Definition: Fringe benefits can be defined as any additional compensation provided to an employee that is not directly related with wages. The concept could also be interpreted as any kind of reward granted by an employer to any of its employees aside their wages.
What Does Fringe Benefits Mean?
What is the definition of fringe benefits? These benefits are a commonly used tool to reward employees for their performance or to lift up the work conditions of the company. There are many different types of benefits, but the purpose of them is normally to motivate, compensate, and provide a more comfortable work or personal situation to the beneficiary.
Companies often offer benefits like auto insurance, medical insurance, employer-provided cell phones, expense reimbursements, educational assistance, employee discounts, and many others. The only condition for a benefit to be considered a fringe benefit is the fact that they can’t be part of the pre-established wage. For employees, a fringe benefit is a great way to save more money since the company takes on some of their regular expenses, like in the case of insurance policies or cell phones. In some instances, these benefits are tax-exempt, like in the case of health insurance.
Here is a detailed example of this concept.
Example
Mr. Louis is the Supply Chain Manager at Electronics X LLC, a company that sells electronic devices to US clients. As part of Mr. Louis’ compensation, the company provides him a car, cell phone, and an expense budget account to make sure he has all he needs to work effectively. Are those supplements considered fringe benefits according to the definition we set out previously?
The first question we need to ask is: are those benefits considered part of Mr. Louis’ wages? And the answer is no. They are not. The second question would be: do those benefits have a direct impact on Mr. Louis wages? And the answer is, also, no they don’t. That means all those benefits should be considered fringe benefits.
Summary Definition
Define Fringe Benefits: Fringe benefit means the supplementary, often non-cash, compensation of a full time employee.
