Fringe benefits are expensive, amounting to more than 40 percent of payroll expense for many small firms.

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

Answer: (A)

Fringe benefits are a major part of total compensation, not just the cash wages employees see. These benefits include the employer’s cost of health insurance, retirement plan contributions, paid time off, and the employer’s share of payroll taxes and workers’ compensation. For many small firms, these costs add up quickly on top of base wages. When you factor in health premiums, retirements matches or contributions, and payroll-related taxes, the total compensation per employee can easily exceed the base payroll by more than 40%. That’s why it’s common to see fringe benefits representing a sizable portion of payroll in small businesses. Of course, the exact percentage varies by how robust a benefits package is, but the statement reflects a real and widespread reality in many small firms.