300742953.
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