Big companies offer incentives to attract and retain top talent. Often, at a small company, you are unable to offer the same benefits, but you can offer valuable incentives to keep your company competitive. In addition to health coverage and retirement plans, the list below outlines desirable – yet relatively inexpensive – benefits you can offer your employees. Plus, while employees receive the benefits on a tax-free or tax-deferred basis, you get to deduct your costs, too.
You can provide cell phones as a non-taxable benefit to your employees, as long as it's for “non-compensatory” reasons, which means the phones are not rewards or inducements for employment. Cell phones are considered tax-free if:
- You need to contact the employee for work-related emergencies or issues at all times.
- The employee needs to be available to speak with clients when they are away from the office.
- Employees need to speak with clients located in other time zones outside of their normal work day.
If there is a reason to provide the phone to employees other than simply additional compensation, any personal calls they make are viewed as a de minimis (minimal) fringe benefit, so they are ignored for tax purposes.
The offer for cell phones also extends to purchasing apps on the phone, if the apps support the employee's productivity or communication needs.
Help your employees pay for parking costs on your premises or at commuter stations. Or, pay for transit passes for buses, subways, and trains. Pay their costs up to set dollar limits, which can change annually.
If you can’t afford to pay for monthly transit passes, you can arrange for a pre-tax basis for employees. The cost to pay for passes ($130/month for transit and $250/month for parking in 2014) is not taxable to them.
Many large companies have tuition assistance programs for college or graduate degrees. While small companies typically can't afford to offer such programs, they can offer to support skills development programs. For example, pay for an employee to take a particular online course to learn a new computer skill. Your employees appreciate it, and your company benefits from the employee's improved skills.
Offer your company's goods or services to employees at a reduced price. The employee's savings or discount is not taxable. The tax law fixes limits on the amount of discounts you can offer. For example, up to 20% of the fees you charge customers for your services (different amounts for merchandise).
Flexible Spending Accounts
A flexible spending account (FSA) supports health care plans and augments deductibles or out-of-pocket expenses. These arrangements allow employees to pay for certain expenses on a pre-tax basis. You don’t have to make contributions to employees' accounts; your only expense is administrative costs. Set up FSAs for:
- Medical costs (check tax laws for limits which are set annually). Funds in these FSAs can be used to pay for medical costs not covered by insurance.
- Family care expenses (check tax laws for limits and exclusions).
To learn more about taxes and fringe benefits, see IRS Publication 15-B, or just give us a call. We can help you determine which benefits your employees value and assess what you can afford to provide. Providing benefits is a good business strategy for recruiting and retaining employees while providing tax breaks for all.