Fringe Benefits Tax

Many employers offer their employees benefit packages as part of their total compensation program. Often these benefit packages range in value from 30 to 40 percent above the employee’s base salary. A very interesting question is: Why don’t companies simply pay their employees 30-40% more salary and have the employee select their own benefits?

In simple terms, taxed earnings is that earnings on which you are required to pay govt taxation. The quantity beyond which you have to pay the earnings tax is made the decision by the tax govt bodies after cautious research. The earnings of individuals owed to different age, places and careers is analyzed and the overall situation is analyzed before determining what the taxed earnings should be. The taxed earnings supports are useful in identifying the tax which an individual owes to the country or state. By talking to your tax advisor you can easily get to know about what comprises as taxed earnings for social security.

Based on some research and my own experience, I believe that there are four main reasons that employers provide benefits programs to their employees.

The four reasons are:

- Lower cost – The main reason that employers offer its employees benefits programs lies in the following quote: “A decade ago, many employers adopted benefit plans, in lieu of paying cash, simply for the tax benefits.” (Smith, 2007) According to the article, there is a significant difference in the tax collected on salaries compared to the tax collected on the same value of benefits.

- Incentives – Many employees offer benefit programs as a way of enticing people to join their organization. A healthy benefit package is equally as important as salary dollars.

- Work satisfaction - Staff are happier with an employer paid and managed benefit program. This type of program reduces stress on employees by taking over the responsibility of benefit program design.

- Staff morale – Happier staff means greater staff morale which means more productivity.

There are many reasons that employers might offer their employees company managed and paid benefit programs. While the list is likely long, four key reasons are highlighted in this report.