Benefits for You, Your Employees and Your Business

By Dave Starr

Employee benefits are a popular topic today.  This is because in today’s job market, more employees are beginning to place value on employer-provided benefits. Salary is no longer the only determining factor when an applicant accepts or declines a job offer.  Employees are increasingly interested in what else the employer has to offer, such as life, health, disability and retirement benefits.

As a business owner, you’re probably interested in benefits, too. Chances are you’d like to provide benefits for yourself and your employees – and benefit your business.  Employer sponsored benefit plans provide many advantages for all involved.

Advantages for the Employee

Employer benefit plans provide employees with coverage they may not have purchased on an individual basis. These benefits are usually provided at little or no cost to the employee. In addition, some benefits are also available for the employee’s spouse and children.

Any employee costs associated with the benefit plan are usually collected through convenient payroll deduction plans. Payroll deduction allows employees to pay monthly, rather than annual premiums, and saves them the cost and hassle of writing checks.

Advantages for the Business Owner

Benefit plans also provide many business advantages.  They help attract and keep valuable employees.  In today’s competitive job marketplace, a good benefit plan can make the difference between hiring or losing qualified job applicants.

Benefit plans also boost employee morale and provide a sense of security. Employees appreciate the benefits you’re providing. They know they’re covered in case of a medical emergency – or if they become disabled.

Benefit plans may provide a current tax deduction for the business.Or there may be a tax deduction available when the benefits are paid out.  Some plans include future cost recovery provisions.

Qualified vs. Nonqualified Benefits

Choose between two categories of benefit plans – qualified and nonqualified.

Qualified Benefits – Regulated by the Internal Revenue Service and Department of Labor, qualified benefits must be approved and comply with non-discrimination, funding and reporting requirements.  Your business receives a current tax deduction for premiums paid, within limits.  Plan participants are not taxed o life and health plan premiums and benefits, within limits, and are usually allowed to defer taxation on retirement plan contributions until withdrawn.

Nonqualified Benefits – Nonqualified benefit plans are more flexible because they aren’t regulated as strictly as qualified plans.  Unlike qualified benefit plans, you, the employer, can pick and choose which employees you want to cover in the plan.  That’s why nonqualified plans are sometimes called “executive benefits.”  Executive benefit plans can provide either a current tax deduction or future cost recovery feature.

Which Plan Is Right For My Business?

Many businesses find that a combination of the two work best – a broad plan covering all employees and a supplemental plan covering only “key” people.  Each business and business owner is unique.  You should decide which benefits you want to provide, evaluate your current benefit plan and then adjust your plan to fit your needs.

The best plan is a plan that meets your objectives – for your employees, your business and you. 

Dave Starr is Regional Managing Director with Principal Financial Group in Sioux Falls.