Fringe benefits provided by a company are a component of total compensation. Wage and salary payments, commissions, production-bonuses, extra pay for overtime and late shifts, and stock grants comprise direct pay.
Typical fringe benefits may include the following:
- Employer contributions to stock option, profit sharing, and retirement plans
- Employer contributions for health, life, and disability insurance premiums
- Expense account allowances that reimburse living expenses
- Paid time not worked for vacations, holidays, and sick leave
- Educational assistance
- Section 125 (cafeteria) plans
- Child care assistance
- Employer contributions for Social Security, workers’ compensation, and unemployment insurance
Fringe benefit information may be obtained directly from the employer of the injured party. A union member’s fringe benefits may be obtained from the union contract. National studies are also available from the Department of Labor and the U. S. Chamber of Commerce. Working-condition fringe benefits lost as a result of personal injury, wrongful death, or employment termination are generally valued as of injury or incident date and projected over the period of loss. The period of loss may be the work life expectancy, front-pay period, or may end when alternative employment is obtained. Some fringe benefits are provided during retirement, thus extending the loss period through life expectancy.
Once the value of the benefit and the period of loss are determined, the lost benefit is quantified by applying growth and discount factors. The lost benefit may be based upon the cost to the employer, the value to the employee (replacement cost), or based upon an amount obtained from national studies. Lost fringe benefits may be computed as a percentage of compensation in the base year with future growth equal to the same growth rate that is applied to the salary. Alternatively, lost fringe benefits may be computed as a specific dollar amount in the year of injury or incident with growth factors applied separately over each year of work life expectancy or life expectancy, depending on the benefit provision.
Arguments for including fringe benefits in economic damages include the fact that if the person cannot work due to an injury or job termination or death, he or she loses a large share of total compensation in the form of fringe benefits, generally between 20-30% of pay. Secondly, if the worker did not receive fringe benefits from an employer, the replacement cost as an individual would be considerably higher. Employers provide benefits due to competitive or market forces that operate to set competitive levels of total pay, not just wages and salaries. Challenges for the forensic accountant include what fringe benefits to include, how to value them, and how to estimate future growth in fringe benefits.