Your employees are unique then how can your benefits program be one-size-fits-all?
Although the option of offering flexible benefits may be daunting, it is necessary. It isn’t just enough to offer employees a generic roster of benefits along with adequate compensation.
In order for employees to be truly engaged, employers must go out of their way to offer employees versatile benefit options to choose from. In this article, we’ll take you through what a flex benefits plan is and how to adopt one for your company.
What are Flexible Benefits?
Flex benefits often referred to as cafeteria plans, are the employee benefit plans available. Such plans are over and above the compensation provided to employees. Employers consider flex benefits plans since they give a high degree of flexibility for employees looking to tailor-make their benefits package.
Standard benefits plans are often rigid, while flexible benefits plans let employees choose the benefits most suitable for them. Employers can create a tailor-made benefit plan for their employees, where they get to choose from options such as health insurance, retirement plans, and even reimbursement accounts.
Flexible benefits plans are cherry-picked by the employee to cater to their interests, needs, and lifestyle.
What Qualified Benefits Must a Flex Benefits Plan Include?
A cafeteria-style flexible benefits plan is one where employees are given a list of benefits that they can choose from. In a flex benefits plan, employees are still given the same money that their compensation included. The only difference is that they can choose to apply it to flex benefits on a pre-tax basis or receive it as a part of their taxable salary.
IRS pinpoints a laundry list by way of criteria in section 125. A cafeteria benefits must:
- Ensure that employers provide benefits on a pre-tax basis
- Employers need to include a taxed benefit option. Two examples of these options are cash benefit and disability insurance.
- It should have at least one qualified benefit that isn’t taxable:
- Health Insurance Benefits
- Adoption Reimbursements
- Child and Dependent Care Assitance
- Group Life Insurance
To opt for or even facilitate such plans, both employers and employees must go through the state government’s regulations too. Such terms and conditions vary for state or region and the parties of the plan must comply with it.
Examples of Flexible benefits
- Work-oriented plans – These plans may include facilities like career planning, paid travel expenses, remote work expenses paid, workplace flexibility, paid time off, personal holidays, training and development materials, remote working option, and more.
- Personal plans – These plans would include perks in adhering to health and wellness. Some cafeteria benefit plan example are wellness assistance, donations, health coverage, ease in reimbursement, income protection, insurance coverage, educational reimbursements, and more
- Future planning – This flexible benefits plan includes a 401(k) plan, or health savings account, both of which are tax-free savings mediums.
Difference between Flex Benefits and Traditional Plan
Traditional Employer Benefit Plan – The employer’s course of action for these plans is to pay a part of the employee’s insurance or other benefits. The rigid nature applies when employees do not wish to avail themselves of the provided benefits. It might be a possibility that they are already insured, and they would like to discard the option. In such cases, the benefits are only disposed of and not substituted.
Flexible Benefits – This is where flex benefit plans kick it and its use is highlighted. Contrary to a standard plan, the entitled sum of perks remains the same, while the employee gets to choose how they wish to avail themselves of it.
Suppose an employer provides benefits worth $5000 to their employees. It falls upon the employees how they wish to use the same. Employees can choose to avail for it in cash, or any other mediums, the total of which must be $5000.
A crucial fact to know about is, if employees avail the benefits in cash, it would be a tax obligation.
Benefits of a Flex Benefits Plan
Employers who are subject to payroll taxes, would not have to pay the tax for the sum of the flexible benefits they provide. The rationality of this perk is, employees, make use of the benefits pre-tax. Hence, inclusions in the flexible benefits plan have no payroll tax obligations.
Payroll Taxes Saved Counterbalance offered Flexible Benefits Cost
Facilitating such a flexible benefits plan includes cost, but it is compensated through the payroll tax saved. Employers can further cut the cost by using an FSA account. if employees leave any portion of the provided perks unused, the entire sum goes back to the employer.
Benefits Participants and Non-Participants
Flexible benefits plan lets employees participate or otherwise, and still enjoy the benefits. The employee can choose to take the benefits in cash as well if they have no interest in participating in any kind of benefits. The standard plan on the other end, only allows the employees to participate in the provided plan or the benefits are disposed of.
Why must companies introduce flex benefits?
- Valuing your employees need will increase employee engagement, job satisfaction, and retention
- Although the cost of introducing flex benefits may be expensive, initially there will be the added benefit of tax savings
- There is no denying that flex benefits let employers retain the best talents. When employees are provided flex benefits, they feel a sense of belongingness.
- Flex benefits include medical insurance, gym memberships, or even General Practitioner services. This means employers will have a healthy workforce, which directly creates a healthy working environment.
- Hiring is becoming a harder task with each passing day and flex benefits are a great way for employers to rise above the competition.
