Your vision, your experience and your unique insights are what brought your business to life. But let’s be honest, here. It’s the hard work, endeavour, skills and inimitable personalities of your employees that help your business to grow from strength to strength. The ability to recruit and retain top-tier employees is a crucial part of your long-term success.
While candidates may be attracted to your brand identity and feel that your mission statement resonates with them, they also (quite rightly) expect to be well compensated for their efforts. And this means more than just financial remuneration. Top-tier employees will also expect certain fringe benefits. It’s your company’s responsibility to ensure they are properly accounted for and factored into your financial reporting to ensure healthy cash flow.
What are fringe benefits?
Fringe benefits are perks outside of financial compensation that companies offer their employees. These include benefits that are mandatory (core benefits) such as access to a pension scheme, as well as other perks like company cars, free meals, subsidised gym memberships, etc.
Why are fringe benefits important?
Because these benefits are conducive to employee wellbeing (personal, physical and financial), they help to ensure a happy, healthy and loyal workforce and aid employee productivity while also boosting retention. Fringe benefits are also used as a point of differentiation between one company and its competitors. So that the company can make itself more appealing to great candidates at the expense of competing businesses.
Compulsory and non-compulsory fringe benefits
In the US, companies are required to provide compulsory fringe benefits like worker’s comp and health insurance. Thankfully, we live (and work) in a country with universal healthcare. However, some companies offer private healthcare via a provider like BUPA as a fringe benefit.
Nonetheless, there are still certain fringe benefits that companies in the UK are required, by law, to provide for their employees.
A minimum of 28 days (5.6 weeks) holiday allowance per year
Access to a pension scheme
Access to Statutory Sick Pay
Other fringe benefits are added at the employer’s discretion. Some common examples include:
Access to company vehicles
Subsidised membership to gyms or wellness programmes
Life insurance policies
Paid overtime and additional paid holidays
Childcare vouchers / facilities
Dental care plans
Employee referral bonuses
Accounting for fringe benefits
As you can imagine, there’s something of a balancing act to be found when it comes to fringe benefits. The more you include, the more likely you are to attract great employees who can take your business to the next level. At the same time, however, the expense incurred by providing fringe benefits can impinge on your profitability.
The good news is that many fringe benefits are direct costs, meaning that they can be calculated in an easy and comprehensive way. This means you can specifically allocate funds to them while maintaining visibility of your cash flow. What’s more, all costs incurred providing fringe benefits are tax-deductible so their impact on your profits will be taken into account by HMRC. Accounting for fringe benefits properly will ensure that you are not overtaxed.
Of course, it’s important to remain proactive in accounting for these fringe benefits and to retain receipts for benefits where necessary (e.g. for petrol and food costs).
We can help
If you’re interested in finding out more about fringe benefits and how to incorporate them into your accounting, or any other aspect of your business finances, then get in touch with our financial experts.