Fringe Benefits: Meaning, Types, How They Work and Examples

  • postauthorEditorial Staff
  • postdateJune 17, 2024
  • postreadtime13 min read
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Fringe Benefits

Fringe benefits are perks or extra compensation provided to employees beyond their regular salary or wages. Common examples include health insurance, retirement plans, paid time off, life insurance, tuition assistance, and commuter benefits.

Employers offer fringe benefits to help attract, motivate, and retain talented employees. Fringe benefits can improve employee satisfaction, loyalty, and productivity.

Beyond the statutory contributions, many companies provide fringe benefits like health insurance, life insurance, travel allowances, meal vouchers, etc. The value of these benefits can range from 10-30% of the employee’s base salary, depending on the company’s policies and the employee’s level.

Also, Read: Employee Benefits in India

What Are Fringe Benefits?

Fringe benefits in India are non-wage compensations offered to employees in addition to their regular salary.

These benefits are designed to attract, retain, and motivate employees. They can include a wide range of perks such as:

  • Flexible Work Arrangements: Telecommuting, flexible schedules, job sharing, etc.
  • Employee Development: Training and education programs, professional development courses, conferences, etc.
  • Health and Wellness: Gym memberships, on-site health clinics, health insurance, etc.
  • Perks and Discounts: Employee discounts, free or discounted parking, discounts on products or services, etc.
  • Retirement Plans: Provident fund, superannuation fund, pension plans, etc.
  • Tuition Assistance: Education support for employees and their dependents.
  • Childcare: On-site childcare facilities or reimbursement for childcare expenses.
  • Transportation: Reimbursement for transportation expenses or company-provided transportation.
  • Entertainment: Reimbursement for entertainment expenses, such as meals and travel.

Related Read: Employee Benefit Expenses

How Do Fringe Benefits Work?

Here’s how fringe benefits typically work:

Fringe benefits encompass a wide range of perks and privileges provided to employees. Common examples include health insurance, retirement contributions, paid time off (such as vacation days, sick leave, and holidays), life insurance, disability insurance, tuition reimbursement, company vehicles, stock options, meal allowances, transportation allowances, and wellness programs.

Offering fringe benefits

Employers may offer fringe benefits as part of their overall compensation package. These benefits can be offered to all employees or may vary based on factors such as employee level, tenure, and performance.

Tax implications

In many countries, including India, certain fringe benefits are subject to taxation. Employers may need to report the value of fringe benefits, while employees may also be required to report certain fringe benefits as taxable income on their personal tax returns.

Employee choice and customisation

Depending on the employer’s policies, employees may have some flexibility in choosing or customising their fringe benefits. For example, employees might be given options to select from different health insurance plans or retirement savings options.

Legal compliance

Employers offering fringe benefits must comply with relevant laws and regulations governing employment and taxation. These regulations may vary by jurisdiction and can include requirements related to minimum benefit standards, reporting and disclosure, non-discrimination, and tax treatment of fringe benefits.

Communication and administration

HR departments or benefits administrators are responsible for administering fringe benefits programs, including enrollment, eligibility verification, and handling employee inquiries.

Also, Read: Company Employee Benefits

Types of Fringe Benefits

Fringe benefits can come in various categories and types. Let’s take a look at some of the different types of fringe benefits.
types of fringe benefits

1. Health and Wellness Benefits

Here’s an overview of health and wellness benefits as fringe benefits:

1.1 Health insurance

One of the most common health-related fringe benefits is health insurance coverage. Employers may offer group health insurance plans that provide coverage for medical expenses, including hospitalisation, doctor visits, prescription medications, and preventive care. In some cases, employers may cover part or all of the premium costs for employees and their dependents.

1.2 Dental and vision coverage

Dental coverage as fringe benefits can provide preventive, basic, and major dental services. Preventive services usually include routine dental exams, cleanings, and X-rays, while basic services may include fillings, extractions, and root canals. Vision coverage offers benefits for eye care services and supplies, including routine eye exams, eyeglasses, and contact lenses.

1.3 Wellness programs

Many employers offer wellness programs designed to encourage healthy behaviours and lifestyles among employees. These programs may include initiatives such as fitness classes, gym memberships, smoking cessation programs, weight loss programs, nutrition counselling, and stress management workshops.

