Employee Benefits Kenny Adams, CPA Partner | Have you considered a cafeteria plan?Employers are looking for ways to provide competitive employee benefits at an affordable cost. Consumer-driven health plans go a long way toward helping employers and employees save on the rising cost of health care. How can employers help employees save even more on their share of the cost of health insurance? And, what about expenses the health plan doesn’t cover?
Since 1978, many employers have adopted an IRS-approved benefit plan that helps employees save 25% to 40% on the cost of heath care. It’s called a “Section 125” Plan. By adopting this plan, employers help employees stretch their paychecks. Employees who participate usually see an increase in take-home pay. And employers experience an increase in the bottom line too!
How it works
Employees set aside money from their paycheck – before taxes are taken from their gross pay – to pay for insurance premiums, dependent care expenses, and out-of–pocket expenses not covered by their health plan. Employees who participate in the plan save federal tax, FICA tax and state tax in most areas, because their contributions are taken out of their gross pay before taxes.
The simplest kind of Section 125 Plan is called a Premium Only Plan (POP). This plan is available to employees who share in the cost of employer-sponsored insurance premiums. The plan saves payroll taxes for employers, and employees save $25 to $40 on every $100 they contribute through payroll deduction. Premiums may include an employee’s share of employer-sponsored health, dental, disability, accident, and group-term life insurance. For every dollar employees contribute to the plan, the employer saves about 8% in FICA taxes.
And what about those expenses a health plan does not pay? How can a Section 125 Plan help? With a Section 125 Flex Account, employers and employees save even more. Sometimes referred to as flexible spending accounts, cafeteria plans, Section 125 Plans, or Flex Plans, Flex Accounts let employees set aside a portion of each paycheck – before taxes are taken out of gross pay – and put it into an account the participant can use to pay for expenses not covered by a health plan, such as doctor and prescription co-pays, orthodontia expenses, contact lens, glasses, LASIK eye surgery, smoking cessation programs, and over-the-counter items like pain relievers, cough medicines, etc. Certain dependent care expenses can also be covered. Similar to a POP plan, both the employee and employer can save significant tax dollars on monies contributed to the plan.
Advantages to the employer:
► Save payroll taxes.
► Cushion health insurance rate increases.
► Lower your overall employee benefit costs.
Advantages for employees:
► An increase in take-home pay.
► A reduction in payroll taxes.
► A convenient way to pay everyday expenses and save 25% to 40%.
The result: happier employees and more on your bottom line! It’s easy to get started… just give us a call. We will help you choose and adopt the appropriate plan, educate and enroll your employees, and handle the ongoing administration of the plan.
Email Kenny at Kenny_Adams@mnccpa.com.
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