While non-financial benefits such as fringe benefits from employers can be appealing, it’s beneficial to understand some of the generally less considered aspects before making the decision that is right for you and your situation.
While it might seem good sense to take advantage of these perks, often this can come at the expense of real wage growth in terms of your take home pay as generally employers will be less inclined to pay higher wages if they’re already reimbursing you in other ways.
Many employers provide fringe benefits to their employees. Fringe benefits attract a tax paid for by employers, while you as a worker do not pay tax on a fringe benefit you receive. These are non-monetary benefits usually offered as compensation for (i.e., instead of) real wages or salaries. Some fringe benefits do have a limited or restricted kind of monetary value. For example, salary packaging might allow you to reduce your taxable income by portioning some of your wages onto a particular debit card, use a certain amount of pre-tax income for particular purposes, or to make salary sacrificed contributions to superannuation before tax. Doing this does however potentially reduce the amount of money you can borrow and might mean that you have less accessible accumulated savings.
Salary sacrificing is a popular strategy for attracting and retaining workers in industries where wages are relatively low such as the care industry (which is also staffed predominantly by women and is therefore historically and typically undervalued).1 Inadequate government funding means that employers use this strategy to appeal to prospective employees and keep current workers. Research however, has suggested that the impact of salary sacrificing on worker retention is limited and that offering non-financial benefits to workers can paradoxically erode the value of that work by perpetuating the notion that workers in such fields don’t or shouldn’t ‘need’ money due to the intrinsic worth they derive from working in a caring role (which typifies perceptions of many female dominated industries).1
Fringe benefits tend to be more valuable to workers on higher salaries than for workers on lower salaries, so reducing your taxable income by agreeing with your employer to take fringe benefits in lieu of money might not be very helpful if you are on a relatively lower salary.
This also highlights how fringe benefits might perpetuate the inequitable gender divide between men and women as the gender pay gap consistently shows that women tend to earn less than men and retire with considerably less saving and superannuation. While salary sacrificing can be used to make additional superannuation contributions before tax, this growth in super needs to be considered against a reduced take home salary as well as the ways in which your superannuation is invested and for how long.
Fringe benefits can take many forms and are provided by employers for several purposes often generally around attraction and retention of employees and to enhance work engagement in some way.2 Most, if not all fringe benefits are beneficial to employers by enhancing employee productivity, commitment, time on premises, and morale. Some fringe benefits incentivise particular behaviours. For example, providing access to a gym or gaining additional qualifications and skills through education or training. Fringe benefits encourage valued employees to remain with the same employer and can make the workplace more attractive to new employees. Fringe benefits can also create the perception that an employer ‘cares’ about their workers. Fringe benefits have also been argued to make up for various negative job characteristics,3 such as long hours, demanding roles, or burdensome travel.
Some fringe benefits provide little to no benefit to workers. For example, employer-provided computers, phones, personal protective equipment, or other items that are completely or mostly used for work purposes.
These provide benefits to employers in terms of productivity and revenue which the employer is taxed via tax paid on higher profits and the benefits should not be included in an employee’s taxable income.4 Free or low-cost before-tax parking is another common benefit offered by employers, however lower wages overall can be the draw-back especially when employers own the parking spaces.5
Other fringe benefits do provide greater value for workers and relatively less benefit to employers. A company car that can be used for private use, for example. Such benefits are provided by employers as compensation (i.e., in lieu of real money). It has been argued that such benefits should be taxed at the same rate as the workers’ income otherwise workers are incentivised to choose non-monetary compensation for their work and employers are encouraged to provide non-monetary benefits in place of wages.4 This results in workers being undervalued and ultimately paid less. Unless fringe benefits provided by employers attract an appropriate level of tax, remuneration for workers can be redirected away from real wage and salary growth and towards non-monetary benefits.6
While fringe benefits can be an appealing addition to your remuneration package, it is important to carefully evaluate their long-term value in relation to direct monetary compensation. While they may offer tax advantages or appeal in terms of work-life balance, such benefits often come at the expense of take-home pay and may disproportionately benefit higher earners. Additionally, fringe benefits, especially those used to attract and retain workers in lower-paid industries, can inadvertently perpetuate gender pay disparities and reduce the perceived value of workers’ labour. When deciding whether to accept non-financial benefits, it is crucial to weigh their immediate advantages against the potential impact on future financial security, career growth, and wage progression. A well-rounded understanding of both the benefits and limitations of fringe benefits can help individuals make more informed decisions that better align with your personal and financial goals.
Associate Professor Micah DJ Peters PhD is the Director of the ANMF National Policy Research Unit (Federal Office) based in the Rosemary Bryant AO Research Centre, Clinical and Health Sciences, University of South Australia.
Dr Fiona Macdonald is the Acting Director of the Australia Institute’s Centre for Future Work as well as Policy Director, Industrial and Social.
References
1. Charlesworth S and Marshall H. Sacrificing workers? International Journal of Public Sector Management 2011; 24: 673-683. DOI: 10.1108/09513551111172495.
2. Collard D, Godwin M and Hudson J. The provision of company benefits in the UK. Journal of Business Finance and Accounting 2005; 32: 1397-1421. Review. DOI: 10.1111/j.0306-686X.2005.00633.x.
3. Van Ommeren J, Van Der Vlist A and Nijkamp P. Transport-related fringe benefits: implications for moving and the journey to work. Journal of Regional Science 2006; 46: 493-506. DOI: https://doi.org/10.1111/j.1467-9787.2006.00448.x.
4. Voßmerbäumer J. Incentive effects and the income tax treatment of employer-provided workplace benefits. Review of Managerial Science 2013; 7: 61-84. DOI: 10.1007/s11846-011-0074-5.
5. Tscharaktschiew S and Reimann F. On employer-paid parking and parking (cash-out) policy: A formal synthesis of different perspectives. Transport Policy 2021; 110: 499-516. DOI: https://doi.org/10.1016/j.tranpol.2021.07.002.
6. Butler C and Calcott P. Optimal fringe benefit taxes: the implications of business use. International Tax and Public Finance 2018; 25: 654-672. DOI: 10.1007/s10797-017-9469-9.
