Fringe benefits are the benefits that come in addition to your paycheck. Sometimes they’re free, like paid holidays, onsite yoga classes, vacation and sick days, the use of a company car, employee discounts, onsite childcare, or educational stipends.
Other times, you may need to have your paycheck deducted to access them, like with supplemental insurance policies or other types of fringe services.
Sometimes, it can seem like humans are hardwired to click “decline.” Say you buy a lawnmower from a home improvement store. Do you want that extended warranty? Decline. Or you rent a car. How about that extra window chip protection? Decline. Or you buy a new laptop. Do you want the service plan that goes with it? Decline.
In the rush to avoid these extra expenses, sometimes you miss out on some good advantages—and the financial peace of mind that comes with them. Fringe benefits, especially voluntary supplemental health benefits, are a classic example of this.
When those benefits get put into the “optional” category, our hardwired brains want to select “decline.” It’s human nature. But before you do, think hard about what you’re giving up. Like everything in life, these benefits have a cost-benefit equation that everyone has to calculate for themselves and their families.
Fringe Benefit Elections
Do the benefits outweigh the costs? Here’s what you should consider as you explore what’s best for you:
Fringe Benefits for Financial Wellness
Just like with our physical and mental health, your financial wellness can make a big difference in your well-being. Aside from the fact that money stresses us out, financial problems can also carry over into other areas of your life, like physical health.
People with financial or other types of stress may be more likely to:
- have unhealthy habits, like drinking or eating poorly
- lose sleep
And perhaps most concerning of all, about 1 in 2 Americans skip out on needed health care or medications because they’re afraid they can’t afford it.
Fringe benefits can help bridge these gaps so that you can wrangle your budget, once and for all. At times, they can even get you more mileage than cash can—like with the ability to use pre-tax dollars to pay for retirement savings. Even other types of fringe benefits, like the use of a gym membership, employee discounts or free bus passes, might save you the extra income taxes than if you had gotten those dollar amounts added to your paycheck.
In the long run, these savings stack up to better financial security, which means you can stop worrying about affordability and other financial stressors to focus on bigger, better life goals.
The Buying Power of Group Benefits
When you purchase a fringe benefit through your employer, you’re most likely getting the benefit of bigger buying power, too. That buying power has a lot of muscle to it. Take insurance: Purchasing a group plan typically means you get a much more affordable price than if you had bought the policy individually.
Say, for example, you have access to Disability insurance through your employer at $10 a month. The same plan might cost you more, say $15 monthly, if you bought it on your own—which means you’d miss out on the discounted rate, and wouldn’t get to lock that low premium in for the future. This is often the case, but you should always shop around and compare plans to make sure.
This buying power can also apply to other types of fringe benefits, like the use of an employee assistance program (EAP). These programs can vary from employer to employer, but they typically provide employees free services such as mental health support or legal consultations.
Because employers can purchase these benefits in bulk, it means they can pass that value over to you. If you were to seek out those services on your own—like scheduling a therapy session or a visit with a lawyer—you’d likely pay out-of-pocket for them.
The Society for Human Resource Management reports that just 5.5% of employees tapped into those benefits in 2018. Not enough people take advantage of their EAPs. So check if you have access to an EAP; it could save you more than you might think.
Understanding Benefit Portability
Some fringe benefits, like certain insurance policies or retirement accounts, have what’s called portability—meaning you can keep the benefit even if you leave your employer. However, some types of benefits don’t allow for this, which might make that a deciding factor for whether the benefit is right for you.
But even if the benefit lacks total portability, it doesn’t mean you should decline it. Going back to the muscle of buying power, your group rate while you’re still employed might be lower than you could buy on your own—meaning it might be best to take advantage of it while you have access to it.
It’s all a cost-benefit equation, and every family must make it for themselves. Calculate the upfront (monthly) price of those benefits, and think through how much it might cost you without them. Knowing how much you stand to save—or lose—will help make the decision much easier.
Rising Above Benefit Analysis Paralysis
When you have access to employer-offered fringe benefits, it means your employer has already done the heavy lifting of researching plans, comparing options and building the best benefits mix possible.
Having that hard work done by someone else means that you don’t have to get stuck in the rut of “analysis paralysis” that’s common when buying services individually. Purchasing insurance or other services on your own might take hours or days of research; employer-sponsored benefits have already been pre-vetted and handpicked for you and your colleagues. All you need to do is click “accept” and your benefits are in motion.
You likely also have access to a team of people—whether that’s through your HR department or your benefits administrator—to help you sort out any questions you have about paperwork, forms, costs or anything else.
They’re kind of like a personal concierge for any fringe benefit questions. When you buy such things individually, you’re most likely on your own for questions (and you’re at risk for Googling the wrong answer to them!).
The Simplicity of Benefit Paycheck Deductions
Another factor to consider: How are you going to pay for your benefits? When you have the option to pay for fringe benefits through regular paycheck deductions, it’s a painless way to pay for coverage:
- You don’t miss the money.
- You never miss a payment.
- Your coverage is ensured.
This makes a big difference for family budgets, since take-home income already includes the costs of fringe benefits:
- You don’t have to add additional line items.
- The premiums are always paid without you having to lift a finger or set reminders.
Automatic payments enabled by paycheck deductions can also help you avoid late fees and bank overdrafts.
Most importantly, when money gets tight, you don’t have to fret over competing expenses, or choosing between groceries or fringe premiums; the costs are built into your paycheck. Select them once, and you never have to worry about manually paying for them again.
Fringe Benefits as a Part of Smart Planning
Smart financial planning is kind of like a puzzle: Setting a good budget and sticking to it is an essential piece, but so are many other things—like protecting yourself and your family against the unknown with a mix of insurance policies, as well as saving an extra buck here and there, day-to-day.
Fringe benefits can fill in those extra pieces of the puzzle quite nicely. The next time you have the option to accept or decline those extras (ahem: open enrollment), think hard before you turn them down. You might be passing up some precious financial benefits and peace of mind.
Which would you prefer, a higher wage without fringe benefits or lower wage with fringe benefits? Let us know in the comments below.
This informational material shall not be considered financial advice. The Hartford assumes no responsibility for any financial, investment, or tax-related decisions. Those seeking resolution of specific financial, legal, tax, or business issues, questions, or concerns regarding this topic should consult their own financial, investment, tax, legal, or other business consultants, advisors, or other professionals.