2. Financial Benefits

Financial benefits as fringe benefits can include the following:

2.1 Paid Time Off (vacation, sick leave)

Paid time off, including vacation and sick leave, is a crucial category of fringe benefits that provides employees with time away from work while still receiving their regular pay. Vacation and sick leave benefits as fringe benefits play a crucial role in promoting work-life balance, employee well-being, and job satisfaction.

2.2 Flexible working hours and remote work

Flexible working hours allow employees to vary their start and end times, often within predefined limits set by the employer, instead of adhering to a traditional 9-to-5 schedule. Remote work, also known as telecommuting or telework, enables employees to perform their job duties from locations outside of the traditional office environment.

2.3 Parental leave (maternity, paternity)

Parental leave benefits as part of fringe benefits help support employees during significant life events such as childbirth. Maternity leave is a period of time off from work granted to mothers before and after childbirth. Paternity leave allows fathers to bond with their newborn child, provide support to their partners, and participate in caregiving responsibilities.

3. Professional Development Benefits

Employee professional development benefits play an important role as part of the fringe benefits programme. Some of them are as follows:

3.1 Education assistance and tuition reimbursement

Education assistance programs are designed to help employees cover the costs associated with furthering their education. These programs may include financial assistance, time off for studying, and access to educational resources.

On the other hand, tuition reimbursement is a specific type of education assistance where employers reimburse employees for a portion or all of the tuition expenses incurred for approved educational courses or programs.

3.2 Professional training and certification programs

As part of a fringe benefits programme, Professional Training and Certification Programs provide access to e-learning platforms, courses, and certifications allowing employees to customise their learning paths and develop skills aligned with their career goals and aspirations. Earning certifications validates employees’ expertise and adds value to the organization by improving the overall skills of the workforce.

3.3 Career development workshops and mentorship programs

Career development workshops are educational sessions or training programs designed to help employees enhance their skills, knowledge, and competencies related to their current roles or future career aspirations.

Mentorship programs pair employees with experienced professionals within the organization who can provide guidance, advice, and support to help them navigate their careers and achieve their professional goals.

Quick Read: Employee Benefits Package

4. Additional Benefits

Here’s an overview of some additional benefits that company’s provide as part of fringe benefits:

4.1 Company car and transportation allowances

Providing company cars for both business and personal use is a popular fringe benefit, especially for employees who need to drive frequently for their jobs. It can reduce their out-of-pocket expenses for gas, maintenance, and insurance. transportation allowances, such as transit passes, parking subsidies, or commuter benefits, are another way employers can help offset their employees’ commuting costs.

4.2 Meals and entertainment

Some employers in India offer subsidised or free meals to their employees as a fringe benefit. This can take the form of on-site cafeterias or canteens where employees can purchase meals at a discounted rate or receive free meals. Entertainment benefits may include tickets to cultural events, movies, sports games, or other recreational activities provided by the employer.

Quick Read: Employer Employee Insurance

Legal and Tax Implications of Fringe Benefits

These are common taxable fringe benefits in India, but the taxation of fringe benefits can be complex and may vary based on specific provisions of the Income Tax Act and related regulations.

Employers and employees should consult with tax advisors or experts to understand the tax implications of fringe benefits and ensure compliance with applicable laws and regulations. Let’s take a look at some of these:

taxable fringe benefits and non taxable fringe benefits

1. Taxable Fringe Benefits

  • Stock options: Stock options granted to employees by their employers may be taxable as perquisites if they are provided at a discounted price or if the conditions specified under the Income Tax Act are met.
  • Employee Stock Ownership Plans (ESOPs): The value of ESOPs received by employees is considered a perquisite and taxed accordingly.
  • Housing accommodation: If an employer provides rent-free or concessional accommodation to an employee, the value of the accommodation is considered a perquisite and taxed.
  • Company car: If an employer provides a company car to an employee for personal use, the value of the benefit derived from the personal use of the car is considered a perquisite and taxed as part of the employee’s income.
  • Interest-free or concessional loans: If an employer provides interest-free or concessional loans to employees, the benefit derived from such loans is considered a perquisite and taxed.
  • Club memberships: If an employer provides free or subsidised club memberships to employees, the value of the benefit derived from the membership is considered a perquisite and taxed as part of the employee’s income.

