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Employee Benefits

In this lesson, we’ll discuss the various benefits that you might provide as a small business owner to your employees and why doing so is more than just a financial investment. By offering medical,. dental plans, stock options and other imbursements, you are also investing in a relationship. It might sound hokey, but it’s a fact: employees who feel appreciated are more likely to stick around than those who aren’t, especially if you can’t offer a competitive wage. And more often than not, the government can help you with the tab. In closing, we’ll also talk about how the Affordable Care Act is offering huge savings on premiums for small business owners.

Mandatory and Fringe Benefits

In most states an employer is required to provide, at the very minimum, sick and vacation pay. And in almost all states, if you employ more than twenty workers, you are required to carry worker’s compensation insurance through one of four qualifying program. The government will mitigate some responsibility for employers of workers in dangerous work environments. Check your state regulations board to see if this means you.

As these benefits become more customary, cutting corners may strain the relationship with an employee who’s overworked or under-the-weather. You may also choose to offer fringe benefit plans, including medical and dental insurance. Paying premiums notwithstanding, your are responsible for a small administrative fee and your employee saves around 40% on medical insurance and other medical costs. The savings generated from non-taxable premiums is about 12% and should more than cover the costs previously mentioned. As a bonus, if you’re structured as a C-corp you hold the same entitlements as other employees and expenses are deductible.

There are two fringe benefits plans that are most popular among small business owners: Premium Only Plans (POPs) and Flexible Spending Accounts (FSAs). The first requires employees to pay premiums as deducted from their wages before taxes. The later is a seperate account that allows employees to deduct their medical costs with a medical spending limit as set by you, the employer. FSAs are limited to medical, dental optical and thereapy costs and employees may be surprised when they find themselves with a large co-pay at the chiropractor or naturopath.

Using a payroll service, you can easily set-up benefits plans for just a couple bucks more than the administrative package. These might include group term life insurance, education benefits (allowing employees up to $5,200 where tuition, books, fees and tools), death benefits and/or meals a lodging. All these benefits listed are tax deductible and any premiums for coverage exceeding $50,000 is added back to your employees wages.

COBRA, HSAs and the Medical Reimbursement Plan

Small business owners are likely to choose a health insurance plan with low premiums. But with low premiums usually comes a big deductible, and unless employees can meet it, what’s the point electing coverage? In 2003, Congress created the Health Savings Account as an answer to this dilemma. Employees make pre-tax contributions to an HSA in order to cover medical costs, to be supplemented by employers. Anything left over can be saved for a rainy day or withdrawn with a tax penalty. This encourages employees to choose plans with larger deductibles, thus saving you money on premiums. The problem today is finding a provider. As the law went into effect less than ten years ago, health insurance companies offering HSA plans are still few and far between as they assess the advantages to both their clients and themselves.

Under the American Recovery and Reinvestment Act of 2009, employees who lose their job under a qualifying event may be eligible for continuation of benefits through COBRA. Those who qualify will receive a 65% subsidy, responsible for paying the remaining 35% of the premium. You, as the employer, can provide this subsidy and apply it as a credit on your tax return, filed quarterly.

Under section 105 of the tax code, Farmer’s and their families whose livelihood is especially dependent on their work may be eligible for a Medical Reimbursement Plan. If you quality, you will be allowed to deduct all medical expenses from your business returns.

Employee Ownership

Stock options and employee ownership is another benefit that’s becoming more common as employee expectations increase. Providing a share of equity can also be an attractive incentive to potential candidates that you can’t otherwise afford. by promising a stake in your business to a valued employee, you may be taking a little more out of your pocket now, but make a great long term investment in the future of your business.

Affordable Care Act (ACA)

“Obamacare” as its pejoratively named, actually offers an incentive to small business owners who provide healthcare benefits rather than a penalty to those who don’t. Under the ACA if you own a business that has fewer than fifty employees on its payroll, you don’t qualify. And as of 2010 the IRS offers a small-business health-care tax credit at 35% for businesses with fewer than 25 employees that pay at least half of their insurance premiums. As of 2014, this is projected to increase to a whopping 50%. That’s pretty huge, and it’s important to know that over half of small business owners who qualified in the first year, didn’t apply. And this isn’t for lack of education on the IRS’ part who has launched a twitter, facebook and video campaign providing information and testimonials on it’s own website.

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