Opinion: Business owners and employee benefits: Free coffee doesn’t cut it

Ryan J. Hurn

Small businesses and municipalities often offer assorted employee benefit plans, including individual retirement accounts like the Savings Incentive Match Plan for Employees, or SIMPLE IRAs, solo/group 401(k)s, and Simplified Employee Pension plans, as well as group insurance benefits such as life and disability insurance.

Employees greatly value these benefits, and the educational support provided during implementation and annual reviews.

While employers understand the importance of providing a strong benefits package, they often struggle to balance research and implementation of such packages; however, education is often the antidote to fear, and employers that take the time to sit down and have a conversation about employee benefits often realize that the decision/implementation process is not nearly as time-consuming (or capital intensive) as they feared. For small-business owners still on the fence about implementing benefits, here are a few concepts they may not have considered that outline the advantages of a well-structured benefits package.

Tax-deductible premiums
A major tax advantage of offering group benefits is the deductibility of premiums. Health insurance premiums for medical, dental and vision coverage are considered legitimate business expenses and are fully tax deductible. This means the cost of premiums paid on behalf of employees reduces the business’s taxable income, lowering overall tax liability. This deduction helps manage expenses while providing valuable coverage to employees.

Tax advantages for retirement plans
Group retirement plans, such as 401(k) plans and SIMPLE IRAs, offer additional tax benefits. Employer contributions to these plans are tax deductible, including matching contributions and profit-sharing for 401(k) plans. SIMPLE IRAs also allow deductions for contributions, whether they are matching (up to 3%) or nonelective contributions (mandatory 2%) to employee accounts. These deductions lower taxable income and overall tax expenses. Providing retirement benefits not only enhances employee satisfaction but also aids in attracting and retaining staff, supporting long-term business stability.

Reduced payroll taxes
Group benefits like health savings accounts and flexible spending accounts provide significant payroll tax advantages. Contributions to these accounts can be made through pretax payroll deductions, which reduce employees’ taxable income and, consequently, the employer’s payroll taxes.

Contributions to FSAs and HSAs are exempt from Social Security, Medicare and unemployment taxes, leading to substantial payroll tax savings for the employer while offering employees valuable tax-advantaged savings options.

Potential tax credits
Employers may also benefit from various tax credits related to group benefits. For instance, the Small Business Health Care Tax Credit provides financial support to small businesses offering health insurance.

To qualify, businesses must have fewer than 25 full-time equivalent employees and meet specific wage thresholds. This credit can cover up to 50% of premiums paid, providing direct financial assistance and incentivizing businesses to offer health insurance.

Compliance, avoidance of penalties
Offering group benefits can help businesses comply with regulations such as those outlined by the Affordable Care Act. Compliance with these regulations helps avoid costly penalties and fines. While this may not directly affect taxes, preventing penalties supports financial stability and helps maintain a positive business reputation.

Consulting a reputable and qualified tax professional is essential when implementing group benefits. Their expertise increases your chances of maximized tax advantages and regulatory compliance. A tax professional can navigate complex tax rules, optimize deductions, and avoid potential pitfalls, enhancing the overall efficiency and effectiveness of your benefits strategy.

In conclusion, implementing a strong employee benefits package is crucial for attracting and retaining top talent and improving employee morale (all while effectively managing business expenses). By seeking professional guidance, small business owners can optimize their benefits strategy, fostering both employee satisfaction and business success. It is truly win-win.

Ryan J. Hurn is a certified financial planner professional with New York Life Insurance Co. in Springfield. He can be reached at rhurn@ft.newyorklife.com.