Related Read: Group Health Insurance Tax Benefits

2. Non Taxable Fringe Benefits

Some common non-taxable fringe benefits in India include:

  • Medical reimbursement: Up to a certain limit, medical reimbursements provided by the employer for medical expenses incurred by the employee and their family are non-taxable.
  • Meal coupons/vouchers: Meal coupons or vouchers provided to employees for purchasing meals are usually tax-free up to a specified limit.
  • Telephone/Internet expenses: Reimbursements or allowances provided by the employer for telephone and Internet expenses incurred for official purposes are usually non-taxable.
  • Uniform allowance: Allowances provided for purchasing or maintaining uniforms required for employment may also be non-taxable up to a certain limit.
  • LTA (Leave Travel Allowance): Reimbursements for expenses incurred on travel within India during leave periods are non-taxable within specified conditions.
  • Gifts and awards: Gifts and awards provided to employees on special occasions or achievements up to a certain value are often exempt from tax.

Also, Read: Employee Appreciation vs Compensation

Advantages of Fringe Benefits for Employees

Here are the key advantages of fringe benefits for employees:

1. Improved Financial Security and Well-being

Fringe benefits like health insurance, life insurance, and retirement plans provide employees with financial protection and help them save for the future.

2. Enhanced Work-life Balance

Benefits like paid time off, flexible work arrangements, and wellness programs help employees maintain a healthy work-life balance. This reduces stress and improves their overall quality of life.

3. Increased Job Satisfaction and Loyalty

Employees feel valued and appreciated when employers offer generous fringe benefits. This boosts their job satisfaction, morale, and loyalty to the company.

4. Reduced Out-of-pocket Expenses

Fringe benefits like meal subsidies, gym memberships, and commuter benefits help employees save money on expenses they would otherwise have to pay for themselves. This is a valuable perk.

5. Opportunities for Growth and Development

Benefits like tuition assistance, professional development courses, and employee stock options provide opportunities for employees to grow their skills and ownership stake in the company. This supports their long-term career growth.

Also, Read: What is Group Term Life Insurance?

Fringe Benefits from Employer’s Perspective

From an employer’s perspective, providing fringe benefits can be advantageous for several reasons:

1. Attracting and Retaining Talent

Offering attractive fringe benefits can help employers attract top talent to their organisation and retain existing employees.

2. Employee Satisfaction and Morale

Providing fringe benefits demonstrates that the employer values and cares about the well-being of its employees. This can lead to higher levels of job satisfaction, morale, and motivation among employees, ultimately enhancing productivity and performance.

3. Cost-Effective Compensation

Instead of increasing salaries, which may incur higher tax liabilities for both the employer and the employee, offering non-taxable fringe benefits can provide additional value without increasing the financial burden.

4. Tax Advantages

In many cases, certain fringe benefits are tax-deductible for employers and non-taxable for employees. This can result in tax savings for both parties, making fringe benefits an attractive option for compensation planning.

5. Health and Wellness

Benefits such as medical insurance, wellness programs, and gym memberships contribute to the health and well-being of employees.

6. Compliance and Legal Obligations

Providing certain fringe benefits may be required by law or industry regulations. For example, employers may be obligated to contribute to employee retirement plans or provide certain types of insurance coverage.

Related Read: Group Health Insurance for Startups

Designing an Effective Fringe Benefits Program

Designing an effective fringe benefits program involves several key steps:

1. Conduct Employee Needs Assessment to understand employees’ preferences and identify relevant benefits.

2. Define Program Objectives clearly to align with organisational goals like attracting talent or enhancing retention.

3. Research Available Options such as health insurance, retirement plans, and wellness programs to assess feasibility.

4. Consider Budget and Cost to prioritise benefits within financial constraints and provide value to employees.

5. Customise for Employee Segments by catering to diverse needs like flexible work arrangements or wellness programs.

6. Communicate Clearly the details of the program, eligibility, and benefits to ensure employee understanding.

7. Evaluate and Adjust the program continuously based on feedback, utilisation data, and industry standards to keep it relevant and effective.

