If you own a business, be it large or small, you understand the importance of hiring and retaining the best people for the job. So what types of incentives can you offer your employees to help them value working for you even more?
Having a low staff turnover makes good business sense. Not only does it mean you reduce the costs of training new staff, but it also makes it easier to maintain the skills and knowledge of your workforce.
First of all, you need to attract the right kinds of people to your organisation. Then, you need to make sure they’re happy and engaged in their roles, so they’ll be more willing to stay on and help you build the business. And one strategy for achieving both these goals is to offer fringe benefits to your employees.
What is a fringe benefit?
A fringe benefit is a non-cash benefit with a financial value that you offer to an employee on top of their salary. Common examples of fringe benefits include:
You may choose to offer fringe benefits as part of an employee’s salary package, or give an employee the option to pay for the benefit under a ‘salary sacrifice’ arrangement. In effect, this reduces the income they receive and therefore the amount of income tax they may need to pay.
When you provide fringe benefits to your staff or their families, you’re liable for Fringe Benefits Tax (FBT). However, there are some exemptions for ‘tools of trade’ fringe benefits like mobile phones or protective clothing, and some organisations are also exempt from paying FBT.
How does Fringe Benefits Tax work?
Let’s say David works for ABC Pty Ltd, which offers their employees the option to take out a Novated Lease on a new car through salary sacrificing. Each week, ABC Pty Ltd arranges for part of David’s salary to be taken out automatically to pay for the lease, which means David’s taxable income is lower.
But as the employer, ABC Pty Ltd needs to pay FBT on the value of the lease. The company then recovers this amount through David’s salary package arrangement, and ABC Pty Ltd can also claim a tax deduction for the amount of FBT it has already paid. And depending on David’s overall tax position and other factors, this arrangement may work out to be more tax-effective for him than getting vehicle finance independently or buying the car outright.
What do I need to do?
If you’re planning to offer fringe benefits to your staff, you are responsible for managing and paying your fringe benefits tax liability.
To do this, you’ll need to:
Register for FBT with the Australian Tax Office (ATO) - www.ato.gov.au
Calculate the amount of FBT you need to pay.
Keep the necessary FBT records.
Report fringe benefits on your employees’ payment summaries.
Lodge a return and pay FBT to the ATO.
Australian law relating to FBT is complex, so you should always consult your accountant or financial adviser for advice that is specific to your situation. That way you and your staff can make the most of the tax opportunities available around fringe benefits.
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