If you’re one of the 2.7 million U.S. small businesses that doesn’t offer health insurance, here’s something you’ve likely heard from employees: “We have to buy health insurance now. Can the company help us pay for it?” Whether employees have asked directly, or you’ve overheard conversations at the water cooler, you know employees would appreciate help paying for health insurance.
In fact, now that Americans are mandated to either have coverage or pay a tax penalty, health insurance is top of mind for both small business owners and employees, alike.
So, when employees start asking for help paying for health insurance, and you’d like to help with the cost, what are your options? You have a couple. Let’s take a look.
2 Options When Employees Ask for Help Paying for Health Insurance
There are two simple approaches you, as an employer, can take to help employees with the cost of their individually-purchased health insurance.
The two approaches are:
- A taxable stipend: Employees receive a fixed, taxable stipend to purchase health insurance. Essentially, the business grosses up salaries or provides taxable raises.
- A formal tax-free reimbursement plan: With a formal, tax-free arrangement, employees are granted a fixed allowance amount to purchase health insurance, but only receive money if they actually purchase health insurance.
Which approach is better?
A taxable stipend is simple to set up and manage, but the company and employees pay taxes. And, there’s no guarantee employees are using the money on health insurance. Another consideration is that it’s hard to take back a stipend, if the company decides to offer a different health benefit in the future.
A formal reimbursement plan feels like a real, structured health benefits program. Employees are guaranteed to use the money on health insurance and there are tax advantages to both the company and employees. One consideration with a formal reimbursement plan, however, is employers must take steps to ensure compliance with certain federal group health plan rules including IRS, ERISA, HIPAA, and the new ACA Market Reforms. This is easy with the right Reimbursement Software Provider.
Help Paying for Employees’ Health Insurance: What Not to Do
The two approaches explained above are compliant ways to help employees’ with their health insurance costs. Which leads us to what not to do when helping employees with the cost of their health insurance.
To avoid fees and penalties, do not:
- Pay for employees’ health insurance directly.
- Reimburse employees for their health insurance directly without using a compliant, formal reimbursement plan.
Like the majority of small businesses, offering traditional health insurance may not be in the cards for your company. However, if employees are asking—either directly or indirectly—for your help paying for health insurance, know that you have two simple options to help.