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Businesses all have to prepare budgets to forecast and track income and expenses. Standard accounting and budget practices usually require that you provide enough detail about expenses for an auditor to determine the purpose of the expense. An organization with paid staff shows the cost of employee payments in two separate line items: salary payments and employee benefits, or fringes.
In a budget that has personnel or paid staff, fringe benefits include your costs for mandatory fees and taxes required by state and federal laws. If your organization provides insurance, retirement plan contributions or tuition reimbursement, include these expenses in fringe benefits. If the employer and the employee share the cost of an item, such as health insurance payments, include only the employer-paid portion in your budget. In some budgeting scenarios, you can present fringe benefits as a flat percentage that totals all applicable expenses. In most cases, you must show enough detail the budget’s recipient or auditors to identify the actual cost of each expense that you assign to fringe benefits.
Federal Fringe Benefits
The federal government fringe benefits include Social Security taxes paid by the employer on behalf of each employee. The Social Security Administration sets the percentage that the employer must take from each employee, based on earnings and the employer’s contribution. List this this expense under Federal Insurance Contributions Act, or FICA. Calculate this amount in dollars by using the percentage rate as the multiplier.
State Fringe Benefits
Each state has tax requirements, employer contributions to unemployment and fees that cover certain employee costs such as workers' compensation benefits for injured personnel. The state labor department normally informs you of the amount due each reporting period. Your costs may be a flat fee per employee or a percentage of employees' earnings. List these expenses separately and show the fee or percentage rate used to calculate your dollar amount for all salaries covered.
Voluntary Benefits and Perks
Life insurance, retirement plans, tuition reimbursement, company provided uniforms, equipment, automobiles, cell phones, gym memberships and disability insurance are typical costs that businesses and organizations count in fringe benefits. Depending on the structure and type of budget, you may also include paid leave for vacations, sick days or personal time, when it is not included in the employee salary expense. Larger businesses often have additional voluntary fringe benefits for executives. These fringe benefits may include employee incentives such as vacation packages, stocks and leased lodgings that the employer provides. The litmus test for expanded fringe benefits is whether the employee receives something of value in addition to normal salary payments, for which cost the employer is responsible.
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- Internal Revenue Service. "Publication 15-B (2020), Employer's Tax Guide to Fringe Benefits." Accessed August 21, 2020.
- Internal Revenue Service. "Publication 5137, Fringe Benefits Guide," Page 46. Accessed August 21, 2020.
Carol Luther has more than 25 years of business, technology, and freelance writing experience. She has held leadership roles in higher education management, international development, adult education, vocational education, and small business support programs