Pay Raises versus Perks

In lieu of pay raises, some small businesses have instead been providing their employees with various perks, such as free breakfasts and lunches, company outings, allowing employees to set their own hours, or permitting employees to bring their pets or their children on school holidays.

From a practical perspective, providing perks over pay raises can be a lower-cost way to help companies seem fun and flexible, and improve employee morale. It can also show employees that the company cares about them and their well-being. Being able to provide more “compensation” to employees for less money than a simple pay raise can be a critical tool for small businesses who are looking to attract and retain top talent. It is also easier for small businesses and startups to provide perks such as free food or company outings since small businesses and startups often have few employees. In addition, perks are easier to remove than lowering employees’ salaries, since many employees won’t view such an act as taking something out of their pocket, but rather as something that was nice while it lasted.

From a legal and financial perspective, perks also have several benefits over pay raises. Most importantly, many perks are not considered income and therefore are not taxable either to the company or to the employee (however, some employment benefits and perks are considered income — you should speak with your business attorney or tax advisor about tax implications before deciding on providing any particular employment benefit). Having perks improves the company culture, which can help companies both recruit and retain talent more easily than before.

However, businesses should not rely solely on perks as a means of attracting talent and keeping employees happy, but should also highlight the underlying reasons why a company is a great employer to work for.