Fringe benefits are expensive, amounting to more than 40 percent of payroll expense for many small firms. (Reinforces the concept.)

• A. False
• B. True
• C. Not sure
• D. Sometimes

Answer: (B)

The main idea here is that what you pay employees goes beyond just their wages. Fringe benefits—things like health insurance, retirement plan contributions, paid time off, disability and life insurance, and the employer’s share of payroll taxes and workers’ comp—are a sizable ongoing cost for a business. For many small firms, these benefit costs add up to a large fraction of total payroll. Because benefits are often offered to attract and keep workers and are charged per employee, they compound quickly as you add staff. When you tally wages plus all of these benefits, it’s common to see the total exceed 40 percent of payroll expense. That’s why the statement is true and it reinforces the idea that payroll cost includes both pay and benefits, with benefits often representing a substantial portion.