With that in mind, as well as the competitive labor market, employers and employees alike are keen to negotiate competitive benefits packages that can act to offset lower salaries with tax-exempt perks.
Nearly every business has explored or offers some form of Health Savings Account (HSA) or Flexible Savings Account (FSA) to its employees if possible, but those are just the tip of the iceberg when it comes to the possibilities for tax-exempt compensation. Here are five other great tax-exempt employee benefits that any business can use to attract and retain top job candidates while saving money for both parties.
#1) Education Assistance
High-performing employees are just that because they continue to learn and grow in their positions. Offering educational assistance to these candidates is one of the best ways to keep these high flyers motivated. In a 2014 survey conducted by Glassdoor.com, 63 percent of employees surveyed cited “earning new skills or receiving special training” as the most important factor for advancing their careers.
Not only is continuing education a benefit to employees, but it also provides the employer with someone who will use new skills and information to step into additional roles in the workplace, providing the benefit of a better-equipped workforce without the expense of hiring a new or more educated employee.
So what's the tax burden? Educational assistance is tax-exempt for up to $5,250 worth of benefits per employee each year. To make the benefit have the greatest financial impact for the employer, one option is to hire a junior employee who shows promise but lacks experience, at a lower salary than a more experienced candidate would command, and pay to have that employee receive more advanced training. The employee will appreciate the training and the chance to prove himself or herself, and the employer will nab a great candidate for less than usual.
#2) Transportation Benefits
Since commuting expenses incurred by employees travelling to and from work are not themselves tax-deductible, providing pre-tax transportation benefits to employees is a welcomed form of compensation for many. While some cities have recently rolled out laws requiring some employers to offer this benefit, for most it remains an optional way for employees to enjoy $255 each month as tax-excluded income to go towards eligible expenses, such as public transportation, parking and commuter vehicles.
#3) Frequent Flier Miles
The IRS allows frequent flier miles to be excluded from taxable income. For employees required to travel frequently for business, this exclusion can add up to free personal travel. How? Employers can allow employees to purchase plane tickets on personal credit cards and then reimburse those expenses. This keeps the bill where it belongs, with the employer, but leaves the employee with the frequent flier miles he or she accumulates as a result of work-related travel. The result? An excellent perk for employees who enjoy personal travel at no expense to the employer.
#4) Achievement Awards
According to a 2014 survey of employees by the American Psychological Association, only half of the men and women making up the workforce in the United States feel valued at work. This is unfortunate when one considers the fact that positive recognition alone has been shown to boost both employee engagement and happiness almost across the board.
Rewarding employees with awards worth up to $1,600 per employee annually can be tax-deductible for employers. The catch? Eligible awards must meet IRS guidelines designed to ensure that highly compensated employees are not favored in the recognition process. Otherwise the cost of the award is only deductible by employers for up to $400 per employee awarded.
#5) Cell Phones
As of 2011, employer-provided cell phones and employee reimbursement for business use of personal cell phones is tax-free. However, the phones must be for business use and the employer must not make any burdensome record-keeping requirements for the employee. For employees who have become accustomed to providing a personal phone number to clients, co-workers or other business contacts or those who use personal data or minute limits for work-related correspondence or tasks, this benefit will be seen as a welcome way to reduce personal expenses.
There are so many unique employee benefits that can make it easier to attract and retain great candidates, and the best ones are those that don’t increase your tax burden. To talk more about creative ways to provide great tax-exempt employee benefits to your employees, please contact us.