Key Takeaways
Different types of fringe benefits support employee wellbeing and retention
Employers should balance taxable and non-taxable fringe benefits strategically
The best fringe benefits packages align employee needs with business objectives
Most HR leaders can recite their benefits package from memory. What they cannot tell you is which benefits employees actually use, which ones are quietly going unclaimed, and which ones are doing anything at all for retention.
That gap is not a budget problem. It is a structure problem.
According to the Bureau of Labor Statistics, benefit costs now account for 29.9% of total compensation for private industry workers. That is a significant investment. The question is whether it is landing where it matters.
What are fringe benefits, and why do they matter now?
Fringe benefits are everything an employer offers beyond the number on the offer letter. The name is a historical footnote. The reality is that benefits now sit at the center of how employers compete for talent.
According to SHRM's 2025 Employee Benefits Survey, 88% of HR leaders rate health benefits as "very" or "extremely" important. Retirement savings and leave benefits follow at 81% each.
81% of employees cite their benefits package as a top reason to stay. That is a retention lever sitting in plain sight, not a soft metric.
The main types of fringe benefits employers offer
Benefits fall into five broad categories. Most packages combine all five in some proportion, weighted by company size, industry, and workforce demographics.
Health and wellness benefits
Health insurance is where almost every package starts. According to SHRM's 2025 survey, 97% of employers offer general health coverage, 99% offer dental, and 96% offer vision insurance. Beyond coverage, wellness benefits increasingly include mental health support, employee assistance programs (EAPs), and fitness stipends.
Financial security benefits
Most financial benefits are built around retirement. BLS data from March 2025 shows 72% of private industry workers have access to retirement plans, with defined contribution plans such as the 401(k) being most common. Life insurance, disability coverage, and stock options also fall in this category.
Time off and flexibility benefits
Paid leave, flexible work schedules, remote work options, and parental leave all belong here. According to SHRM, 92% of employees say their PTO policy has a large effect on their overall job satisfaction. Most employers (68%) now combine vacation and sick leave into a single PTO bank.
Professional development benefits
Tuition reimbursement, conference budgets, certifications, and internal training programs signal to employees that the company is invested in their career, not just their output. Under IRS Section 127, employers can provide up to $5,250 per year in educational assistance tax-free.
Lifestyle and perks
This is the fastest-growing category in most packages right now. Gym memberships, meal allowances, childcare assistance, commuter benefits, pet insurance, and home office stipends all fall here. Lifestyle Spending Accounts (LSAs) are increasingly used as the infrastructure to deliver these flexibly.
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Taxable vs non-taxable fringe benefits: what every employer needs to know
Not all fringe benefits are created equal in the eyes of the IRS. Getting the classification wrong costs employers far more than the benefit itself.
The governing reference is IRS Publication 15-B. The core principle: most fringe benefits are taxable unless a specific exclusion applies.
| Benefit type | Tax status | IRS exclusion / limit | Employer implication |
|---|---|---|---|
| Health insurance premiums | Non-taxable | Excludable under IRC §106 | No income or payroll tax for employer or employee |
| Retirement contributions (401k) | Non-taxable up to limit | 2025 limit: $23,500 employee / $70,000 total | Employer match is deductible; reduces employee taxable income |
| Educational assistance | Non-taxable up to $5,250/yr | IRC §127 | Amounts above limit are taxable wages |
| Achievement awards (tangible) | Non-taxable up to $1,600 | Qualified plan; $400 without written plan | Cash and gift cards always taxable regardless of amount |
| Remote work / home office stipend | Generally taxable | No broad exclusion; working condition fringe may apply | Must be reported on W-2 unless specific conditions met |
| Company car (personal use) | Taxable | Fair market value added to income | Requires valuation and reporting each year |
| Gym membership / wellness stipend | Taxable unless on-premises | On-site employer-operated facilities excluded | Off-site memberships and stipends are taxable compensation |
The key distinction that trips up many HR teams is the difference between de minimis benefits and regular perks. A coffee and an occasional lunch qualify as de minimis and are tax-exempt. A monthly wellness stipend does not.
