The difference between raising wages versus adding fringe benefits. 

June 23, 2022

With inflation on the rise many people are looking to get the most out of their jobs. This can be through a raise or through adding fringe benefits.

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With inflation on the rise many people are looking to get the most out of their jobs. This can be through a raise or through adding fringe benefits. While both are a valuable asset to employees, fringe benefits may be even more impactful than an increase in wages. Fringe benefits include items such as compensated meals, and benefits including health, eye and dental insurance. Fringe benefits not only are impactful for employees but also for employers. 

What is the main advantage of a fringe benefit for an employee?

Fringe benefits are beneficial for employers and employees alike. These are just a few ways fringe benefits can be impactful for both parties. 

Employee Acquisition
Offering benefits helps with talent acquisition! The more perks your company has will help employees choose YOUR company over others. This can range from health care to paid time off to free soda and snacks in the office. These things all matter to future employees. 

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Employee Retention
If employees are happy in their position and the fringe benefits are the extra cherry on top this contributes greatly to employee retention. Fringe benefits should be reflective of employees needs and as those needs change sometimes fringe benefits will need to as well. 

Positive Employee Experience
Fringe benefits may actually help employees love their job and alleviate symptoms of burnout and stress. Health care, financial security, and money toward retirement improves employee experience while giving them peace of mind. 

What are fringe benefits?

Now that we understand the positives of fringe benefits, what are fringe benefits? Let’s dive into the specifics of what a fringe benefit might look like. 

  • Fringe benefits are an extra benefit that supplements an employee salary. This can include meals, health insurance, a company car and more:
  • Common fringe benefits include health insurance (health, eye and dental), retirement plans (401k’s and Roth IRA’s), worker’s compensation and family medical leave
  • Fringe benefits usually are not included as part of an employee’s gross income for the year. This is why fringe benefits may be more impactful than raising wages to many employees.
Related:  Small Business Taxes

What are the disadvantages of fringe benefits? How can raising wages become a disadvantage?

Both fringe benefits and raising wages pose an expense to employers. While large corporations may not have the same financial restrictions both of these affect small businesses. 

Small businesses may not have the income to substantially increase wages. Additionally, healthcare is expensive and it is difficult for a small business to offer these benefits without a substantial fiscal cost to them. This can be up to $7000 to insure a single employee every year and up to $20,000 for family coverage for the year.

What are the benefits of higher wages for employees?

Similar to fringe benefits, higher wages acts as a powerful incentive for many employees. 

Wages that are above the market rate can help with employee retention and acquisition. If there are not similar opportunities elsewhere it will motivate employees to apply and continue working for your company. 

There has even been research done that shows a positive trend between productivity and wage increases. Happy employees are productive ones and high wages positively impacts all of that.

How can raising wages become a disadvantage?

 Lastly, there are disadvantages to raising wages. Increasing wages effectively causes inflation to rise. Higher wages means an increase in the cost of producing goods and services. 

For companies to cover wage increases the costs of their goods and services will also increase. If the customer base does not want to pay more for the product this could actually detriment the business and customers could go to a competitor for cheaper prices. These increases are necessary in order to uphold the same level of profitability but can negatively impact the business itself. 

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This is why before you decide to increase wages, look at fringe benefits as a better and more sustainable option for your company. 

Related:  Employee Classification: How to Properly Classify and Avoid Misclassification penalities

What is the overall benefit for using fringe benefits over raising wages?

Fringe benefits can be just as impactful, if not more so, than raising wages. Fringe benefits aid in a company’s motivation, recruiting and keeping high caliber employees within their company. Skilled or specialized employees can work anywhere they want and having amazing fringe benefits will help draw them to your company and retain them. 

Fringe Benefits and More, Journey Payroll & HR is here to Support your Business

From payroll services to human resources to time clocks Journey Payroll & HR services to keep your business running smoothly. Similar to fringe benefits, having these services in place will help your business grow and keep employees satisfied. Whether you’re a new business or an older one looking for a change we are here to help. Contact Journey Payroll & HR today to hear more about the services we offer. We are excited to work with you!

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