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Benefits for the very small business ...

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by Jan K. Allen

SBJ Contributing Writer

It is a given that employers offer some paid time off, such as holidays, vacations and sick days, according to Tom Everett, managing partner for Elliott Robinson & Company, CPAs. But what other benefits should they offer to be fair to themselves and to their employees? How do they compete with larger companies who can provide a wide range of benefits?

Several options have been "underwritten" by the IRS through tax abatements to both the employer and the employee.

For health and dental coverage, Section 125 plans allow premiums paid by the employee to be taken out of pre-tax dollars, Everett said. All the employer has to do for these plans is withhold the pre-tax premiums and collectively send the funds to the insurance company.

The business owner can do the same thing with day-care expenses, not only saving the employee income tax on the money, but himself as well.

Thus, in a small way the employer is compensated for the extra bookkeeping in the form of a tax break on the money withheld for these purposes, Everett said.

Since these funds are free from federal income tax and FICA, the savings can be significant, depending on the amount of premiums and number of employees.

Everett mentioned that sometimes small businesses can offer fringe benefits germane to their particular trade. For example, a car dealer might let a salesman drive one of the autos on the lot home for the evening. Branson theaters might give complimentary tickets to staff members.

Along with this kind of perk, some small businesses provide a benefit in flexible work schedules, allowing working parents time off to pick the children up from school or letting them come in later in the morning, after school starts.

Also, there are low-cost insurance benefits, such as term life, available through various carriers. Metropolitan Life Insurance Company, for example, offers life and disability insurance for as little as $3 per week to the employee and at no cost to the employer, unless he wants to participate in the program, said Mark Ellman, CFP, a Met agent.

With this coverage, employees may buy coverage for themselves and their families, and although the policy does not accrue cash value like a whole life policy, it does provide a locked-in premium base and may be taken with them if they leave the company, Ellman said.

Again, all the employer has to do is withhold the premiums and submit the total monthly.

"We generally have a 70 percent participation in this program" at the companies where it is offered, Ellman said.

As with the health plans, the employer has the option to participate or to just administer the program through payroll deductions. This is also true of 401(k) and IRA retirement plans.

A small-business owner can initiate an IRA under the Savings Incentive Match Plan for Employees, or SIMPLE, which requires a two-page form for the IRS and has no administration fees, according to Rick Imhoff, CFP, trust officer at Empire Bank.

IRS rules for SIMPLEs require that the employer match employee contributions up to 3 percent.

With the tax savings, again the employer regains part of his contribution to the employee's fund.

Imhoff said the SIMPLE 401(k) is very similar but is less attractive and not as popular as the SIMPLE IRA.

"You'd be better off doing a regular 401(k). Even though the expenses are greater, there are more choices," he said.

With the SIMPLE IRA employees are 100 percent vested from day one.

The SIMPLE IRA has been made much more attractive in the past two years, according to Everett. Administrative costs are down, and limits for the employer's contributions to his own fund under the plan have been increased.

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