Sharing of premium payments, between employers and employees, has become a common method of providing a comprehensive benefits package while managing the associated costs. Under this type of arrangement, your employees can access group insurance plans (most notably, health insurance). At the same time, you are able to put a cap on your own expenses, by covering premiums up to a certain amount and then allowing employees to share in the cost.
This arrangement provides benefit not only to your employees, but to you as well. But of course, you face certain responsibilities as well.
Fiduciary responsibility. As the employer, you withhold from paychecks the employee’s contribution to the benefit plan. As such, certain regulations govern the handling of these funds. Employers are under fiduciary responsibility to use those funds only for the purpose of insurance premium payments, and payments must be made in a timely manner.
Consequences for missteps. Accounting is no small task for business owners, and mistakes can be made. But with regard to the aforementioned fiduciary responsibilities, mistakes in this area can be costly.
Late premium payments can trigger lapses in insurance coverage, causing no small amount of inconvenience and hardship to employees. The courts recognize these situations as a serious problem, and employers who lapse on insurance payments can face legal problems such as lawsuits. Failing to appropriate employee contributions correctly also results in stiff fines.
Income tax obligations. In addition to fiduciary responsibility, you are tasked with keeping appropriate records for tax purposes. The IRS takes a serious view of pre-tax contributions, and lack of appropriate documentation can lead to trouble with auditors. In this case we are talking about Section 125 documents; these must be set up properly, and kept secure in the event that a review becomes necessary.
Section 125 adds yet another task to your accounting regimen, but it is one of utmost importance.
Sharing the cost of insurance premiums is certainly a worthwhile endeavor for both employer and employee, but as you can see, it is also no simple matter. We urge you to contact us if you have any questions about your benefits plan, and the associated regulations and documentation. We can explain your benefits plan in greater detail, and help to ensure that everything is in order.