Business Strategies

Employee benefits help you attract and keep good people, but they also cost money and come with legal and tax rules. A thoughtful benefits program fits your budget, your workforce and your goals. Here is how to think it through.

Start With Your Goals and Budget

Decide what you want benefits to do: compete for talent, reward loyalty, support employee health or lower turnover. Then determine what you can afford each year, including administrative costs and your share of payroll taxes where they apply. Ask employees what they value. A benefit that people ignore is money wasted.

Common Benefit Types

• Health insurance. Many employers offer group coverage; some small employers may qualify for tax credits for doing so. Employers of a certain size must offer coverage under the Affordable Care Act. You can learn about options at healthcare.gov.
• Retirement plans. SIMPLE IRAs, SEP IRAs and 401(k) plans can be tax-favored ways to help employees save, with different costs and requirements.
• Paid time off. Vacation, sick leave and holidays are often valued as much as cash.
• Life and disability insurance. Modest group policies can provide valuable protection.
• Flexible spending and health savings accounts. These let employees set aside pre-tax money for qualified expenses.
• Education and training assistance. Can improve skills while giving employees a benefit.
• Dependent care assistance and commuter benefits. Often tax-advantaged when set up properly.

Tax Treatment

Many benefits are deductible to the business and excluded from the employee's taxable income, but only when the plan meets the rules. Some benefits are taxable to employees, and the line can be subtle. Owners of certain entity types, such as S corporation shareholders and partners, face special rules for their own benefits.

Legal and Administrative Requirements

• Written plan documents and required notices for many benefits.
• Nondiscrimination testing for some plans, which prevents benefits from favoring owners and highly paid staff.
• Proper reporting on payroll records and on employee tax forms.
• Compliance with federal and state laws on leave and employment.

Keep It Manageable

You do not need to offer everything. Start with the benefits that matter most, communicate them clearly and review the program annually. Using a payroll provider can simplify deductions and reporting; see our payroll services.

Cost Versus Value

Compare what each benefit costs against its value in hiring and retention. Sometimes a modest, well-chosen package beats an expensive one nobody understands.

To discuss which benefits fit your business and how they are taxed, contact our office.