Instead of getting ones entire money wage, the employee may get some of it in the form of specified goods or presumed services. All sorts of things become substituted for money pay. They range all the way from better toilet facilities in the plant to golf courses for members of the families of employees ” perhaps even help in building a church of some denomination in the community. It may be more company picnics, or a Christmas party, or insurance of one sort or another, or a pension for old age ” all sorts of things.
Retirement pensions, even though all workers may be covered by a basic age-related state pension, the vast majority of firms operate an occupational pension scheme for their employees to which the firm contributes. In spite of the onus for pension provision shifting towards the individual in a number of countries, including the UK, company pension schemes remain a substantial and widespread fringe benefit. Other benefits include redundancy payments and discounts on company products and the use of company cars.
Sometimes these fringe benefits are the result of employee pressure, either through the union or without any union. But often they are initiated by management; a company plan is put into effect. However they come about, fringe benefits of this type have one aspect in common. Smith (2003) has asserted that in each instance its cost comes out of the money due the employee as pay. Fringe benefits are not just a demand of last resort by men living in a society which already supplies them with almost everything they need.
They satisfy some fundamental human needs which, but for conservatism on both sides of industry, would probably have become matters for the bargaining table long before now. Fringe benefit plans increase the benefits available to employees through provision of such benefits as better pensions, year-end bonuses, paid vacations, sick leave, and holidays and an air-conditioned working place, in addition to the employees basic salary. In some instances, profit-sharing agreements are also included, as well as store discount privileges of workers.
At this stage, the desire for security and continuity of income may well have become as great, or greater, than the desire to raise income. Thus the social logic of fringe benefits in an advanced society. When it comes to health insurance and pensions, fringe benefits help compensate for myopia in an individuals consumption decisions. High marginal tax rates, for both firms and workers, encourage the use of fringe benefits. As workers have become better off in real terms this has increased their demand for fringe benefits. Fringe benefits conferred tax advantages on both workers and firms.
In theory it was possible to determine the optimum combination of wages and fringe benefits in relation to the firms desire for profits. A substantial proportion of the average workers costs to his employer are in the form of fringe benefits. As far as private fringe benefits are concerned, large firms are able to obtain group discounts and larger numbers of employees ensure lower per-worker costs of administration. Often fringe benefits are taxed at relatively low rates, if at all. This creates strong incentives for the firm and its employees to increase the proportion of fringe benefits within total compensation.
Further, taxation coverage is rather incomplete at the employee level owing to technical difficulties in taxing individual fringe benefits and because welfare income is relatively small. Fringe benefits also have an advantage to the employers not just because the benefits were tax deductible but also because they reduced turnover and thereby boosted productivity. Also, the use fringe benefits improved the overall morale of the employees. The social equation was working.
Flynn, B. (2000). Fringe Benefits. New Statesman, 129 (4499), 32. Smith, S. (2003). Labour Economics. (2nd Ed. ). London: Routledge.