Contrary to what many people believe, there is no federal statute that requires all employers to provide fringe benefits–such as health insurance, vacations, holidays, sick leave– to their employees. This is true whether the employees are full-time or part-time, or regular or temporary employees. In recent years, some states have required some employers to provide their employees with access to a group health-insurance plan. The same is true concerning retirement pensions. While there are statutes that provide for particular groups of employees to receive retirement pensions, there is again no federal law requiring employers, generally, to provide their employees with pension benefits.
However, while neither fringe benefits nor pensions are ordinarily required by law to be part of an employee’s compensation, many employers do in fact provide their employees with pension plans and other significant fringe benefits. The reasons that employers voluntarily provide such benefits include their desire to remain competitive with other employers to attract and retain quality employees, as well as simply an expectation by many prospective employees that they will receive at least some such benefits. In addition, fringe benefits such as health and life insurance provided in full or in part by the employer are attractive to many employees because such insurance can be purchased far more cheaply for an employee as part of a group with other employees than if the employee had to purchase the insurance as an individual. In addition, unlike wages, most fringe benefits received by employees are not subject to federal income tax.
Unfortunately, fringe benefits and pensions have become increasingly costly for employers to provide in recent years. It is not unusual for fringe benefits to account for up to one quarter or even one third of the money that an employer expends to compensate a typical employee. Furthermore, despite these already heavy costs, the amounts that employers must spend today to provide certain kinds of benefits, like health insurance, is increasing at an incredible rate. Some employers have faced premium increases of over 50 percent in a single year, due largely to the increased costs of prescription drugs, health care technology, medical malpractice, and increase health care staffing costs. Many others have recently experienced smaller but nevertheless significant annual increases in the cost of health care insurance in the range of ten to twenty-five percent. This situation shows signs of moderating, however it continues to create a strong incentive for employers to find ways to reduce benefit costs. Small employers with fewer than 200 workers, in particular have been eliminating health benefits for their employees. From 2000 to 2005, the percentage of employers offering such benefits decreased from 68 to 59 percent. (Kaiser Family Foundation Employer Health Benefits 2005 Annual Survey)