Employee Benefits—An Overview
Topics...
State and Federally Mandated benefits
Group Benefits
Group Term Life Insurance
Medical Insurance
Dental Insurance
Disability Income
Vision Insurance
Retirement Savings Accounts
Profit Sharing Plans
SEP IRA's
Simple IRA's
Section 125 Cafeteria Plans
In order to remain competitive, as well as attract and retain top employees, employers are faced with the task of creating a winning compensation strategy that will not only accomplish these objectives, but will also stay in line with corporate budgeting constraints. It’s a fact that employee compensation is much more than just a salary. It can encompass all the “perks,” such as vacation and sick time, company vehicles, corporate memberships, and a variety of benefit options designed to provide employees and their families with, at a minimum, health insurance and retirement income. While employers are legally obligated to provide certain state and federally sponsored benefits, the majority of employers also offer, and often contribute to, additional employee benefits.
State and Federally Mandated Benefits. Employers are required by law to participate in certain programs, either through paying taxes or making contributions. These benefits include: workers compensation coverage; unemployment insurance taxes; Social Security taxes; Medicare contributions; and state disability laws, where applicable.
Group Benefits. The majority of employers voluntarily offer health-related benefits to employees. In most instances, the employer and the employee share the cost for employee health-related insurance. There is a wide range of group benefits available to employers, including:
Group Term Life Insurance—Group term life insurance is generally offered as either a fixed amount, or based on a multiple of salary. For example, an employer might offer employees a fixed benefit of $50,000, or perhaps two times their annual salaries.
Medical Insurance—Medical insurance is an important part of an employee’s overall compensation package. Premiums for medical insurance have historically been very costly, and it is almost prohibitively expensive for someone to purchase outside of an employer-sponsored plan. Thus, an employer-sponsored health plan is an excellent way to attract and retain employees.
There are a number of different types of health insurance plans, including Fee-for-Service Plans, Preferred Provider Organizations (PPOs), Point of Service (POS) Plans, and Health Maintenance Organizations (HMOs). One main difference in each of these plans is the number of participating doctors. In a Fee-for-Service plan, an employee may go to any doctor for treatment, and pay a deductible and coinsurance. In a PPO plan, employees may either go to any doctor of their choosing and pay a deductible and coinsurance, or visit one of the participating doctors in the plan and pay a lower co-payment. POS plans offer some of the flexibility of a PPO plan, but the employee must choose a primary care physician within the plan. HMOs allow the employee to see doctors only within their plan, sometimes at an HMO facility.
Whichever plan you choose to offer your employees, you should know that there will be those who insist on seeing their own doctors, and are willing to pay extra premiums and deductibles and coinsurance; for them, a Fee-for-Service or PPO plan may be a good fit. Other employees may not have that need, and will appreciate a less expensive, more restrictive plan, such as a POS or HMO. In order to satisfy the majority of their employees, many employers offer their employees a choice of a Fee-for-Service or PPO plan, as well as an HMO plan.
Health Savings Accounts (HSA’s) were introduced in late 2003 and are seen as a possible alternative to rising health care costs. An HSA is a tax-favored savings account combined with a qualifying high-deductible major medical insurance policy. By allowing you to deposit tax-deductible funds into an account that you can use to cover medical costs, HSAs enable you to take control of your own health care decisions. Every year you are allowed to contribute to an HSA the lesser of your insurance deductible or an amount set by law. For 2004, those amounts are $2,650 for singles and $5,250 for family coverage.
Dental Insurance—Dental insurance plans pay for a majority of services offered by dentists, orthodontists, and endodontists. Services are classified as preventive (routine exams and x-rays), restorative (fillings, endodontics, periodontics, crowns, and prosthetics), and orthodontia (braces). Benefits are payable as a percentage, based on the classification of the service. There is usually an annual maximum benefit per insured, and a lifetime limit on orthodontia. Riders are available for services such as adult orthodontia.
Disability Income—Disability income insurance replaces a percentage of an employee’s earnings, in the event that he or she becomes unable to perform the regular duties of his or her job. Typical benefits range from 50%-70%, up to a monthly maximum benefit. Some disability income plans pay benefits for a number of years, or until age 65. Most plans offer additional provisions via policy riders designed to improve coverage, as well as encourage the employee to return to work as soon as he or she is able. Some of these policy riders include residual or partial disability payments and cost-of-living adjustments.
Vision Insurance—Vision plans generally provide a benefit for the purchase of eyewear or contact lenses, and may also pay for eye exams.
Offering a solid benefits plan now, may help you attract and retain employees that will assist you in maintaining your competitive edge. Keeping employees—especially quality ones—satisfied is an issue that affects all employers. An annual review of your benefits package might make benefits planning a simpler task for all parties.
Retirement Savings Accounts -
401(k) Plans - Quite simply, 401(k)'s are the most popular and well known company sponsored retirement programs on the market. The reasons for this are quite simple. The plan is highly flexible, allows significant contribution amounts (particularly when combined with a profit sharing plan) and permits employees and employers both to contribute, all in a tax-deferred manner.
Profit Sharing Plans - For employers who want to reward long-term employees, Profit Sharing Plans are a great way to do so. The plan enjoys tax-deferred growth, so you and your employees' retirement nest eggs can grow even faster than investments outside of a retirement plan. In a profit sharing plan, the company contributes a portion of its pre-tax profits to a pool that will be distributed among eligible employees.
SEP IRA - A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is specifically designed for self-employed people and small-business owners. It follows the same concept as the profit sharing plan, distribuintg company profits to eligible employees.
SIMPLE IRA's - The SIMPLE-IRA Plan is another tax-advantaged, savings program designed for small businesses with 100 or fewer employees. Unlike the SEP, typically the bulk of contributions come form employee deferrals. The SIMPLE plan is flexible, easy to administer retirement plan for businesses.
Section 125 Cafeteria Plans
Cafeteria Plans offer your employees the ability to pay their insurance premiums using pretax dollars, saving them generally on federal withholding taxes as well as shared payroll taxes. This pre-tax savings, along with our tax-free reimbursement accounts for dependent care and out of pocket health care costs, can increase your employee's take-home pay significantly and reduce costs to the employer. Previously used primarily by Fortune 500 companies, recent changes in availability to these programs make them very affordable to all sizes of businesses. This strategy is one of the least known and understood for small businesses, but can have significant advantages for both employers and employees.
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