Tax classification belongs at the design stage, not at year-end. An LSA is a flexible delivery mechanism. It does not change a benefit's taxable status.
Fringe benefits for remote and hybrid employees: the emerging category
Remote and hybrid work changed what a benefit actually means. A gym membership that requires commuting to use is not a benefit for someone working from home in another city. That mismatch is a signal.
The response has been a shift toward flexible, location-agnostic benefits. Lifestyle Spending Accounts have become the primary vehicle. According to Compt's 2026 Annual Lifestyle Benefits Benchmark Report, all-inclusive LSA adoption grew 9% year over year, with 64% of employers now using one as their primary benefits program. Employees spending within an LSA showed wellness utilization rates of 86%, compared to 62% for standalone gym memberships.
Remote-specific benefits worth building into any distributed team's package:
- Home office stipend. A one-time or annual allowance for ergonomic furniture, monitors, or desk equipment.
- Internet and phone reimbursement. Covers the cost of connectivity required to do the job.
- Co-working space allowance. Relevant for employees without a suitable home office or who need in-person collaboration periodically.
- Async-friendly PTO. Unlimited or flexible PTO policies that do not penalize employees for working across time zones.
- Mental health and EAP access. Remote employees report higher rates of isolation. Access to counseling and wellness resources has measurable impact on retention.
Hybrid environments show a 34% increase in retention compared to fully remote or fully on-site setups, according to BambooHR research. The benefit design needs to support both modes, not optimize for one.
How Xoxoday Empuls helps employers deliver fringe benefits at scale
Most HR teams managing fringe benefits are doing it across four systems that do not talk to each other. Recognition in Slack. Rewards in a vendor portal. Benefits through a broker. Surveys once a year.
HR leaders end up flying blind on which benefits employees actually value. Line managers have no way to know whether their team members feel supported.
Xoxoday Empuls addresses this directly. It brings benefits, recognition, rewards, and engagement surveys into a single platform, so HR has a unified view of what is working and where the gaps are.
- Flexible fringe benefits delivery. Empuls supports multi-benefit prepaid cards for tax-saving benefits (fuel, telecom, meals, books), Lifestyle Spending Accounts for flexible reimbursements, and early salary access for financial wellness.
- AI-powered engagement nudges. When an employee has not used their benefits allocation in a defined period, Empuls surfaces this to HR. When recognition frequency drops for a team, the platform flags the risk before it becomes an attrition signal.
- Global rewards and perks catalog. With 10mn+ reward options across 150+ countries, Empuls ensures that distributed teams receive benefits that are locally relevant.
- HRMS integrations. Empuls connects with SAP SuccessFactors, Workday, Darwinbox, HiBob, UKG, and 20+ other HRMS platforms.
How to build a fringe benefits package that actually retains people
Offering benefits and building a benefits program are not the same thing. One is a list. The other is a system.
50% of US employees are actively watching for or seeking a new job, according to Gallup's 2025 State of the Global Workplace report. According to Gallup, engagement and culture account for 69% of the reasons employees leave. Benefits design is where those two things intersect.
Three principles:
- Audit utilization before adding benefits. See how an employee benefits survey can surface this data.
- Design for your workforce, not the benchmark. Review the latest employee benefits trends to understand where the market is moving.
- Measure equity across teams and geographies. Understanding how to calculate employee benefits by team and location is the first step toward equity. Companies with comprehensive retention strategies achieve 87% higher retention rates, according to SHRM-cited research.
Your next step toward a benefits program people actually use
The employers winning on retention are not offering more benefits. They are offering the right ones, delivering them consistently, and measuring whether they land.
Start with an audit. How many employees used their benefits allocation in the last quarter? Which categories are going unclaimed? That data exists. Most HR teams have never looked at it systematically.
The second question is structural. If benefits, recognition, and engagement data live in separate systems, you cannot connect what you spend to what you retain. That gap is fixable. And it is where the real ROI lives.
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