fringe benefits for company employees

In our ever emerging mobile society, it has become more difficult to obtain and retain qualified employees. Although providing an adequate salary or wages is vital, sometimes it is the fringe benefits being offered by an employer that makes the more attractive than the competitor.

Fringe benefits can take many forms, including current or future cash payments, providing privileges, goods or services at a discount or without cost; providing intangible benefits (such as choice of office location); or giving employees investment opportunities including opportunities to receive stock of the employer.

Current benefits may take the form of reimbursing employees for their expenses or providing them with services or the use of facilities. Such benefits may include:

Moving expenses
Educational expenses
Legal expenses
Transportation expenses
Medical expenses
Professional dues
Expenses for meals and lodging
Dependent care assistance programs

An employer may also permit an employee to use the employer’s property, provide direct services, or facilities to the employee which may include:

Day care services
Company automobiles
Gifts or awards
Low interest loans
An employer provided discount on property or service. 
Use of employers recreational facilities or activities.

Employers may also offer future cash payments or property rights to employees in a number of forms. Such may include:

Stock option plan
Life Insurance
Health Insurance
Disability Insurance
Qualified pension plan
Employee stock ownership plan
Director, officer or key employee liability insurance
Restricted stock plans (stock given to an employee upon a condition precedent (e.g. working for the employer for a set number of year)).
Legal services that will reimburse legal fees incurred by the employee and his family.

As with receipt of many benefits, the employee would like to exclude the value of the benefit from income or defer taxation of the benefit.

To be deductible as compensation, fringe benefits must be provided to employees by virtue of their employment relationship and be reasonable. Federal Tax Coordinator 2d, Deducting Fringe Benefits at II-4000

As a general rule, fringe benefits are included in income of an employee under IRS Section 61(a). There are, however, statutory exceptions to this rule relating to the time of the receipt of benefit as well as the type of benefit received. The following types of benefits are excludable from an employee's income: de minimis fringes (including meals provided at an employer-operated cafeteria); services for which the employer incurs no additional cost to provide; benefits the cost of which would be deductible as business expenses if incurred by the employee (working conditions fringes); parking and the use of on premise athletic facilities. Federal Tax Coordinator 2d, Fringe Benefits as Compensation at H-1050

Through proper planning, an an employer is able to provide its employees with benefits that are excludable from income or deferred until later. These benefits may also be deductible by the employer. Such benefits provide the employer with a tool for obtaining and retaining qualified employees.

Michael J Yemc is an attorney at the Law Offices of John L Alden, whose practice areas include general business, tax and litigation with offices at One East Livingston Ave Columbus, OH 43215-5700. He can be reached at (614) 221-1306.