A:

Almost any non-salary benefit provided by an employer to an employee is considered a "fringe" benefit.

These benefits can include insurance, a company car, or employee discount, etc. While there are some exceptions, fringe benefits are usually a direct cost to the business in terms of accounting as long as they are allocable to direct labor on a consistent basis.

A direct cost is broadly defined as any cost that can be assigned to a specific item in an accurate way, such as wages, materials, supplies, consulting services and fringe benefits. Indirect costs are simply considered any costs that are not direct. By examining different types of common fringe benefits, you should be able to see that most of these benefits incur costs that can be directly and specifically allocated.

Common fringe benefits include group-term life insurance coverage and educational assistance, which employers in the United States can offer tax-free to an employee up to a certain annual limit. Food and athletic programs/facilities are also common fringe benefits and are both relatively easy to account for and assign to a specific program.

In circumstances where a benefit is difficult to assign to a particular project or program, it may be necessary to it as an indirect cost, though this is rare. Fringe benefits for administrative and clerical staff, for instance, might be classified as indirect costs.

Costs incurred for the same purpose should be treated consistently. When the cost of a particular fringe benefit is considered direct, any like cost thereafter must be considered the same.

RELATED FAQS
  1. How are an employee's fringe benefits taxed?

    Discover how receiving fringe benefits can increase total compensation for employees and how it is important to understand ... Read Answer >>
  2. What types of companies usually offer fringe benefits?

    Learn what types and sizes of companies typically offer fringe benefits to employees in an effort to recruit as well as retain ... Read Answer >>
  3. Are fringe benefits deductible for the employer?

    Learn how the IRS treats the taxation of fringe benefits provided by an employer to employees, contractors, partners and ... Read Answer >>
  4. How do fringe benefits help increase employee retention?

    Offering fringe benefits can be a valuable retention tool for employers wanting to maintain a high-quality, highly productive ... Read Answer >>
  5. What incentives does an employer have in offering fringe benefits?

    Learn how offering fringe benefits is a powerful business tool for employers to attract and retain quality employees while ... Read Answer >>
Related Articles
  1. Managing Wealth

    The Surprising Salaries Of Fringe Sports Stars

    You don't have to aspire to play in the NFL, NBA or MLB if you want to make a living playing sports. Find out the compensation for the top athletes in these lesser-known sports.
  2. Retirement

    This Is Why Your Employer Should Offer a 401(k)

    Understand the unique benefits that come with a small business offering a retirement savings plan such as a 401(k) to current and future employees.
  3. Insurance

    Take Advantage Of Employer-Sponsored LTC Insurance

    Find out why 98% of employees are missing out on some great benefits.
  4. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  5. Retirement

    How Social Security Benefits Are Estimated & Taxed

    The Social Security check you'll get depends on your work history, when you start claiming a benefit and these other factors.
  6. Financial Advisor

    How Linked Benefit Insurance Policies Work

    Linked benefit policies can be a viable alternative to traditional long-term care insurance. Here's how they work.
  7. Financial Advisor

    How to Navigate Social Security Claiming Changes

    A look at the changes to rules for claiming Social Security retirement benefits and what advisors need to consider to help clients navigate them.
  8. Personal Finance

    How You Can Save Money by Maximizing Work Benefits

    Understanding and maximizing company benefits can save you money.
  9. Financial Advisor

    Making Social Security Work for Client Couples

    What are the best ways to advise client couples when it comes to filing for social security? Here are some strategies.
  10. Managing Wealth

    Can't Get A Raise? Negotiate Your Benefits

    There are many ways your employer can make your job more pleasant, even when money is tight.
RELATED TERMS
  1. IRS Publication 15-B - Employer's Tax Guide to Fringe Benefits

    A document published by the Internal Revenue Service that provides ...
  2. Fringe Benefits

    Fringe benefits are additional compensation provided to an employee ...
  3. IRS Publication 525 - Taxable And Nontaxable Income

    A document published by the Internal Revenue Service (IRS) detailing ...
  4. Employment Cost Index - ECI

    A quarterly report from the U.S. Department of Labor that measures ...
  5. Cost Of Labor

    The sum of all wages paid to employees, as well as the cost of ...
  6. Benefit Allowance

    In place of group health insurance, employers might offer a benefit ...
Hot Definitions
  1. Bubble

    1. An economic cycle characterized by rapid expansion followed by a contraction. 2. A surge in equity prices, often more ...
  2. Swap

    A swap is a derivative contract through which two parties exchange financial instruments, such as interest rates, commodities, ...
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  6. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
Trading Center