Exchanging labour for compensation is something that people all around the world do every day. As an individual goes up the ladder within a company, simple cash remuneration ceases to be motivating enough. In seeking more, the options for benefits become essential for employers. Over and above the normal pay rate are benefits. Normal pay or compensation is the wages or salary that a person is paid in return for any work that they do.
Benefits refer to non-cash income which may or may not be included in the total compensation that a person receives. As job seekers select employment options, employer fringe benefits may be the key reason a potential employer stands out. A fringe benefit is a compensation that is offered to employees, partners and contractors of a company. These benefits need to be differentiated between those that are taxable and non-taxable so that their true value can be ascertained.
As the gross income is being calculated, taxable fringe benefits are typically included. These may include the following: –
When making claims for these taxable fringe benefits, it is necessary to claim fair market value. This means that one must claim the amount that they would have paid if they were paying for the product or service using their own funds. The cost could also be calculated based on how much it would cost to lease the same product or service.
It is these taxable fringe benefits that attract income tax withholding. Payments on these benefits can be made in various ways including annually, bi-annually, quarterly or within a lower defined pay period.
Several benefits are not subject to tax, and therefore, are not included as part of gross income. There are many more non-taxable fringe benefits compared to the taxable ones. HR managers need to take note of these as they are updated on an annual basis. These may include the following: –
With taxable and non-taxable allowances, it is essential to have a full understanding of labor laws, especially any updates made. Benefits are excellent for attracting and retaining excellent skilled employees.
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