What Are Employee Benefits?

What Are Employee Benefits?

Employee benefits, also called fringe benefits or perks, are forms of non-wage compensation provided to employees in addition to their normal wages or salaries. They are offered in the private sector as well as the public sector. Independent contractors may also have access to some of the company’s benefits despite not being actual employees (examples may include equipment and stock options). Temporary and as-needed employees also may.

Advantages for employees

Employee benefits have purposes. They increase economic security for employees. They protect employees and their families from economic hardship caused by disability, illness, unemployment, loss of life, and other events. Some benefits also serve as perks to help make an employee’s job easier and more enjoyable. Benefits also make employers more attractive in the hiring market. Many times, a job applicant will be torn between two job offers but be swayed by one because it offers more generous benefits.

Advantages for employers

Employers, in turn, find that by offering benefits, they can attract and keep talented employees. They find that benefits increase morale among workers.

The extent to which a company offers benefits depends on many factors. One is the level at which a company needs to compete in the marketplace. Another is how much it can afford to pay in benefits. A third is its position in the lifecycle—startup companies generally offer very little in benefits, while established companies generally offer many. Companies in decline often trim back their benefits to save money, which can accelerate their decline as they lose employees.

Who pays for benefits?

Employee benefits may be paid for entirely by the company or by a combination of employer contributions and employee contributions. In some cases, they are subsidized partly or wholly by a third party. Employee contributions are typically deducted from paychecks. The amount that employees contribute can depend on many factors, such as the health of the company, the cost of the benefits in the marketplace, and whether the benefits are subsidized by a third party.

For public sector benefits, employer contributions are paid for through tax dollars, since, by definition, the state or federal government is the employer. Benefits may be expanded or curtailed based upon the budget health of the state or, sometimes, political policy.

Some benefits, such as flexible scheduling, may cost nothing at all but still improve worker productivity.

Benefits are either mandated or optional.

Mandated benefits

Mandated benefits are required by law. Most of them are state or federal programs that employers participate in. Common ones include:

• Social Security
• Workers’ compensation
• Unemployment insurance

Optional benefits

Optional benefits are those that employers choose to offer their employees. The actual types of benefits are nearly limitless and may include very specialized ones that are unique to a company. But several are common to find among employers:

• Paid leave/vacation
• Health insurance
• Retirement plans
• Life insurance
• Disability insurance