Employee Benefits in Small Companies in the Form of Flexible Spending Accounts
It is a challenge for small companies to offer different types of benefits to their employees. A small company can have as few as five employees or hundred employees. The allocated funds for employee benefits are limited and therefore have to be used most effectively. A small company may not be able to compete with a large company in terms of employee benefits but can make the package attractive enough for employees to get hired by them and remain employed with them.
Health insurance related products and retirement plans are significant employee benefits which small companies can and should incorporate into their employee benefit planning.Health insurance plans are most beneficial for employees and they are the most popular benefit that employees want from employers. Some other options related indirectly to health insurance can help to save money for the employees. These include flexible spending account or FSA.
Flexible Spending Account
These types of options are referred to by different terms like, IRS Section125 or Premium Offset Plan(POP). These are specific accounts where employees can save a part of their salary before deduction of taxes to be used for paying premiums for health insurance plans, dental insurance, disability insurance premiums or other related expenses. This applies to the employees’ contribution towards the insurance premiums. Thus, employees can save a significant amount by paying for the insurance premiums with pre-tax dollars. The employer, also saves some tax-money when he matches the employees’ lower contribution. This saving can compensate for the added administrative costs for the employer for implementation of these options. Employers can also fix the percentage of the premium amount that they have to pay. This will make it easier to readjust the contribution when there is a hike in the premiums.
Additional Options of Flexible Spending Account
Small company owners have the choice to offer additional features of IRS Section 125. These are healthcare reimbursement and dependent care reimbursement options. Generally, a company offers both at the same time though they are not bound to offer both.A small company has to hire the services of a third-party administrator to manage the logistics of all these plans and benefit options. The company will have to incur some administrative costs but the benefit options given to employees will have a positive effect on the general goodwill of the company.
An employee may choose to set aside a certain sum of money, which is to be deducted in equal instalments over the period of one year. This amount can be used to pay for the out-of-pocket medical expenses. The dependent care spending account can used to pay for services required for dependents, like summer camp for children.
The company restricts the maximum amount that an employee can choose to put into this account. It is usually in the range of $2000 to $5000. Employees should carefully estimate the amount they will elect to put into this account because any amount left-over at the end of the claim period will go back to the employer. The employee will lose the unused portion.The employer runs a risk here of losing his or her money when an employee makes a claim early in the year and then leaves the job. As per IRS regulations, the employer has to give the total amount claimed by the employee, within his or her elected amount limit at any time of the year. If the employee resigns just after claiming the benefit, the employer will not get a chance to get his money back.However, an employee can claim the total amount only for medical reimbursement cases not for reimbursement of dependent care costs.
Before implementing these benefits, employers have to pass the compliance test and prove that no partial treatment has been given to the highly-paid employees.The requirements of the test ensure that the companies are providing the benefits as per the guidelines laid down by the IRS.
Knowledge and Awareness About the Employee Benefits
Many small companies do not have qualified HR personnel to educate both the employer and the employees about the varied options of employee benefits. Due to lack of proper knowledge, small company owners may lose out on beneficial plans and schemes while designing their employee benefits package. Small companies should therefore, take the services of professionals in this field and also engage third-party administrators to take care of the nitty-gritties of this subject. The professionals will communicate with the employees regarding the benefits that their company is offering and how they may best use them.
Following are some of the most significant benefits that can be offered by small company owners to their employees.
- Health/Medical Insurance - Health insurance has complex rules and regulations. The employer should bring to the cognizance of the employees the medical insurance plans that are being offered in detail.Employees should be told how the plan works, what are the expected costs of the plansincluding out-of-pocket expenses, how to resolve any issue with the insurer etc. Medical insurance claims have to follow certain protocol without which the claims may not get approved. These regulations should be brought into the knowledge of the employees through meetings and discussions.
- Dental Insurance - Employees need to know the benefits of the dental coverage and how to use them. Waiting to take dental coverage till some major dental issue arises is not the prudent thing to do. Dental insurance will not cover any major or expensive procedures within one year of joining.
- Life Insurance - Small company owners can offer group life insurance policies to their employees. They can also arrange professional and legal advice and guidance for the employees to buy the right amount of life insurance, draft their wills etc. This service will greatly benefit the employees for better planning of their funds after retirement.
- Disability Insurance - This insurance, both short-term and long-term disability insurance, is very essential for a working individual which is the main earner of the family. Employers should give employees access to insurance experts who can explain all the rules for claiming disability insurance benefits. Lack of knowledge or wrong information will result in loss for the employee.
- Retirement Plans Offered by the Employer–Again it is a matter of detailed knowledge which is required for retirement planning. Expert advice and guidance from professionals should be arranged by the employers to make the employees aware of their options, management of the retirement fund, choice of beneficiary and all such issues.
- Spending Accounts–If the employer offers flexible spending accounts to their employees, they need to told how best to use them. Employees can save some money by using their flexible spending accounts efficiently and wisely. Employees should be made aware of the pros and cons of using a FSA.
Small business owners can gain the trust and confidence of their employees by implementing all or few of these employee benefit options. However, getting the professionals to handle these plans and arrangements is the best thing to do. Giving the employees access to expert advice is also highly appreciated by them and when the employees are satisfied it will reflect on the development of the company as a whole.