Employment Fringe Benefits

Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as, “a person in the service of another under any contract of hire, express or implied, oral or written where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed”.

An employer is a person in an organization that hires people to perform work in exchange for compensation, which is usually in the form of wages or a salary. Most countries do adopt legislation governing relationships between employers and the people they hire. Employers maintain control over the productive base of capital and of any intellectual property created by their workers. The IRS employees are subjected to the Standards of Ethical Conduct.

The Relationship between an employer and an employee

An employer’s power over his employees is exhibited through various factors, the most influential being the nature of the contractual relationship between the two. It also includes three significant factors including interests, control and motivation which the affect relationship between the two. Employer and managerial control within an organization rests at many levels and has important implications for staff and productivity alike, with control forming the fundamental link between desired outcomes and actual processes.

Employee benefits

Employee benefits can be broadly classified into mainstream benefits or the basic benefits and the fringe benefits. The mainstream benefits includes housing (provided or paid by the employer), salary, group insurance, disability income protection, retirement benefits, daycare, tuition reimbursement, sick leave, vacation, providing meals at a nominal rate, social security, profit sharing, funding of educational expenses and other specialized benefits. The purpose of the employee benefits is to increase the economic security of the employees.

Fringe benefits

Fringe benefits are generally included in an employee’s gross income with some exceptions. The benefits are subject to income tax withholding and employment taxes. Fringe benefits include cars and flights that the employer may provide, free or discounted flights, vacations, discounts on property, membership in clubs and tickets to entertainment or sporting events. Apart from this there are also other special rules that employers and employees should adhere to use to value certain fringe benefits

In India the fringe taxable benefits were abolished in 2009. In a number of countries like Australia, Pakistan and New Zealand the fringe benefits are subject to the Fringe Benefits Tax (FBT) which applies to most fringe benefits, although not all.

Questions:

• What are employment fringe benefits?
• Explain the relationship between an employer and an employee?