All employees receive some benefits in addition to their wages. Fringe benefits often include the employer's share of social security taxes, the subsidized cost of medical insurance and group-term life insurance premiums, pension (including matching 401(k)) contributions, and employer-provided auto. You may also consider the premiums paid for unemployment, disability and workmen's compensation insurance.

Assume that one of your employees receives an annual salary of $50,000,

with single employee medical insurance coverage costing you $350 per month and a contribution of three percent of salary to the employee's 401(k) account.

With an annual salary of $50,000; employer-paid Social Security of $3,825; employer-provided fringe benefits of medical insurance of $4,200; a retirement contribution of $1,500; total compensation for that employee is $59,525. But even these figures don't tell the true story. Employer-provided medical insurance is a tax-free benefit. The 401(k) contribution is, too, (although it and the accumulated earnings on it will eventually be taxed when the employee withdraws from the plan at retirement).

If you assume a 35 percent marginal tax rate for this employee, the medical insurance and pension contribution are really worth a compensation equivalent of approximately $8,800. In other words, the employee would have to earn an additional $3,100 if he were paying for these benefits himself.

What is the best way to show this? Add a line to the benefit statement and show the tax-affected equivalent of the benefits. Additional compensation needed to pay fringe benefits if paid by employee (assuming 35 percent tax rate) is $3,100, so the total compensation is really $62,625.

Providing your employees with a complete picture of their earnings is an inexpensive way to increase morale and reduce employee turnover.

Michael Actis-Grande is director of tax services at Actis-Grande, Ronan Company, CPAs in Danbury. He can be reached at (203) 797-0056 or at Actis-Grande, Ronan Company is a full-service professional accounting firm providing audit, accounting and attest services as well as tax planning, business and financial consulting services.