What is the fringe benefit rate if 3 weeks vacation, 10 sick days,10 paid holidays, 8 hour work days.
The correct answer and explanation is:
The fringe benefit rate refers to the additional benefits provided to employees that are over and above their direct wages or salary. These benefits can include paid vacation days, sick days, and paid holidays. To calculate the fringe benefit rate, the total value of the benefits is added together and then divided by the total number of work hours, which provides a percentage of the employee’s total compensation.
Steps to calculate:
- Calculate the total number of hours off:
- Vacation: 3 weeks × 5 days/week × 8 hours/day = 120 hours
- Sick days: 10 days × 8 hours/day = 80 hours
- Paid holidays: 10 days × 8 hours/day = 80 hours
- Total paid time off hours:
Total hours off = 120 hours (vacation) + 80 hours (sick days) + 80 hours (holidays) = 280 hours - Calculate the total annual hours worked:
- A standard work year is 52 weeks × 5 days/week × 8 hours/day = 2,080 hours
- Determine the fringe benefit rate:
The fringe benefit rate is the total paid hours off divided by the total annual hours worked: $$
\text{Fringe Benefit Rate} = \frac{280 \text{ hours}}{2,080 \text{ hours}} = 0.1346 \text{ or } 13.46\%
$$
Thus, the fringe benefit rate is 13.46%. This means that the total value of the fringe benefits (vacation, sick days, and holidays) represents 13.46% of the total hours an employee works in a year. This percentage helps companies understand how much of their payroll costs go toward benefits instead of direct wages.
In terms of compensation, this provides employees with additional non-wage benefits, which can have a significant impact on their overall job satisfaction and work-life balance.