Suggested Read: How to Evaluate Your Employee Healthcare Program?

Challenges and Considerations

Designing and implementing these benefits in India comes with its own set of challenges and considerations, influenced by factors such as regulatory requirements, cultural norms, and economic conditions. Here are some key challenges and considerations:

1. Regulatory Compliance

India has complex tax laws and regulations governing fringe benefits. Employers need to ensure compliance with various provisions of the Income Tax Act, including the valuation and taxation of fringe benefits. Failure to comply can result in penalties and legal consequences.

2. Cost Constraints

Providing these benefits can be costly for employers, especially for small and medium-sized enterprises with limited resources. Employers need to balance the desire to offer competitive benefits with budgetary constraints and profitability considerations.

3. Diversity of Workforce

India has a diverse workforce with varying demographics, lifestyles, and preferences. Employers need to tailor fringe benefits to accommodate the needs and preferences of different employee segments, including millennials, Gen Z, working parents, and older employees.

4. Retirement Planning

With an aging population and increasing life expectancy, retirement planning is becoming increasingly important for Indian employees. Employers may need to offer retirement benefits such as provident fund contributions, pension plans, and retirement counseling to help employees prepare for their financial future.

5. Employee Education and Awareness

Many employees in India may not fully understand the value and implications of fringe benefits. Employers need to invest in employee education and awareness initiatives to ensure employees understand their benefit options, how to access them, and the tax implications involved.

6. Changing Work Dynamics

The COVID-19 pandemic has accelerated remote work and flexible work arrangements in India, leading to changing employee expectations regarding benefits such as work-from-home allowances, internet reimbursement, and flexible hours. Employers need to adapt their benefits programs to accommodate these changing work dynamics.

Also, Read: 10 Unique Benefits of Healthcare Membership from Onsurity


In conclusion, the provision of fringe benefits in India serves as a strategic tool for organisations to remain competitive in the job market while also fulfilling their social responsibility towards employees.

By offering a diverse range of fringe benefits such as health insurance, retirement plans, flexible work arrangements, and professional development opportunities, companies can not only attract top talent but also promote employee well-being and productivity. Additionally, adherence to legal and regulatory requirements governing fringe benefits is essential to ensure compliance and avoid any potential liabilities.


1. How is employer-employee insurance different from Keyman insurance?
Keyman insurance is more limited in scope, with the employer as the beneficiary and term life coverage. On the other hand, employer-employee insurance offers comprehensive benefits to employees, with tax advantages for both employers and employees.
2. Who can buy employer employee insurance?
Employer-employee insurance can be purchased by various types of businesses and entities, including sole proprietorships, partnership firms, and corporations, as long as they meet the minimum employee requirements.
3. What is Section 37 (1) employer employee insurance?
Section 37(1) of the Income Tax Act refers to the tax exemptions available to employers who purchase employer-employee insurance policies for their employees.
4. What is the insurance for employee benefits?
Employer-employee insurance, also known as group insurance or employee benefits insurance, is the insurance coverage provided by employers to their employees.
5. What does company insurance cover for employees?
Company insurance for employees typically covers health insurance, accident and disability insurance and life insurance benefits.
6. Is Employee Insurance mandatory?
Employee insurance is mandatory in India as per government directives. It became compulsory for employers to provide medical insurance to their employees post the nation-wide COVID-19 lockdown in 2020.
7. What is employer-employee insurance under Income Tax Act?
Employer-employee insurance under the Income Tax Act provides a range of benefits for both employers and employees, ensuring financial security and tax benefits.
8. Are insurance premiums paid by employer taxable?
The insurance premiums paid by the employer for employee insurance are generally considered a business expense and are tax-deductible under Section 37(1) of the Income Tax Act.
9. What are the benefits of employer-employee life insurance?
Employer-employee life insurance provides financial security, tax benefits, employee loyalty, access to maturity proceeds, and comprehensive coverage, making it a valuable employee benefit that enhances the overall well-being of the workforce.
10. What is Scheme B in employer-employee insurance?
Scheme B in employer-employee insurance refers to the second type of arrangement available for the Employer-Employee Insurance Scheme, specifically in the context of group health insurance.

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