Employee Cafeteria Plans and Productivity

And if you're one of those fearless, ambitious microbusiness owners I read about every day in publications like Crain's Chicago Business, you'll realize that creating and providing a competitive employee benefits package is crucial to your company's long-term success. The hard-to-find "creative class" and "knowledge worker" types that Richard Florida is always harping on about can be attracted and kept with an appealing health plan. Offering a generous group plan is a great way to connect your company's goals with those of your employees.

In any case, the choices for group benefits are practically endless. A cafeteria plan is one that should be prioritized. If you're looking to give your employees more control over their compensation, consider implementing a cafeteria-style benefit plan so they can pick and choose the perks that interest them.

Maybe it would be best if I went back to the beginning... Cafeteria plans, also known as the flexible spending account, the choice spending account, or the Section 125 plan, have grown in popularity in recent years because they provide workers with a straightforward method of deducting medical expenses from their paychecks before federal and state taxes are applied.

Eligible employees can take advantage of a flexible spending account by putting aside a certain amount of money each year to use toward medical costs that aren't covered by insurance. Dependent care reimbursement accounts (also known as DCRAs) and health care reimbursement accounts (HRAs) are the two most frequent types of FSAs. These accounts are used by workers to cover out-of-pocket costs. Unfortunately, FSAs are "use-it-or-lose-it" accounts, so any unused balance at the end of the year is forfeited.

Key Employees are Exempt from These Restrictions

Money saved under a cafeteria plan's FSA is typically free from social security, Medicare, and unemployment insurance contributions. Taxes like those on wages and unemployment benefits for workers are typically exempt as well. (For details on the special handling of highly compensated employees and certain stockholders of Subchapter S corporations, see IRS Pub. 15-B.)

The premiums for a group life insurance policy are usually free from both income and unemployment taxes. Also, generally speaking, payroll taxes are not levied on premiums paid for benefits coverage up to a maximum of $50,000 per employee. See IRS Publication 15-B for further information.

Cafeteria plans, on the other hand, give you more leeway in customizing benefit packages for your employees. You can offer your workers a wider range of fringe benefits in a cafeteria plan, some of which may be exempt from taxation under IRS benefit exclusion rules. A cafeteria plan could be kicked off with the help of a flexible-spending account by creating a DCRA and HCRA. The Internal Revenue Service requires all cafeteria plan sponsors to file Form 5500 annually.

The employment cost index is a quarterly statistic published by the U.S. Bureau of Labor Statistics (BLS) to help you keep tabs on expenses associated with hiring and maintaining employees. Employee compensation costs (such as salary, wages, and benefits) are what the cost index tracks. Besides the quarterly cost index, the BLS also releases an annual survey of compensation prices.

Finally, the foregoing is not meant to be taken as financial advice and is presented purely for amusement reasons. Don't be afraid to seek the counsel of a financial, tax, or benefits expert if you need guidance unique to your company's situation.

It's possible you'll want to go all the way and employ a full-service benefits consulting business or an interim benefits consultant. Online, you can also find a variety of reliable resources. Independent organizations that provide "actionable" data on employee benefit plans include the Employee Benefits Research Institute (EBRI), the International Foundation of Employee Benefit Plans (IFEBP), and the American Benefits Council.