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Fringe Benefits to Salaries Expense Ratio Definition

Definition

The fringe benefits to salary expenditure ratio permits analysts to comprehend how much an organization spends on employee benefits in accordance with a business standard. A business may analyze its competitive standing by simplifying the price of its benefits software in accordance with this business or peers. The metric can be of use when assessing potential savings chances throughout a merger.

Calculation

Fringe Benefits to Salaries Expense Ratio = (Medical Insurance Pension Plans Other) / Total Wages

Where:

  • Other may comprise adjusted participation programs like the 401 (k), life insurance, and commuter and health applications; along with
  • Wages involve wages in addition to payroll taxes.

Explanation

The fringe benefits of salary expenditure ratio lets company analysts to have an understanding of the uniqueness of these company’s employee benefits program versus a industry standard or potential partner. A company with $ 1billion in salary could spend anywhere from $200 to more than 300 million in their own employee benefits programs.

Companies are always attempting to restrain expenses, and people companies in second-hand industries are constantly diluting their gains plans contrary to their own peers. The fringe benefits to wages ratio lets company analysts to comprehend if they truly are over-delivering on benefits or in case there’s a chance to save this expense. Fringe benefits to salary ratios will on average be 0.20 to 0.35, or put in 20 to 35 percent to a business ‘s labour expenses.

Example

Company A has approached Company XYZ in regards to a possible merger. Analysts in Company A believe Company XYZ’s employee benefits are all overly-generous. A photo of each and every provider ‘s wages and benefit apps come in the table below.

Company A Company XYZ
Total Wages and Salaries $21,470,400 $13,955,760
Payroll Taxes $1,502,928 $976,903
Total Salaries and Taxes $22,973,328 $14,932,663
Employee Benefits
Pension Plans $1,717,632 $1,256,018
Life Insurance $214,704 $139,558
Medical Insurance $3,435,264 $2,093,364
Child Care Subsidies $0 $418,673
Health and Wellness Programs $429,408 $418,673
Total Employee Benefits $5,797,008 $4,326,286
Fringe Benefits to Salaries Ratio 0.25 0.29

Based upon the above mentioned info, analysts in Company A believe they are able to lower prices in Company XYZ by aligning both benefits programs. This translates to annual savings of 0.04 x 14,932,663, or even $597,307.