Almost any non-salary benefit provided by an employer to an employee is considered a “fringe” benefit.
These benefits can include insurance, a company car, or employee discount, etc. While there are some exceptions, fringe benefits are usually a direct cost to the business in terms of accounting as long as they are allocable to direct labor on a consistent basis.
A direct cost is broadly defined as any cost that can be assigned to a specific item in an accurate way, such as wages, materials, supplies, consulting services and fringe benefits. Indirect costs are simply considered any costs that are not direct. By examining different types of common fringe benefits, you should be able to see that most of these benefits incur costs that can be directly and specifically allocated.
Common fringe benefits include group-term life insurance coverage and educational assistance, which employers in the United States can offer tax-free to an employee up to a certain annual limit. Food and athletic programs/facilities are also common fringe benefits and are both relatively easy to account for and assign to a specific program.
In circumstances where a benefit is difficult to assign to a particular project or program, it may be necessary to count it as an indirect cost, though this is rare. Fringe benefits for administrative and clerical staff, for instance, might be classified as indirect costs.
Costs incurred for the same purpose should be treated consistently. When the cost of a particular fringe benefit is considered direct, any like cost thereafter must be considered the same.