In-kind benefits, also known as benefits in kind (BIK), fringe benefits, perks, or non-mandatory benefits, are non-cash compensation provided by employers to attract and retain top talent. These benefits hold monetary value and can be essential for low-income employees who may not be able to afford certain services with their taxable income alone. In this article, we’ll explore the most valuable in-kind benefits, their taxability, and reporting requirements.

Most Sought-After In-Kind Benefits

Employees highly value certain in-kind benefits, which can significantly influence their decision to join or stay with a company. Some of the most sought-after benefits include:

• Health insurance: Comprehensive health coverage is a top priority for many employees, as it provides financial protection and access to quality healthcare.
• Relocation expenses: Covering the costs associated with moving for a job can be a significant incentive for employees, especially those relocating to a new city or country.
• Housing subsidies: Assistance with housing expenses can be particularly attractive in high-cost-of-living areas, helping employees maintain a better quality of life.
• Food vouchers and food stamps: These benefits can help employees save money on groceries and other essential items, providing financial relief.
• Life insurance: Offering life insurance can give employees peace of mind, knowing that their loved ones will be financially protected in the event of their death.
• Pension contributions: Employer contributions to a pension plan can help employees save for retirement and feel more secure about their financial future.
• Childcare: Providing childcare benefits, such as on-site daycare or subsidies for childcare expenses, can be a significant draw for working parents.
• Non-business travel and entertainment expenses: Covering costs for employee vacations or entertainment can boost morale and job satisfaction.
• Work-from-home stipend: As remote work becomes more common, offering a stipend to cover home office expenses can help employees feel supported and productive.
• Use of a company car: Providing a company car can be a valuable perk, especially for employees who travel frequently for work or have long commutes.
• Access to a coworking space: For remote employees or those who prefer a change of scenery, access to a coworking space can provide a professional environment and networking opportunities.
• Employee loans or student loan repayments: Offering financial assistance with loans can help alleviate the burden of debt and demonstrate an employer’s commitment to their employees’ financial well-being.
• Travel expenses: Covering travel costs for work-related trips can make business travel more enjoyable and less stressful for employees.
• Health and wellbeing memberships: Providing memberships to gyms, wellness programs, or mental health services can promote a healthy work-life balance and show that an employer values their employees’ overall well-being.

Taxability of In-Kind Benefits

The taxability of in-kind benefits varies depending on the specific benefit and the regulations of the employee’s home country. Some common taxable in-kind benefits include:

• Reimbursement of tuition or education expenses
• Mileage expenses
• Company car or mobile phone usage for private purposes or exceeding maximum amounts

When a benefit is considered taxable, it is valued at market value, and the employee pays tax on the taxable value of the benefit. However, many fringe benefits are non-taxable. For example, in the US tax policy:

• Accommodations provided explicitly for workers to perform their jobs are often excluded from tax withdrawal.
• Benefits considered de minimis, or of an insignificant amount (e.g., a small gift card given as a birthday present), are not subject to taxation.
• Awards for achievements are also tax-free.

Tax Deductibility for Employers

Employers can sometimes claim a cost deduction for benefits provided to employees. For instance, in the US, paid vacation is a deductible benefit. However, it’s important to note that a benefit’s taxability and the expense’s deductibility are different. If an employer provides a non-taxable benefit to an employee, they can still deduct the costs of providing the benefit. In the case of a taxable benefit, such as a company car, the employer must include the value of this fringe benefit in the employee’s wage as part of their compensation. The employer can’t deduct the value of this perk as a wage expense; instead, they deduct the cost of providing it.

Reporting In-Kind Benefits

Labor laws worldwide require employers to report in-kind benefits included in a compensation package. Employees and employers must familiarize themselves with various forms of reporting in-kind benefits. In the US, employers must include all taxable BIK on an employee’s W-2. In the UK, employers use a P11D form to declare benefits to HMRC. Employers must report independent contractor bonuses and benefits on Form 1099-NEC. Self-employed individuals may purchase benefits in kind for business purposes and must declare them on a tax return.

Conclusion

In-kind benefits are a valuable tool for employers looking to attract and retain top talent. By offering a comprehensive package of non-cash compensation, companies can demonstrate their commitment to their employees’ well-being and financial security. However, it’s crucial for both employers and employees to understand the taxability and reporting requirements associated with these benefits to ensure compliance with labor laws and tax regulations.