Benefits of Benefitting Your Employees

In today’s competitive job market, finding and retaining top talent is more challenging —and expensive—than ever. As a small business owner, you might think that offering attractive compensation packages is out of reach. However, there are several smart strategies you can employ to maximize employee benefits without breaking the bank. Let’s explore some innovative approaches that can help you attract and retain valuable team members while optimizing your company’s financial resources.

The Cash Conundrum

Many business owners default to offering cash raises when they want to reward or incentivize employees. While this approach is straightforward, it’s not always the most efficient. For example, a $500 monthly raise might cost you $548 after taxes, but your employee only receives $462 due to their tax burden. Your employee only receives 84% of the cash raise — not ideal when you’re expecting 110% effort from your team.

Health Insurance: A Win-Win Proposition

Offering health insurance is the most common benefit employees look for but is often seen as too expensive. By implementing a plan where both you and your employees contribute, you can provide significant value at a lower cost. For instance, with a $500 monthly policy split 50/50, you pay $250, and your employee receives $250 in benefits. And often times, the employee can get a better plan than what they could purchase themselves.

But here’s where it gets interesting: by setting up a Premium Only Plan (POP) under Section 125 of the tax code, you can allow employees to pay their portion of the premium with pre-tax dollars. This simple change allows the employee a tax deduction for an expense that they normally couldn’t deduct. It’s a win- win situation that can significantly boost employee satisfaction.

The Power of Health Savings Accounts (HSAs)

If you’re looking to take your health benefits a step further, consider offering a high deductible health plan paired with a Health Savings Account (HSA). HSAs offer a triple tax advantage: contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free.

This is one of the most often overlooked tax deductions available to employees or small business owners!

Retirement Plans: More Than Just a Future Benefit

Implementing a 401(k) plan can be an excellent way to help your employees save for retirement while also maximizing your own contributions. New plans today offer flexibility, allowing for both traditional and Roth contributions, and can include features like employee loans and in-plan Roth conversions.

There are several tax credits available for setting up new plans and making contributions to lower-income employees. These credits can offset the costs of implementing and maintaining the plan, making it a more attractive option for small businesses.

It’s time to move beyond the cash raise mentality and explore the full spectrum of benefits available to you as a small business owner. By thinking creatively about compensation and benefits, you can create a win-win situation that helps you attract and retain top talent while managing your bottom line.