Employee Benefit - United States

United States

Employee benefits in the United States might include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans; legal assistance plans; adoption assistance; child care benefits and transportation benefits. Benefits may also include formal or informal employee discount programs that grant workers access to specialized offerings from local and regional vendors (e.g., movies and theme park tickets, wellness programs, discounted shopping, hotels and resorts, and so on). Companies who offer these types of work-life perqs seek to raise employee satisfaction, corporate loyalty, and worker retention by providing valuable benefits that go beyond a base salary figure.

Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage up to US$50,000) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax in the United States. Some function as tax shelters (for example, flexible spending, 401(k) or 403(b) accounts). Fringe benefits are also thought of as the costs of keeping employees other than salary. These benefit rates are typically calculated using fixed percentages that vary depending on the employee’s classification and often change from year to year.

Normally, employer-provided benefits are tax-deductible to the employer and non-taxable to the employee. The exception to the general rule includes certain executive benefits (e.g. golden handshake and golden parachute plans).

American corporations may also offer cafeteria plans to their employees. These plans would offer a menu and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by the employees is deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the Federal Insurance Contributions Act tax (FICA), such as 401(k) and 403(b) contributions; however, health premiums, some life premiums, and contributions to flexible spending accounts are exempt from FICA.

If certain conditions are met, employer provided meals and lodging may be excluded from an employee's gross income. If meals are furnished (1) by the employer; (2) for the employer's convenience; and (3) provided on the business premises of the employer they may be excluded from the employee's gross income per section 119(a). In addition, lodging furnished by the employer for its convenience on the business premise of the employer (which the employee is required to accept as a condition of employment) is also excluded from gross income. Importantly, section 119(a) only applies to meals or lodging furnished "in kind." Therefore, cash allowances for meals or lodging received by an employee are included in gross income.

The term "fringe benefits" was coined by the War Labor Board during World War II to describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.

Employee benefits provided through ERISA are not subject to state-level insurance regulation like most insurance contracts, but employee benefit products provided through insurance contracts are regulated at the state level. However, ERISA does not generally apply to plans by governmental entities, churches for their employees, and some other situations.