Employee benefits are critical: 63 percent of respondents to the Society for Human Resource Management’s (SHRM) 2015 Job Satisfaction and Engagement Report described benefits as very important to job satisfaction.
Considering today’s increasingly competitive job market, employers need to step up their benefits game to hold on to their top performers. But fringe benefits like food, transportation and fitness memberships aren’t cheap, and putting them on your benefits list can quickly add up.
Fortunately, some of the benefits employees want most are tax-exempt, helping businesses from both an HR and financial standpoint. Here are some of the employee benefits workers want and how they are viewed by the IRS:
Health savings accounts
Healthcare costs are rising, and employers and their employees are feeling the strain. To cover these costs, health savings accounts are becoming more and more popular. In fact, SHRM’s 2015 Employee Strategic Benefits research report found that 48 percent of employer-respondents offered consumer-directed health plans, including health savings accounts and health-reimbursement arrangements, to control healthcare costs.
This benefit is a win-win for employers and employees alike.
For employers, contributions to health savings accounts are tax-free, up to the qualified limit. In addition to saving on taxes, a business that gives employees more control over and responsibility for their healthcare costs saves money for the organization. So much so that respondents of the SHRM benefits report rated consumer-directed health plans as the most successful way to help control healthcare costs.
From the employee end, contributions to health savings accounts are tax-deductible, and interest accrued in the accounts is also tax-free. Employees keep these accounts if they change jobs, and unused money in their accounts builds up year after year.
Health savings accounts are an extremely attractive benefit, and 45 percent of those enrolled in consumer directed health plans in 2014 said they were extremely or very satisfied with their plans, according to a survey from the Employee Benefit Research Institute.
The best employees don’t want to stay stagnant -- they want to keep learning so they can move forward in their careers. Glassdoor’s 2014 Employment Confidence Survey of nearly 1,000 U.S. employees found that 63 percent of employees surveyed considered learning new skills or receiving special training as the most important factor for advancing their careers.
And when employees are constantly learning and growing, they’re more engaged and use their new skills to take on more responsibilities that benefit the business overall.
Education and development opportunities are beneficial to everyone, and employers can help, at a low cost. Educational assistance is tax-exempt up to $5,250 worth of benefits each year. Tuition reduction is exempt for undergraduate education or graduate education if the employee performs teaching or research activities.
So, the bottom line here is, invest in employee benefits that boost education. This benefit will keep employees engaged, develop stronger workers and offer a nice tax benefit.
For many, the commute is the most stressful part of the workday, and employees who drive to work every day feel the most anxiety. Compared to walking and public transportation, driving was the most stressful mode of commuting, according to a 2015 study published in Transportation Research.
To help relieve the burden of commuting, the New York City Transit Ordinance went into effect this year, requiring businesses inside and outside the city, with 20 or more full-time employees, to offer pre-tax commuter benefits. Although these benefits aren’t required in most cities, providing them can save employers and employees money and improve job satisfaction.
Commuter benefits are also tax-free transportation fringe benefits, not wage or salary compensation, so payroll taxes don’t apply. And allowing employees to reserve income on a pre-tax basis saves money on payroll taxes. Employees save money, as well, with a maximum monthly tax exclusion of $255 per month for commuter vehicles, public transit passes and qualified parking benefits.
Employees don’t feel valued at work. In fact, only half of the U.S. workforce report feeling valued by their employers, according to a 2014 survey of 823 employees, by the American Psychological Association. Yet a little recognition can go a long way.
In the 2015 Employee Recognition Report by the Society for Human Resource Management and Globoforce, 90 percent of HR professionals surveyed said recognition programs positively impacted engagement, and 86 percent said these programs increased employee happiness.
So, use achievement awards to recognize and help employees feel valued. The IRS classifies these employee benefits as awards given to recognize length of service or a safety achievement. Better yet, if your achievement awards are part of a “qualified plan” -- one that follows IRS guidelines to ensure that highly compensated employees are not favored -- your deduction limit is four times as much.
Employers can deduct the costs of these employee benefits up to $400 per employee for nonqualified awards, and a total $1,600 per employee for both qualified and nonqualified plan awards.
And, after all, who among us doesn't deserve a little recognition now and then?
Which tax-exempt employee benefits do you offer? Share in the comments below!