When it comes to workplace satisfaction, more employees than not would choose a good set of employee benefits over a pay raise. . Everybody wants to feel invested in, and implementing a plan that takes care of their physical and financial needs, outside of salaries, shows your commitment to their wellbeing.
Providing a competitive set of benefits is a great way to attract and retain your talent. For a small business, this often takes the form of a good, solid Section 125 plan. Employees have the opportunity to choose from different benefits depending on their unique needs, creating something that actively improves their lives.
Join us today, for a closer look at Section 125 plan, how these work, and the relevant benefits.
Anatomy Of The Section 125 Plan
A Section 125 plan allows employees to choose between any combination of qualifying benefits and specific cash amounts. Employee benefits are doled out as pre-tax deductions which can be deducted from their contribution before you withhold taxes. This allows you to reduce their taxable income, paying less in federal income FICA (Social Security and Medicare) taxes.
Which Deductions Are Featured?
Following the Section 125 guidelines, employers can add a series of benefits to their plan. These benefits aren’t all included under one of these plans, so you’ll want to choose these from IRS’s Publication 15-B.
You won’t be able to include any combination of benefits that defer your employees’ pay, for the most part, but you can include certain 401(k) and life insurance plans. These are typically maintained by educational institutions.
The qualifying benefits are on the table when assembling your Section 125 plan:
- Health and accident benefits, and health savings accounts (HSAs)
- Assistance with dependent care and adoptions
- Group-term life policies
Benefits you won’t be able to include in your Section 125 plan include the following:
- Archer MSAs
- De minimis (minimal) benefits
- Working condition benefits
- Educational assistance and tuition reduction
- Business premise lodging and moving expense reimbursements
- Employee discounts, athletic facilities, and company cell phones
- Retirement planning
- Meals and transportation benefits
Simple Section 125 Plans
For many small businesses, the attraction of a Section 125 plan can be somewhat dampened by the idea that using one might be complicated. The good news is, there are ways to create simple employee plans.
To start, you’ll want to make sure you actually qualify for this brand of benefits package. Employing a specific average of employees in the years before signing up for these packages will make you either or not so much. Employ 100 or fewer employees on average during this time, or show how you expect to employ this number in the coming year, and congratulations: you’re eligible!
Similarly, when employees work at least 1,000 hours in the preceding year, they are eligible for this kind of policy. This means that an employer will typically exclude employees who do not meet these criteria while providing benefits to ones who do.
You can choose to provide contributions of at least 2% of your employees’ compensation for the year, or 6% for this same period or twice their salary reduction contributions, whichever is less.
Are you looking into Section 125 plans for use in your business? Why not let a professional handle it for you? Check out these and other custom group plans and services from Vision HR today, and find a better way to give back to your employees.
