What are Fringe Benefits? 

Fringe benefits are in addition to the compensation that companies give to their employees. It is an additional benefit above the stated salary. It helps to keep the employees of the firm motivated as sometimes the only salary is not enough to retain the quality employees of the firm. There are different types of fringe benefits. Fringe benefits are given in both private as well as public enterprises. 

Types of Fringe Benefit

There are different types of fringe benefits. Some are universal that are given to all employees, whereas some are given only after a designated level. Some of the fringe benefits are kept compulsory by law while others are not mandatory and given based on performance or at the upper level of hierarchy. Fringe benefits are a very important part of the salary statement of any employee. 

Examples of fringe benefit:

Some of the common examples of fringe benefits are Mediclaim policies or health insurance, business vehicles, retirement schemes, sick leave plans of employees as well as for the family, leaves like paternity or maternity. 

The benefits which are not common or given at some specified levels are paid leaves, free yoga or other fitness classes, volleyball or football courts et cetera. 

Fringe Benefits Tax (FBT) 

Fringe Benefits Tax (FBT) is a tax that an employer has to pay instead of the benefits that are given to his/her employees. This tax was paid in addition to income tax, irrespective of whether or not the company had income-tax liability. Fringe benefits tax was introduced in the year 2005 as a part of the finance bill. It was effective from the year 2006. It is payable at a specific rate that is specified on the value of fringe benefits provided to the employees.  

Taxable and non-taxable fringe benefits 

The taxable fringe advantages that must be reported as income are:

1. Performance bonuses: performance bonus is a monetary value given to the employees for the performance. Mostly it is given annually by the firm.
2. Personal, vacation, and resort expenses: some of the firms give their employees free vacation. They bear the resort expenses. For example, CITI bank gives its employees Mandatory leaves as well as offer free vacation
3. Reimbursements over actual moving expenses: Some of the firms give their employees free pick and drop facilities as well as if they have to move to some other place because of the job.
4. Education assistance beyond the allowable exclusion: Education assistance beyond the allowable limit is taxable.
5. Cash awards for taking part in some wellness programs and their reimbursements: Some firms organize wellness programs on a timely basis as a corporate social responsibility. The reimbursements of those are payable.

However, some of the fringe benefits that are non-taxable and exempted from tax are: 

1. Health benefits: Firms provide various health benefits to their employees such as Mediclaim policies. These are non-taxable
2. Performance recognition: The performance recognition incentives given to employees are non-taxable.
3. Educational benefits and discounts: This is also a Non-taxable fringe benefit
4. Business devices: Many firms allow their employees to use various technological updated devices which need licensing. These devices are used for business purposes.  Using these Devices are a non-taxable fringe benefit
5. Childcare assistance: Some of the firms provide free child care assistance to their employees and it helps employees to concentrate on their work.

Non-taxable fringe benefits help to reduce the tax burden on the employees. It sometimes becomes beneficial when the declarations on tax exemptions are to be given by the employees. 

The formula for calculating fringe benefit tax

The standard methods through which businesses determine FBT: 

1. Using a formula known as the statutory fraction method
2. Tracking work and private operation use for each vehicle via a logbook

The statutory fraction method is more common due to the tedious process of keeping a manual logbook. 

It is clear that manual logbook process will provide you a more correct representation, aspects such as miscalculation, and damaged or lost paperwork make it an inefficient and inaccurate method.  

It’s also time-consuming to manually decipher and enter each driver. 

What is a "De Minimis" Fringe Benefit? 

The "de minimis" benefit is type of property or assistance where the value is very small and accounting for it continuously across the workforce would be an unreasonable weightage or will be impractical from an administrative standpoint. 

 Examples of de minimis fringe benefits include: 

• Occasional use of the company's copy machine 
• Holiday gifts with a low market value 
• Company picnics 
• Most award meals 
• Sporadic tickets to entertainment events 

What is an Electronic Logbook? 

The electronic workbook gets better visibility into how your drivers work or function on the road while reducing back-office admin to maintain paper logbooks. It’s an easier and more accurate approach to the FBT process. 

Example: 

The employer's aggregate fringe benefits amount is $3,000. If the rate of tax is 48.5%, then the employer's fringe benefits taxable amount is calculated as follows: 

$\begin{array}{l}\$3,000÷\left(100\%-48.5\%\right)\\ =\$3,000÷51.5\%\\ =\$5,825\end{array}$

Context and Applications 

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for:   

• Bachelor of Business Administration
• Bachelor of Commerce       
• Master of Business Administration
• Master of Commerce