Offering a healthy set of fringe benefits can help set your construction business apart and attract more skilled employees. These benefits can vary by employer and range from health insurance, to flexible spending accounts to 401ks and PTO.
Let’s dive into what fringe benefits are, the tax implications and how they factor into your total payroll cost or burden.
Key Takeaways
- Fringe benefits are extra perks you can offer employees on top of their salary.
- They can help set you apart as an employer and make it easier to hire and retain skilled employees.
- You must make sure you properly value and track the fringe benefits you provide so you can adhere to regulations.
What are Fringe Benefits?
Fringe benefits are extra benefits that employees receive from their employer in addition to their regular salary or wages. These benefits are not considered part of the employee’s taxable income and are therefore not subject to income tax withholding. Fringe benefits should be considered part of an employee’s total compensation package, and they are part of the calculation which relates to overhead.
Types of Fringe Benefits
There are many different types of fringe benefits that you can offer your employees. Some common examples include:
- Health insurance
- Retirement plans
- Paid time off (vacation, sick leave, etc.)
- Life or disability insurance
- Flexible spending accounts
- Education assistance
- Childcare assistance
- Transportation benefits (parking, public transit passes, etc.)
- Employee discounts
The specific types of fringe benefits that are offered by an employer can vary, but in construction you will likely see insurances, retirement plans, PTO, and FSA as standards. Many construction companies are also associated with unions and you could see defined benefit plans like pension plans and a defined contribution plan. These guarantee union employees a monthly retirement income and the equivalent of a retirement account. There are also other union fringe benefits like training, disability etc.
Tax Implications
While fringe benefits are not subject to income tax withholding, they may still be subject to other taxes. For example, some fringe benefits may be subject to Social Security and Medicare taxes, while others may be subject to federal unemployment tax.
You, as the employer, are responsible for keeping track of the value of the fringe benefits that you provide to your employees and reporting this information to the appropriate government agencies. Employees may also need to report the value of their fringe benefits on their tax returns.
Calculating Fringe Benefits
When calculating fringe benefits, you need to consider the value of the benefits provided to employees in addition to their regular wages. Here are some key things to keep in mind when calculating fringe benefits:
Reporting Requirements
You are required to report the value of fringe benefits on employees’ W-2 forms at the end of the year. This includes both taxable and nontaxable benefits. You must also report the value of certain benefits, such as group-term life insurance, on employees’ pay stubs.
To ensure compliance with reporting requirements, you should keep accurate records of all fringe benefits provided to employees throughout the year. This includes tracking the value of each benefit and the employee’s share of the cost, if applicable.
Overall, calculating fringe benefits requires careful attention to detail and compliance with reporting requirements. By correctly valuing the benefit you are providing and keeping accurate records, employers can ensure their employees have benefits they deserve while also staying in compliance with tax laws and regulations.
Fringe benefits are included in calculations when a construction company is working on a prevailing wage job, and understanding the calculations is part of filling out the required forms properly.
Common Fringe Benefits in Payroll
Let’s walk through some of the most common fringe benefits associated with payroll.
Health, Dental and Vision Insurance
Health, dental and vision insurances are a valuable benefit that many employers offer to their employees. It helps cover the cost of medical expenses, including doctor visits, hospital stays, and prescription drugs. Some employers offer different types of health insurance plans, including HMOs, PPOs, and high-deductible health plans. The cost of the insurance premium may be shared between you and the employee, or you may cover the entire cost.
Retirement Plans
Retirement plans are another common fringe benefit that many employers offer. These plans help employees save for retirement by allowing them to contribute a portion of their pay to a retirement account, such as a 401(k) or defined contribution plan. Some employers also offer matching contributions, which can help employees save even more for retirement. Defined contribution plans are less prevalent now, but found with many unions associated with trades in the construction industry.
Paid Time Off
Paid time off (PTO) is a benefit that allows employees to take time off from work while still receiving their regular pay. This can include vacation time, sick time, and personal days. The amount of PTO that employees receive can vary depending on their employer and length of employment.
Overall, fringe benefits are an important part of an employee’s compensation package. They can help attract and retain top talent, improve employee morale, and provide financial security for employees.
Regulatory Compliance
IRS Guidelines
One of the most important aspects of fringe benefits associated with payroll is ensuring compliance with IRS guidelines. You must report certain fringe benefits as taxable income to employees, while others may be excluded from taxable income. Failure to comply with IRS guidelines can result in penalties and fines.
You must also ensure that they are properly withholding and reporting taxes on fringe benefits. This includes Social Security and Medicare taxes, as well as federal income tax withholding. Employers may also be required to pay additional taxes, such as the Federal Unemployment Tax Act (FUTA) tax. Items like Social Security and Medicare taxes are not fringe benefits, but required taxes whether fringe benefits are offered by a company.
Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is another important regulation that employers must comply with when offering fringe benefits. The FLSA establishes minimum wage and overtime requirements, as well as rules regarding the classification of employees as exempt or non-exempt.
Employers must ensure that any fringe benefits offered to non-exempt employees do not violate FLSA regulations. For example, if an employer offers a transportation benefit to non-exempt employees, the value of the benefit must be included in the employee’s regular rate of pay when calculating overtime pay.
Overall, regulatory compliance is a critical consideration when offering fringe benefits associated with payroll. You must ensure that they are following all applicable regulations and guidelines to avoid penalties and fines.
Fringe Benefits Management
Payroll Integration
One of the major benefits of integrating fringe benefits management with payroll is that it allows for a more streamlined and efficient process. By having all of the necessary information in one place, it reduces the risk of errors and ensures that employees receive the correct benefits.
In addition, a payroll integration allows for better tracking and reporting of fringe benefits. This can be especially helpful for companies that offer a variety of benefits, as it allows them to easily monitor usage and make adjustments as needed.
Challenges with Fringe Benefits
Cost Management
One of the significant challenges associated with fringe benefits is managing the cost of them. While fringe benefits can be an excellent way to attract and retain employees, they can also be expensive. You must find a way to balance the cost of providing these benefits with the benefits’ actual value to employees.
To manage the cost of fringe benefits, employers can consider offering a limited selection of benefits or offering benefits that are more cost-effective. For example, instead of offering a comprehensive health insurance plan, an employer could offer a high-deductible health plan with a health savings account. This approach can help reduce the cost of providing benefits while still offering employees valuable coverage.
Employee Classification
Another challenge associated with fringe benefits is determining which employees are eligible for which benefits. Different fringe benefits may have different eligibility requirements based on factors such as employment status, job title, or length of service. Yous must accurately classify employees to ensure that they receive the correct benefits.
Misclassifying employees can lead to legal and financial consequences for employers. For example, if you misclassify an employee as an independent contractor and deny them access to certain benefits, the employer could be liable for back pay and benefits owed to the employee.
To avoid misclassifying employees, you should carefully review their benefits policies and consult with legal or HR professionals if necessary. You should also regularly review their employee classifications to ensure that they are accurate and up-to-date.
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