As a business owner, you know how much of your company’s success hinges on your relationship with employees. Most employers provide their employees with traditional benefits such as medical and dental coverage, but these may not be enough to retain today’s top talent. In an effort to help motivate and hold on to employees — and keep their companies competitive in the marketplace — employers are always looking for ways to reward workers in a cost-effective manner. Did you know that a wide range of possible employment benefits are not taxable for employees, even though many of them are deductible expenses for employers? These non-taxable benefits help your employees save tax because their after-tax returns are greater than if they received a salary.
Examples of some of these non-taxable benefits include:
- Employer contributions to a registered pension plan for employees, including the new Pooled Registered Pension Plans (PRPP) (the pension is taxable when received)
- Contributions to a “private health services plan” such as those covering drugs, dental fees, medical expenses and hospital charges not covered by public health insurance (except in Quebec)
- Contributions to a deferred profit-sharing plan for employees
- Reimbursement of certain moving expenses for an employee’s work-related relocation
- The value of customer loyalty points earned on personal credit cards offered by third parties, where the employee earned the points on employer-reimbursed business trips (subject to certain conditions)
- Employer-paid tuition fees for courses taken to maintain or improve an employee’s skills in an area related to his or her current or future work responsibilities
- Employer scholarships provided to employees’ children for post-secondary education.
Taxable benefits are also a popular way to compensate or motivate your employees. Employees will be taxed on these benefits as if they had received an equivalent amount of income. Some taxable benefits include:
- Travelling expenses for personal travel, including expenses for the employee’s spouse to travel on a business trip, unless the employee’s spouse was engaged primarily in business activities on your behalf during the trip
- Personal use of the employer’s automobile
- Payment of life insurance premiums
- Income tax return preparation and financial counselling (but not retirement or re-employment counselling).
If you and your employees share the cost of their employment benefit package, try to allocate the cost-sharing so that you pay for all the non-taxable benefits and the employees pay for the benefits that are taxable if you pay for them. In many cases, this allocation can reduce your employees’ tax burden without increasing your costs.
You might also want to consider other incentives for your employees that can offer favourable cash flow and tax savings for both of you. These incentives include employee stock option plans, deferred share unit plans, stock appreciation rights and other deferred bonus plans, restricted stock units and supplementary executive retirement plans.
At a time when employers are looking for unique ways to attract and retain employees, striking the right balance between monetary and non-monetary incentives and benefits can help differentiate employers from the competition.