Definition
Perks are informal terms for perquisites, which are benefits arising from employment in addition to regular remuneration. These are often considered privileges mainly expected by senior employees. Examples of perks include a company car, private health insurance, gym memberships, or even free meals and travel allowances.
Examples
- Company Car: A senior manager at a corporation may be provided with a company car for both professional and personal use.
- Private Health Insurance: A director is offered private health insurance coverage that extends to their immediate family, improving their overall wellness.
- Gym Memberships: As part of an employee wellness program, certain managerial positions come with free memberships to high-end gyms.
- Stock Options: Senior executives might receive stock options as part of their compensation package, allowing them to purchase company shares at a future date and at a locked-in rate.
Frequently Asked Questions (FAQs)
Q1: Are perks considered part of the taxable income?
A1: Yes, many perks are considered as taxable income. For example, a company car used for personal reasons is often subject to taxation.
Q2: How do perks differ from regular employee benefits?
A2: Perks are additional benefits beyond regular employee compensation, often targeted at senior or high-ranking employees, whereas regular benefits, like health insurance, may be available to all employees regardless of rank.
Q3: Can perks influence employee retention and satisfaction?
A3: Absolutely. High-quality perks can significantly increase employee satisfaction and loyalty, making the organization a more attractive place to work.
Q4: Are there any downsides to offering too many perks?
A4: Offering excessive perks may lead to perceptions of inequality among employees and can be costly for the company to maintain. There’s also the risk of employees becoming entitled.
Q5: Are perks operational in all industries?
A5: While perks are common in many industries, especially in corporate and tech sectors, their prevalence and types may vary across different fields.
- Benefits In Kind: These are additional non-cash perks or compensations employees receive from their employer, often adding to their taxable income.
- Shareholders’ Perks: These are benefits or privileges granted to shareholders of a company, such as discounts on the company’s products or services.
- Retirement Benefits: Compensations received post-retirement in the form of a pension, gratuity, or provident fund.
- Performance Bonuses: Financial rewards linked to the successful meeting of performance targets or objectives.
Online References and Resources
- IRS Guidelines on Fringe Benefits
- Investopedia: Perquisites
- Glassdoor: Employee Benefits Reviews
Suggested Books for Further Studies
- Employee Benefits and Executive Compensation by Adam N. P. Sabath
- Employee Benefits Design and Planning: A Guide to Understanding Accounting, Finance, and Tax Implications by Bashker D. Biswas
- Compensation by George T. Milkovich, Jerry M. Newman, and Barry A. Gerhart
Accounting Basics: “Perks” Fundamentals Quiz
### Are company cars provided as perks considered taxable?
- [x] Yes, especially if used for personal purposes.
- [ ] No, they are a company's asset and not taxable.
- [ ] Only if the employee is a top-level executive.
- [ ] It depends on the country’s tax laws exclusively.
> **Explanation:** Company cars provided as perks are taxable, particularly when they are used for personal purposes, as considered an additional form of compensation.
### What is the tax treatment of perks in most jurisdictions?
- [x] They are generally considered taxable.
- [ ] They are not taxable in any case.
- [ ] Only classified perks are taxed.
- [ ] Taxation depends on the employee's role.
> **Explanation:** Most jurisdictions consider perks as taxable income, often requiring proper reporting and taxation handling.
### What type of employees typically receive perks?
- [ ] All employees equally.
- [x] Senior or high-ranking employees.
- [ ] Entry-level employees.
- [ ] Only temporary staff.
> **Explanation:** Perks are often targeted at senior or high-ranking employees as a means of additional compensation for their roles.
### Which of the following is a common perk provided to employees?
- [ ] Lower tax rates.
- [x] Gym memberships.
- [ ] Free housing.
- [ ] Unpaid leave options.
> **Explanation:** Gym memberships are a common example of a perk provided to employees to promote wellness and healthier lifestyles.
### Why might a company provide perks like private health insurance?
- [ ] To evade taxes.
- [x] To attract and retain high-quality staff.
- [ ] To reduce direct salary expenses.
- [ ] To meet regulatory requirements.
> **Explanation:** Companies provide perks such as private health insurance to attract and retain high-quality employees by enhancing their compensation packages.
### Are perks considered a core part of an employee’s salary?
- [ ] Always.
- [ ] Never.
- [x] No, they are additional benefits beyond regular salary.
- [ ] Only during probation periods.
> **Explanation:** Perks are not considered part of core salary but are additional benefits provided on top of salary compensation.
### Can perks influence an employee’s decision to stay with a company?
- [x] Yes, high-quality perks can enhance job satisfaction and loyalty.
- [ ] No, perks are irrelevant to employee retention.
- [ ] Only if they are financial perks.
- [ ] Perks hold the same weight as core salary.
> **Explanation:** High-quality perks can significantly influence an employee's satisfaction and decision to remain with a company by enriching their overall job experience.
### What is a potential downside to offering numerous perks?
- [ ] Reduced employee productivity.
- [x] Increased company costs and potential feelings of inequality.
- [ ] Lower company profits.
- [ ] No significant impact.
> **Explanation:** Offering numerous perks can become costly for a company and may lead to perceptions of inequality among staff without those perks, affecting morale.
### Are healthcare perks like insurance exempt from taxes?
- [ ] Always.
- [ ] Never.
- [x] Generally, but exceptions may apply.
- [ ] Only once utilized.
> **Explanation:** Healthcare perks like insurance are generally offered tax-exempt, although exceptions and specific tax rules may apply accordlingly.
### What benefit do perks provide to employers?
- [ ] Lower tax liabilities.
- [ ] Reduced salary structures.
- [x] Increased employee retention and satisfaction.
- [ ] Freedom from providing necessary salary increments.
> **Explanation:** Perks provide the benefit of increasing employee retention and satisfaction, making the company a competitive place to work, thereby easing recruitment challenges.
Thank you for diving into the comprehensive understanding of perks in employment! Continue to refine your expertise in accounting and finance with these nuanced insights and practice questions.
