Attracting and keeping great employees is tougher than ever. Competitive pay is important, but it’s no longer enough on its own. Today’s workers, especially younger generations, want benefits that support their health, growth, and overall quality of life. For business owners, that means reviewing benefits regularly through two lenses: what employees value and how those benefits are treated for tax purposes. By being strategic, you can build a package that strengthens loyalty without straining your budget.
What Employees Value Most
Recent research shows employees aren’t shy about what they want:
- Flexibility and work-life balance remain top priorities. SHRM’s 2025 Employee Benefits Survey found that flexible work schedules and remote/hybrid options are among the most requested benefits.
- Healthcare coverage still tops the list. Both SHRM and Randstad’s 2025 Workmonitor report confirm that affordable, reliable healthcare is non-negotiable for most employees.
- Mental health and well-being programs are now expectations, not extras. Employees increasingly see counseling support, wellness stipends, and stress management programs as essential.
- Retirement savings plans remain a key driver, especially as economic uncertainty pushes younger workers to start planning earlier.
- Professional development, from tuition reimbursement to training allowances, is seen as a sign that employers are invested in long-term growth.
These preferences matter because they directly impact retention. Randstad’s survey shows nearly two-thirds of employees would leave for another employer that offers benefits better aligned with their needs. For small and mid-sized businesses that can’t always compete on salary, tailoring benefits to these priorities can level the playing field.
The Tax Treatment of Fringe Benefits
So, how does this connect to taxes? Many of these employee “must-haves” qualify as fringe benefits, extra compensation beyond wages. Under IRS Publication 15-B, fringe benefits are generally taxable to employees unless specifically excluded by law. The good news? Many of the most popular benefits are either excluded from taxable income for employees or deductible as a business expense for employers.
That makes them a smart investment: employees see more value, and you may reduce your tax burden at the same time.
Popular Benefits That Work for Both Sides
Here are some of the most widely used benefits, along with their tax treatment and strategic impact:
- Health Insurance – Employer-paid premiums are deductible, and employees usually don’t pay tax on this coverage. For workers, it’s the single most valued benefit.
- Retirement Plans – Contributions to 401(k)s or SIMPLE IRAs are deductible for employers. Small businesses may also qualify for tax credits to offset startup and administrative costs.
- Professional Development – Up to $5,250 annually in educational assistance can be excluded from an employee’s taxable income. This is a cost-effective way to support growth while enhancing retention.
- Wellness and Mental Health Programs – Certain employee assistance programs qualify as tax-free benefits. These are increasingly important for morale and productivity.
- Commuter Benefits – Transportation and parking benefits are deductible up to IRS limits, helping offset commuting costs without creating taxable income for employees.
- Meals and Entertainment – Some meal benefits remain deductible at 50% (with exceptions), though rules are narrower than they once were.
Why This Matters for Business Owners
When you align benefits with both employee priorities and IRS tax treatment, you create a win-win scenario. Employees feel valued and supported, which helps reduce turnover. Employers, meanwhile, maximize deductibility and control costs. This is especially critical for small and mid-sized businesses competing with larger firms: you may not match salaries dollar-for-dollar, but you can offer smarter, targeted benefits that deliver outsized impact.
Benefits aren’t just perks anymore; they’re part of your talent strategy. By regularly reviewing your offerings through the lens of both employee demand and tax efficiency, you can attract and retain the right people, all while keeping your bottom line in check.