THE COST OF FRINGE BENEFITS FOR MANUAL WORKERS IN BRITISH INDUSTRY1
| DOI | http://doi.org/10.1111/j.1467-8543.1963.tb00981.x |
| Published date | 01 June 1963 |
| Author | James Bates,G. L. Reid |
| Date | 01 June 1963 |
THE COST OF FRINGE BENEFITS FOR MANUAL WORKERS
IN BRITISH INDUSTRY’
G.
L. REID* and
JAMES
BATES**
DISCUSSIONS
of wages during the past fifty years have tacitly assumed
that wages are the only labour cost to the employer
of
manual workers,
and also that wages or earnings are the only source of revenue to
the employee. While this may have been true during most of the
nineteenth century, there now exists a wide range of labour-cost items
which are not included in wage costs. The importance of these to the
economic well-being and security of the employee, and to the employer
as part of labour costs has been largely neglected.a This neglect is
at least partly explained
by
the lack of a generally accepted definition
or classification of these items which, in the aggregate, have come
to be called
‘
fringe benefits
’.
This label is comparatively recent, but
the historical origin
of
the practices
so
called
is
clear enough. In the
nineteenth and early twentieth century pensions, paid holidays, works
canteens and similar schemes were initiated
by
a few employers,
often purely as a humanitarian gesture, sometimes for good economic
reasons. They were not negotiated and there were no restraints
on
their unilateral withdrawal
by
the employer. Today the scope
of
voluntary action by an employer has been circumscribed both by the
state and
by
trade unions, until it
is
difficult to define the concept
of voluntary action by an employer in his relations with employees.
The term
‘
fringe benefits
’
has been extended in meaning, and is
now taken to include negotiated plans as well as voluntary schemes;
the cost
of
any payment which an employer
is
legally required to
make on behalf of his employees is also accounted a fringe benefit cost.
Lecturer in Applied Economics, University
of
Glasgow.
**
Lecturer in Economics, University
of
Bristol.
1This article is part
of
an enquiry into fringe benefits in British industry at present
being carried out in the De artment of Social and Economic Research, University
of
Glasgow. The enquiry has
fee,
made possible by a grant from the Nufield Founda-
tion.
We
should like to thank
H.
A.
Clegg,
P.
E. Hart, and
D.
J.
Robertson
for
helpful comments on a previous draft
of
this article. Thanks are also due to the
Ministry
of
Labour
for
certain statistical information, and to the companies which
$his article is intended only to describe the statistical enquiry, to give the character-
istics
of
the sample used, and to present the basic information obtained on the cost
of
fringe benefits.
A
later article will examine the importance
of
the various factors
affecting the cost
of
fringe benefits.
2There have been a few enquiries into the cost
of
these labour-cost items in Britain,
and these will be mentioned later. However, we are much less fortunate than other
countries. Enquiries have been carried out in the past few years by the U.S. Chamber
of Commerce, the
U.S.
Bureau of Labor Statistics, the Statistical Office of
E.E.C.,
the High Authority
of
E.C.S.C., the I.L.O., the Swedish Employers’ Confederation,
the Associazione Industriale Lombarda, and the French National Institute
of
Statistical
and Economic Studies.
A
survey of most of these can be found in James Bates and
G.
L.
Reid,
‘
Supplementary Labour Costs and their Effect on Wage Bills,’
Three
Banks
Review,
September
1962.
articipated in the enquirv.
348
349
There is, however, no precise definition of fringe benefits. Two
criteria of definition can be used:
(i)
benefit to the employee, and
(ii) cost
to
the employer, but neither of these criteria is sufficient
alone. The first, benefit to the employee, is much too one-sided, and
cannot lead to a clear-cut definition or even classification. Cost to
the employer gives a more consistent result, but
it
does neglect the
essential element of employee benefit. For example, it is difficult to
see the exact benefit to the employee of the personnel administration
department.
It
is generally accepted that
a
fringe benefit must confer
some definite benefit on the employee, and this concept was used
by the present enquiry, which thus sought to study only those items
of
labour cost where there was a quite specific benefit to the employee.
The first step in definition is, therefore, to compile a list of items
involving a cost to the employer and an advantage to the employee.
But this will include basic wages, overtime pay, bonuses, and all other
payments normally considered to be earnings,
so
that there is this
further problem, to separate non-wage elements in this gamut of labour-
cost items from what should more properly be called earnings.s The
enquiry was designed to look at those labour-cost items which are
outside the normal definition
of
earnings, but which do give some
definite benefit to the employee; in other words, it was concerned
with supplementary labour costs.
The importance
of
fringe benefits may be represented either as
revenue to the employee receiving benefit, or as cost to the employer
providing it. Over a given period these two need not be equal, either
for an individual employee or for the workforce as a whole. In some
cases, of course, there is an exact correspondence between what the
employer pays and what the employee gets, as with benefits paid in
cash such as holiday pay and sick pay. But other benefits are deferred,
with the employee receiving benefit long after the employer has
incurred the cost, and in some cases the relationship between cost
and benefit is not specific. For example, the employer may contribute
to a scheme from which the employee receives payments, though the
amount
of
the latter
may
not be directly related to the aggregate of
employer contributions on the worker's behalf. Also, many benefits
are selective
so
that an employee may not be eligible or qualified to
participate (for example, redundancy or pension schemes) or he may
choose not to take part.
It
is necessary to know the amount of extra
income accruing to employees in various trades from fringe benefit
schemes if one is to evaluate correctly their relative standards of living;
such knowledge is, indeed, a necessary supplement to official wage
and earnings indices.
COST
OF FRINGE BENEFITS
FOR
MANUAL
WORKERS
3
An extended djscussion of this oint can be found in
G.
L.
Reid,
'
The
Concept
of
Fringe Benefits
,
Scottish
Journafof
Political
Economy,
November
1962.
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