Let's begin by assuming that a company operates 5 days per week for 8 hours per day for 52 weeks per year—a total of 2,080 hours per year. Let's also assume that each year the employee is entitled to 15 days of paid vacation, 8 paid holidays, and 5 paid sick days. This amounts to 28 days of 8 hours each, or 224 hours per year that the employee is paid when not on the job. Therefore, the employee's wages for

*working*on the job will be 1,856 hours per year (2,080 hours minus 224 hours) times $20 per hour = $37,120 for a year.

Next let's compute the cost of the hypothetical fringe benefits earned by the employee. For the paid vacation, holidays and sick days the annual cost is $4,480 (224 hours not on the job times $20 per hour). Let's also assume that the employer pays the following annual costs for the employee: $7,200 of the employee's health, life and disability insurance; $2,000 for the employee's retirement benefits; $1,100 for worker compensation insurance; $210 for unemployment insurance; and $3,182 (2,080 hours X $20 X 7.65%) for the employer's portion of the Social Security and Medicare taxes. The sum of these costs for employee benefits is $18,172 per year.

The hypothetical amounts shown above result in a fringe benefit rate of 49%. This is $18,172 of annual benefits divided by the $37,120 of wages earned while working on the job.

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