If you’ve ever worked for a company that offers private health insurance, gym memberships, or property as part of your employment, then you’ve likely already received some form of payroll tax fringe benefits.
As a practice used by many businesses across Australia, fringe benefits are an excellent way to stay competitive, provide added value to employment and attract high-value candidates.
It’s important first to full understand what is payroll tax before diving into understanding fringe benefits tax.
As a business, you’ll need to pay fringe benefits tax (FBT) for the benefits you offer – but there are plenty of advantages to providing extras to your employees as a part of their employment package.
We take a look at what is fringe benefits tax in terms of what it can do for your business, why payroll tax fringe benefits might be the right fit for your business, and how the extra work of an FBT return is worth it for the benefits they can bring.
Read on now for all the details:
Benefit #1 Fringe Benefits Help Attract Top Talent
If you have plans to hire people at the top level of your company, you need to find the right benefits to attract them away from what your competitors and similar-level businesses have to offer.
Whether this is a highly sought-after role or there’s a specific person you’d like to hire, introducing opportunities for fringe tax benefits can be one of the ways to attract the right attention from top talent.
Fringe benefits are particularly valuable to high earners as they reduce the income tax you pay, essentially offering equivalent monetary value without the extra tax on top.
If you’re hiring for a role that’s just about an income tax bracket, fringe benefits can be a way to bring that income down without reducing overall value.
Benefit #2 Fringe Benefits Help Retain Existing Employees
Retaining star employees and ensuring the lowest turnover possible is crucial for any business, especially in industries where skilled or trained workers may be hard to come by.
Employee retention strategies often focus on providing more value and a better experience to existing staff, keeping them working in the same place for longer.
Fringe benefits can provide this added value, offering anything from in-built gym memberships to free entertainment and even childcare.
If you want to keep top-performing employees around for longer, the best way to do so is to offer something they can’t quickly get elsewhere. Such as expanding their ‘income’ without actually adding to the tax they pay.
Benefit #3 Fringe Benefits Make Your Business More Competitive
Businesses often have intense competition in their sector, whether from organisations that deliver the same service or adjacent companies that work in the same industry.
Are you concerned about losing out on talent to direct competitors or employees moving across to this business?
Fringe benefits are one of the ideal ways to make your business appear the best of the bunch.
Advertising fringe benefits from job listings can help differentiate your business and catch the eye of potential employees.
While most companies in your sector will hold similar responsibilities and equivalent pay scales, fringe benefits add to that value and say positive things about the company’s culture as a whole.
Benefit #4 Fringe Benefits Motivate Employees
Depending on the nature of the role and the company, fringe benefits may be earned over time.
Typically, earned benefits are through milestones within the company or internal promotion.
For example, a company may offer access to a company car for personal use once they reach a certain level of seniority within the business.
Fringe benefits earned over time aren’t just something for employees to work towards.
They are also benefits that motivate employees to go above and beyond, such as ensuring they pass their initial probation to receive benefits in a gym membership, entertainment services or food-related expenses as a part of their ongoing contract.
Benefit #5 Fringe Benefits Offer Employees Better Pay Without the Tax Implications
Companies hoping to attract high-value, upper management talent into their business need to consider what is attractive to top-level employees.
Beyond that, they also need to think about what is unattractive as part of an employment package.
The higher the pay, the more significant the income tax, making a high wage point less appealing than the benefits offered.
The individual pays no income tax on fringe benefits. As such, value-adding services and solutions can effectively increase salary without significant increases in taxes.
With the company taking on all necessary taxes involved in fringe benefits, potential star employees benefit from less tax while getting more for their money – a double win.
Benefit #6 Fringe Benefits Can Improve Employee Wellbeing
Fringe benefits can be a powerful and effective tool to change the culture and health of a business from the inside out.
Many of the most common options for fringe benefits can directly lead to a workplace culture that’s healthier, happier, and wellbeing-focused for employees, which can help them be more productive in the workplace day-to-day.
Some fringe benefits that can improve employee wellbeing could include access to a gym or health centre or passes to specific classes or courses to improve health.
Private health insurance can also allow employees access to faster care, improving their overall wellbeing and offering access to additional health and nutrition services as needed.
Benefit #7 Fringe Benefits Support Better Work/Life Balance
When implemented correctly, fringe benefits offer employees benefits that directly improve their lives, making them particularly valuable to job seekers in attracting the right talent.
By including benefits for employees, companies can help establish themselves as having a better work-life balance and a commitment to looking after their employees that many potential hires will consider valuable.
Examples of how fringe benefits can help work/life balance include the option for free or discounted entertainment, access to funds when living away from home for work, and even benefits that include property and accommodation on-site or close by to work.
Childcare costs and school fees are additional fringe benefits that help employees bring their lives closer to work, improving their work/life balance overall.
Benefit #8 Fringe Benefits Can Help Reduce Sick Time
Many of the fringe benefits that businesses offer are focused on employee convenience and wellbeing, providing eye-catching options that potential hires will be attracted to.
Part of retaining existing employees and proving that you value new hires is taking their health seriously, which can help reduce sick time and establish better working practices within a business.
Health-focused fringe benefits such as access to private health insurance, medical services and even on-site healthcare in some cases can help to reduce sickness while providing employees with an extra, free service as part of their perks.
By reducing sick time or infection in the workplace, employers offer a healthier, happier working environment that’s more attractive for retention and hiring.
Benefit #9 Fringe Benefits Support Employee’s Families
While some fringe benefits provided by employers are specific to usage by employees, such as company cars or certain memberships, other benefits will give value to whole families.
By offering services that support and help the families of employees and staff themselves, businesses can be highly competitive in even the most sought-after sectors.
For many employees, their choice of the workplace will be based on the decision that works best for their family.
More pay may seem like the most linear approach.
But in reality, fringe benefits such as school fees, property, childcare costs, and even family-wide private health insurance provide more while also reducing income tax paid.
This family-wide solution helps employees gain the most possible from their benefits.
Benefit #10 Fringe Benefits Improve Employee Happiness
Happy employees are productive, hard-working employees that tend to stay within a company for longer.
Employee happiness and satisfaction are crucial indicators for a business’s long-term success.
When implemented correctly, benefits can help reduce turnover and create a more positive, collaborative working environment that supports business goals and targets.
Introducing fringe benefits can help to enhance employee happiness by providing staff with what they want while also maximising their possible income after tax.
For employees on the cusp of an income tax bracket, extra benefits such as a company car or living away from home allowance are helpful.
These fringe benefits don’t contribute to additional taxes.
As a result, they are far more likely to improve satisfaction than extra pay that nudges them into the higher tax zone.
With the correct planning, fringe benefits packages can be the ideal way for businesses to add value to their employees and remain in the running in an increasingly more competitive job market.
As a powerful alternative to inflated wages, many star employees or high-earning talent will be keeping an eye out for the fringe benefits businesses can offer.
So if you’re thinking of getting into payroll tax fringe benefits, now is a better time than ever to implement that strategy.
Want to know more about payroll tax fringe benefits? Our team at Pherrus specialises in business tax of all kinds.
Whether you’re looking to attract high-value employees, or you want to understand the tax implications of fringe benefits, we’re here to help.
Get in touch with our team today to find out more.