- Flex benefits are another way of creating a brand in the market since people would personally relate to such a company and choose it.
- Employee needs and preferences change often. When employers offer flex benefits, they will be able to keep up with present as well as future needs.
Ideas to build a Flex Benefit Plan
While employers can include health insurance plans they are just the tip of the iceberg. Here are some additional ideas for flex benefit programs:
- Offer gym memberships
- Annual paid time off
- Dental insurance
- Vehicle loan as travel perks
- Life insurance and pension offers
- Employee Development programs and workshops
- Workplace childcare for working parents
- Work from home expenses
- Cafeteria and lunch budget
Flexible Benefits for Small Companies
Cafeteria plans help small companies cope with the drawbacks of benefits costs that massively affect them.
- Employers can choose to provide creative funding solutions for cafeteria plans under IRC section 125 and non-125 flexible benefit plans.
- Employees are subject to income tax payment for both tax-free benefits as well as cash outside section 125. The notion here is that employees are purchasing the benefits (either tax-free or cash) themselves.
- Employees are only entitled to 25% of tax-free benefits. Employers must maintain key and non-key employees probability in – 3 > 1, to avail of a cost-efficient approach.
- An idea that works well for small employers is to offer health insurance plans to key employees, besides cafeteria plans. This is a concern about the 25% concentration test.
- To skip the requisites of section 125, employers can offer only tax-free benefits. The idea here is to gain maximum benefits for key employees from the total contribution.
Why must employees choose Flexible Benefits Plans?
Flexible benefits are helpful to employees because they obtain the right and feasibility to take a call of action. Employees get to choose their action, i.e. how they would like to spend the benefits that they received.
Employees would have complete control over their benefits, and they will be able to make the most out of it. The employees can choose to fulfill any of their needs from among future planning, personal as well as professional needs.
Flex benefits plans are tax saving for both employees and employers. Also, employers do not have the burden of choosing benefits for their employees, since they choose what works best for their lifestyle.
Register for Flexible Benefits
To register for flex benefits, employees can choose the self-service programs or through eligibility programs. The process to register is the same for both mediums of enrolment, and is similar to the non-flex benefits plans.
For non-flex benefits plans, total employee payroll deduction statistics are included.
Disadvantages of a Flex Benefits Plan
Well, flexible benefit plans advantages and disadvantages are equally existent. While it is an effective employee retention strategy, it also has certain disadvantages.
Offering flex benefits means constantly monitoring and ensuring that the program adheres to different laws and regulations. Efforts and resources required to monitor are also equally proportionate to the number of flex benefits provided. The more benefits you provide, the greater shall be the time and resources you would need. Creating a plan is also time-consuming and not a great option for smaller businesses that just don’t have the time to undertake such a complex venture.
Communication is the essence that keeps the plan going since there are a lot of modifications employees can choose from. HR must constantly be in touch with the employees regarding the plan. To keep the administration and communication smooth, companies opt for flex benefits software.
Annual Lock-In Period
Employees who avail for a certain benefit do not get the benefit of switching before the period of one year. In cases of life events, employees can change the plan but they have to pay the additional charge themselves since the employers have locked in the benefits for the year already.
The cost of offering a flexible benefits program is high since the requirements to come up with customized plans are many. Employers need to purchase technology as well to align with the needs.
Frequently Asked Questions on Flex Benefit Plans
How do flexible benefits work?
The flexible benefits schemes are plans and strategies which employers adopt to hire and retain high-performing employees. Flex benefits provide freedom of choice to employees, where they can choose how they wish to redeem the benefits employers provide. It also lets employees avail themselves of the benefits in cash, but is subject to tax.
What is the process of availing tax exemption for employees through flex benefits?
When employees declare expenses and produce receipts under the flex benefits heads, they can reduce their taxable income.
What happens to unclaimed flex benefits?
Unclaimed flex benefits are added back as cash compensation. These are taxable. If the employer offers the flex benefits through an FSA account, the funds would go back to the employer.
When does an employee receive the flex benefits?
Employers pay the benefits prior and employees are requested to present the receipts at the end of the financial year. When the employees fail to submit the receipt, they are subject to income tax payment. Contrarily, employers may as well deduct a portion of flex benefits monthly from employees, and reimburse it at the time of submitting receipts.
Hiring has become a battleground for companies to prove their worth. With high-performing employees being a scarce resource, companies need to go out of their way to build their brand by offering unique and flexible perks. Flex benefits are cost-intensive in the short run. But in the long run, it reduces the costs of hiring and training new employees.
At AttendanceBot, we have a WFH allowance and unlimited vacation time by way of unique perks.
What is your company doing by way of unique flex benefits? Reach out to us at @HarmonizeHQ and inspire us.