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FRINGE BENEFITS. A form of compensation, in addition to salary or wages, provided to all regular employees of an organization. Benefits include those which are required by national or state policy, such as social security, unemployment insurance, workers' compensation, and family leave, as well as those the employer may choose to offer, such as retirement pensions, health care coverage, or child and elder care services (see family leave and retirement). Many employers do not consider these benefits fringes but a necessary ingredient of the compensation system so that they can attract and retain their employees. In many countries (especially Europe and Canada), because of such programs as universal health care, employee benefits are a less-important part of the compensation picture.
Public sector pay in the United States, historically, has not been as high as most private sector compensation; therefore, benefit programs became generous partly as a means of attracting good employees and partly for political reasons. Particularly in local government, employees have exerted political influence so as to gain generous benefits. Because many benefits, especially retirement benefits, are not immediate cost items for the governmental jurisdiction, public officials have been willing to grant increases in them to satisfy unionized employees and generally to maintain labor peace. The ambitious politician (mayor, for example) could persuade the city council to grant the benefits with the notion that the costs would be borne later. By the time the costs arose to pay for pensions, for instance, these public officials would have moved to another office and their successors would have to find the money to pay for the pensions. Financial crises resulting from these approaches have led to the greater use of prefunding benefits plans rather than the pay-as-you go systems popular in the past.
In recent years, health care coverage has become a major concern for employers. Because health care costs have risen sharply, employers have difficulty in funding the level of benefits employees have been used to in the past. In the public sector, it has not been uncommon to find full funding of health care benefits by the employer. The trend now is for employers to require employees to pay part of the cost of the coverage, as has been prevalent in the private sector. At the same time, the level of benefit coverage has been declining; thus, there may be greater limits on what will be paid for and how much will be paid.
Flexible, or cafeteria, benefits plans have achieved popularity among private sector employers and are spreading to the public sector. In this approach, the employee has a set amount of money set aside to use for benefits purchase. The employee may or must add money as well. This type of system allows individual employees to choose benefits most appropriate to their situations. Thus, if the employee has a spouse whose health care benefits package is better, the employee does not have to choose the health care benefit, and the money can be used to purchase more retirement benefits, legal services coverage, or dependent care. Most flexible benefit plans have some basic coverage imperatives. Thus, health care benefits usually must be carried by the employees through their employer or through their spouse's employer.
During the 1990s, domestic partnership benefits have emerged as controversial issues for public employers (see domestic partnership benefits). Domestic partnership policies regarding benefits, pushed especially by gay and lesbian groups, would make domestic partners eligible for benefits just as married partners are.
Because of increasing costs and decreasing revenues, most public jurisdictions are attempting to streamline benefit packages. By providing options to employees, it is possible that benefit costs can be controlled without a great deal of damage to the employee.
N. JOSEPH CAYER
Employee Benefit Research Institute, 1985. Fundamentals of Employee Benefit Programs. 2d ed. Washington, DC: Employee Benefit Research Institute.