In-kind benefits are non-cash perks an employer offers to employees to boost morale, retain talent, and ensure well-being. These employee benefits are typically in the form of goods, services, or privileges. In many countries, benefits-in-kind (BIK) are also known as fringe benefits or non-mandatory perks.
In-kind benefits are perks that employees can't afford with their taxable monetary income. BIKs are not included in the employee's salary—they are additional perks or allowances that fall under the employee's comprehensive compensation plan.
These benefits, or bonus incentives, are non-cash, but some have a monetary value, meaning they may impact employees' pay differently. This is why employees and employers are required to pay taxes on the value of some provided benefits.
Common examples of in-kind benefits
All employees value in-kind benefits differently, but most view them positively when considering their entire compensation package. Therefore, the more attractive the benefits employers offer, the higher the chances they compete with other employers in the market.
Though they aren’t typically elected in the benefits administration process, the most common benefits in-kind include healthcare and pension contributions, though educational and wellness perks are becoming increasingly popular. Other in-kind benefits examples include the following:
Core expected benefits
These include perks that ensure a sense of safety and welfare for employees and are important for employee retention. Many employers offer core expected benefits for the employees alone, while others also cover dependents. The most common core expected benefits include:
- Health insurance (not applicable to some countries outside the US)
- Retirement plan contributions or private pension contributions
- Disability insurance
- Life insurance
- Childcare assistance
Education perks
By staying up to date with the developments in their industry, employees avoid skill gaps and remain relevant in their roles. The most common educational perks include:
- Tuition reimbursem*nt
- Courses
- Conference budgets
- Reimbursem*nt for books
- Subscription to learning materials on Kindle and Udemy
- Coaching
- Paid travel expenses
Wellness perks
Many businesses have developed policies to focus on their employees' mental health and physical well-being. This promotes their productivity and overall health, whether they are remote workers or in-office employees. Some standard wellness perks offered by employers as in-kind benefits include:
- Gym memberships
- Yoga and meditation classes
- Subscriptions to counseling services
- Cycle-to-work initiatives
- Employee assistance programs (EAPs)
Are there in-kind benefits geared toward remote workers?
Generally, it's easier to cater to the needs of in-house employees than those of remote workers. However, it's believed that companies that offer flexibility to their employees have a much lower turnover rate than those that don't. Employers may provide the following in-kind benefits to their remote workers:
- Co-working spaces
- Home office stipends
- In-person company retreats and meetups
- Coffee vouchers so employees can work from cafes
- Ergonomics consultation for home offices
Advantages of in-kind benefits
Offering in-kind perks often provides an edge over competitors. Since many candidates prioritize these benefits when looking for a job, it’s less difficult to attract top talent. Some advantages of in-kind benefits for employers and employees include:
- Increased employee engagement and productivity
- Tax savings on some in-kind benefits
- Support for DEIB initiatives
- Strong culture and reputation
- A healthier workforce
- Lower employee turnover and higher retention rates
Disadvantages of BIK
While BIK has many advantages, it also has downsides for employees and employers. Some disadvantages of in-kind benefits include:
- Lower direct compensation for employees
- Currency exchange issues in international companies
- Taxable perks for employees
- More administrative effort
- Wasted potential with unused benefits
- Inequity if BIKs are unevenly distributed
What should HR consider when including in-kind benefits in compensation?
HR professionals should carefully consider several factors when including in-kind benefits in a compensation package to ensure equity, financial stability, and employee engagement:
- Cost-effective benefits: Using cost-benefit analysis, HR should weigh each in-kind benefit and determine the most appropriate way to integrate each into a comprehensive benefits package.
- Scalability: Benefits need to be adjustable as the size of the workforce grows or decreases so that organizations don’t overpay or lose the ability to add new employees to the plan.
- Administrative resources: Some benefits require a considerable amount of implementation effort that may outweigh the practicality of the service itself.
- Regulatory compliance: Especially for health or compensation-related benefits, HR must ensure that new offerings fall within compliance standards at a company, legal, and governmental level.
- Employee needs: To ensure that offerings match and exceed competition, perform a needs analysis while workforce planning to determine what your employees want and how to leverage benefits for increased retention and engagement.
Are in-kind benefits taxable?
Depending on the type of in-kind benefit, it may be taxable. The IRS has determined a list of non-taxable benefits on its website.
When an employer offers an additional perk to an employee as a fringe benefit, the reward is included as a taxable income. The employer is required to mention these benefits in the employee's W-2 form. This doesn't apply to the in-kind benefits included in the IRS's list of tax-free benefits.
Taxable in-kind benefits
In the US, the most common taxable in-kind benefits include:
- Reimbursem*nt of tuition or education expenses
- Mileage expenses
- Company cars and phones used for personal purposes, primarily if they exceed the maximum amounts set by the IRS
Non-Taxable in-kind benefits
Some non-taxable in-kind benefits are:
- Special accommodations provided to workers to help them perform their job
- Achievement awards
- Benefits with insignificant value, such as small gift cards or birthday presents
Are in-kind benefits tax deductible for employers?
Employers can sometimes file a cost deduction claim for in-kind benefits provided to employees. Paid business vacations are an example of deductible benefits.
However, the taxability of the benefit and deductibility of the expense are two different things—even if employers provide non-taxable benefits to employees, they can still deduct the costs of offering those perks.
Taxable benefits, such as a company car, are included in the employee's salary as compensation. Still, the employer can't deduct the value of the benefit (the car's value) as a salary expense. Instead, they can only deduct the cost incurred in providing the vehicle.
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