What are employee benefits?
In addition to a regular salary, a company may offer employees additional benefits. Find out what employee benefits are and how to manage them effectively.
According to International Financial Reporting Standards (IFRS), the unified accounting principles used in many countries, employee benefits are all forms of compensation offered by an entity in exchange for work performed by employees. In other words, employee benefits is a broad term that includes various forms of payment for work.
Employee benefits include, among others:
short-term employee benefits – including salary, social security contributions, paid vacation and paid sick leave, profit sharing, and bonuses;
non-monetary benefits – medical care, housing opportunities/company housing, company car/equipment, and other free or subsidized goods or services offered to employees (access to benefits programs, membership cards, passes, etc.);
post-employment benefits – employee pension and other retirement benefits ( including pension life insurance, retiree health care);
other long-term employee benefits – among others, seniority leave, study leave, jubilee awards, long-term disability benefits, profit sharing (dividends), bonuses and others;
termination benefits – severance pay, among others.
Accounting for each type of benefit is governed by separate regulations and is handled by the accounting department. We will focus on non-cash benefits, which can be managed by the HR department.
Employee benefits are all the perks that a company offers to an employee. The wider the range of benefits, the greater the interest in a particular job offer will be. That means, employee benefits are important motivational factors that contribute to, firstly, employer branding, and, secondly, affect employee satisfaction.
Employers offer benefits to employees for three reasons.
Number one is the law – some employee benefits are a legal obligation for the employer. These will include all benefits related to pension rights, those related to vacation policy and the settlement of sick, disability, and other benefits, as well as those arising from employment law (including the need to provide protective or work clothing, cover the cost of employee examinations, provide restorative meals, etc.).
The second reason for offering employee benefits by the company is the need to build the employer's brand and the desire to hire the best talent. Employment law does not regulate the granting of non-mandatory benefits and the employer is free to decide on them. Thus, they can become a magnet to attract job candidates and an effective tool to fight the competition.
The third reason why employers offer benefits is the willingness to retain current employees in the company. Benefits are a way to maintain a sufficiently high level of satisfaction in the team and reduce employee turnover.
Employee non-wage benefits are becoming the norm these days. However, there is no perfect benefit, suitable for everyone. There are no „best employee benefits”. It is also not worth sticking to schemes, as younger and more digitized generations are entering the job market. With this in mind, it is better to follow the trends and include in the benefits offer items that provide freedom of choice and are maintenance-free, such as instead of a voucher to a specific store – a payment card with a specific amount to spend.
The most popular benefits packages offered by employers in various industries may include:
private medical care, including access to specialized facilities such as dental care;
insurance plans for the employee and their family;
pension plans and programs;
sick days (in addition to the legal entitlement), menstrual leave;
psychological care – for the sake of mental well-being and prevention of burnout;
flexibility of work organization, including flexible hours or workation, i.e. working from anywhere on Earth;
access to benefits systems;
car sharing or free transportation to/from the workplace;
a company nanny or a subsidized nursery/pre-school
the opportunity to bring a pet friend to work and provide veterinary care for the pet;
employee support programs, such as support for an employee's private initiatives;
subsidies for development training and language courses;
a day off on birthdays;
food snacks (food, beverage) available at the office;
awards in internal competitions or Christmas gifts, etc.
The list of benefits that appear in job advertisements is not endless. It gets more and more extensive as employees' needs change.
Benefits involving expenses for the company are considered a component of the employee's compensation, so they will be accounted for and taxed, just like the employee's salary. This means that the employee will receive a paycheck minus the cost of the benefits. The employer is also required to pay tax on the rewards given. That's why many companies offer non-wage employee benefits, such as the mentioned free transport to work, food snacks, and the opportunity to bring a dog to work.
Employers are also required to create so-called employee reserves. These are related to the case when the company is obliged to pay retirement, disability, and death benefits or unused leave.
Automation! The keyword that helps HR departments manage employee benefits. First and foremost – surveying. Using the functions of the HRM system, the HR department can poll the needs of team members:
If a benefit is not popular, you may offer another solution.
Employee benefits are a way to motivate employees. They are the reason to take part in recruitment and the reason to stay on the job. They are an important part of building the employer's brand, but at the same time – they build employee satisfaction and reduce the turnover rate. Therefore, you should not underestimate their power and take them for granted in the company. An employee who is offered benefits that meet his needs is more likely to be engaged and work more efficiently.