P O P (Premium Only Plan) for your employees

P O P (Premium Only Plan) for your employees - a money saver for you

March 2006 - P O P isn't fizzy, but is does save you money. What is it? P O P stands for "Premium Only Plan", a slimmed down version of a Section 125 plan, casually called a "cafeteria" plan or Flexible Savings Account (FSA). And it is one of the most under-utilized employee benefits around - one that any employer who has a contributory welfare benefit plan sorely needs. This concept can be an incredible way to enhance your benefits package, while simultaneously boosting your profits.

Why is this concept under-utilized? Because Section 125 FSAs can be a liitle costly to set up and operate, most employers with less than 10 employees assume that they will never make it pay for itself. But these plans typically include three "modules" - premium only, flexible spending, and dependent care spending. Since much of the cost of administration (not to mention the headache of account losses due to utilization rules that favor the unscrupulous employee) are in the FSA portions, the premium only module is cheap, easy to set up, and provides immediate tax relief to both employee and employer, without the headaches or administration costs of a full blown FSA. In fact, it is the simplest type of Section 125 plan and requires little or no maintenance once it's been set up.

Premium only plans allow employees who contribute to the costs of employer-sponsored health and welfare benefit plans the ability to withhold a portion of their salary to pay for their premium contributions. Because these benefits are viewed as tax-free under the IRS Code, an employee's taxable income is reduced. Employers win because pre-tax benefits aren't subject to FICA, FUTA, or work comp premiums on these wages. Simply put, every dollar through a P O P reduces an employer's payroll, reducing the employers costs, which immediately drop to the bottom line.

Since your employees are already paying for these expenses out of pocket, a P O P gives them a great way to save money by lowering their taxes, which increases the percentage of their take home pay.

With taxes likely to rise in the future, this is a 'gimme' for any small business employer. [Back] [Next]