Employee Fringe Benefits: What Are They and How Has the Pandemic Shaped Them?

COVID-19 changed the landscape of office culture forever. While some organizations had already adopted a largely remote workforce over the last few years, many were ill-prepared for the shift to remote work. Remote culture has not been without its challenges. Many employees crave and miss the in-office social connection, while others feel unable to “turn off” the workday when home and work become one space. 

The shift to remote and hybrid work created a challenge for many HR leaders: How do you provide benefits that support new employee needs, regardless of location? How do you ensure that your benefits programs encompass the full scope of wellness, not just one narrow definition of it?

More and more, employers are offering fringe benefits that help employees — whether in-office, hybrid, or remote — adapt to their new environments. In this post, we’ll break down what employee fringe benefits are, how COVID-19 has impacted them, and what you can do to stay competitive with your benefits. 

What are employee fringe benefits or “work perks”?

Let’s start by defining employee fringe benefits, or “perks at work.” IRS Publication 15-B, the Employer's Tax Guide to Fringe Benefits, defines a fringe benefit as “a form of payment for the performance of services.” Fringe benefits are additional forms of compensation that supplement an employee’s salary. While this definition include benefits most employers are legally required to offer, such as health insurance and workers’ compensation, most people usually consider fringe benefits to be benefits outside of standard health insurance offerings. 

What are fringe benefit examples?

Here are some examples of common fringe benefits:

• Flexible spending accounts (FSAs)
• Health savings accounts (HSAs)
• Lifestyle spending accounts (LSAs)
• Transportation benefits
• Meal stipends
• Work from home stipends
• Adoption assistance funds
• Student loans or tuition aid
• Gym memberships or employee wellness stipends 
• Professional development stipends 
• Employee stock options
• Cell phone and internet stipends
• Dependent care assistance 
• Group-term life insurance coverage
• Moving expense reimbursements
• Retirement planning services 
• “De minimis” fringe benefits such as free coffee, snacks, or non-cash holiday gifts

Fringe benefit taxation

Most fringe benefits will be subject to taxes, including federal income tax, Social Security tax, Medicare, and federal unemployment tax. That said, there are a number of fringe benefits that may be tax-free, including FSAs, HSAs, commuter benefits, adoption assistance, dependent care assistance, employee stock options, life insurance coverage, and educational assistance. 

IRS Publication 15-B provides a detailed overview of tax-free fringe benefits and the rules that apply to them. It’s important to know these rules because while certain benefits may be tax-free, they won’t be in all cases. For example, meals may be tax-free, but only if they are de minimis (meaning they have so little value that accounting for them would be unreasonable or administratively impracticable) or provided on business premises. Dependent care assistance is tax-free only up to $5,000 ($2,500 for married employees filing separate returns), and educational assistance is tax-free up to $5,250 of benefits each year. Anything above those amounts will be taxable. 

COVID’s impact on popular fringe benefits

Trends surrounding fringe benefits are changing all the time. The COVID-19 pandemic is one recent event that sparked a shift in how companies think about fringe benefits and their obligation to take care of employees. 

It’s estimated that COVID-19 triggered a 25% increase in anxiety and depression worldwide. Stress about health, economic changes, job loss, and social isolation contributed to a rise in mental health challenges. While remote and hybrid work has reduced stress for many by cutting commute time or improving work-life balance, recent studies have shown that over 60% of remote employees still report feeling depressed or lonely at times.

To combat these effects, more employers are expanding their benefit offerings to support mental health, wellness, and family needs. Robert Half’s 2022 Salary Guide found that 88% of HR managers have added new perks as a result of the pandemic, including wellness programs, mental health resources, stipends for home office equipment, additional paid family leave, and child care assistance.  

New benefits for new employee needs

Today, employers are facing Zoom fatigue, high turnover rates, and employee burnout. There’s a much greater need to prioritize mental health and wellness benefits for your employees if you want to retain and attract new talent. During the pandemic, half of workers said they’d be willing to sacrifice more of their salary for a personalized benefits package, according to MetLife research. 

But providing benefits that are truly personalized can be tricky. There are many ways to define wellness: It can be physical, mental, or even financial. Every employee will have their own individual definition of wellness, and needs will be different depending on their unique situation. For example, fully remote employees may no longer benefit from many of the traditional in-office perks like an on-site gym or free snacks. With more flexible options, you can support your employees regardless of where they live and work. 

This might look like a wellness stipend that allows employees to purchase a gym membership of their own choice or a meal allowance that can be used on anything food-related, including food delivery, grocery orders, weekly dinner subscription boxes, or local restaurants. The flexibility empowers employees to choose what type of perks are most beneficial to them and their families. Tax-advantaged programs like FSAs and HSAs also allow employees to experience more flexibility in how they access and pay for medical and mental health care. 

Leading organizations like Talkspace are prioritizing mental health programs to meet today’s needs. In keeping with their company values, the organization wanted to ensure that employees felt supported in their wellness. “When we moved to a remote model, we saw that there was a need to take care of people,” said Hallie Griffin, Virtual Office Manager at Talkspace. 

To do that, Talkspace launched a modern wellness plan to give their new fully remote workforce the perks they were looking for. Today, employees receive a $50 monthly stipend they can spend on haircuts, nail appointments, Instacart for groceries, incense, candles, gaming, and so much more. The program is a hit: It has a 97% engagement rate, with increased utilization among their international employees. 

How to get started

It’s important to get the lay of the land when it comes to fringe benefits and taxes. The FICA tax rate is applied to all taxable compensation. This includes salary, wages, tips, bonuses, commissions, and taxable fringe benefits. Notable exemptions of tax-advantaged programs include HSAs, FSAs, achievement awards, and commuter benefits. Be sure to consult your CPA before implementing new fringe benefits. 

You’ll also want to tailor the program to what matters most to your employees. You can get those insights by conducting surveys, focus groups, stay and exit interviews, and one-on-one sessions with managers. When establishing new perks, consider using an external benefits partner that can easily manage and support the program without adding more admin burden to your plate. Contact sales@getbenepass.com to learn more.