Show Employees Their Hidden Paychecks
Categories - From Our Newsletter, News
Show Employees Their Hidden Paychecks
A top-notch workforce is essential to your company’s success. It’s always important to have engaged, loyal employees, and in an economic downturn, it’s more critical than ever to keep employee morale high to maintain the competitive edge top-quality employees bring.
One way you keep your best employees on board is by offering a generous benefits package. But do your employees fully appreciate your investment? According to many surveys, they don’t. Employees tend to focus on their share of the costs, and many grossly underestimate the amount their employers pay. Employees also tend to underestimate what employers pay for other benefits such as paid time off (PTO), tuition reimbursement, pension or 401(k) plans and statutory benefits like employer-paid Social Security.
So how do you make sure employees know and appreciate how much you spend on their benefits – traditional benefits like health, dental and life insurance as well as benefits like PTO and statutory benefits? Communication is the key.
One of the most effective ways to drive home the point is to present the full costs of all the benefits you provide as an employer in the form of a “hidden paycheck" or a total compensation statement. For example, if you pay an average of 20% of an employee’s salary on providing a traditional benefits package, an additional 5% on matching 401(k) contributions and approximately 10% each on PTO and statutory benefits, you could provide a “hidden paycheck” communication or benefit statement outlining the following for an employee who receives an annual salary of $50,000:
YOUR HIDDEN PAYCHECK
$50,000 in salary
$10,000 in employer contributions for health, dental and life insurance
$5,000 for time off
$2,500 in 401(k) contributions
$2,500 for statutory benefits
$70,000 = TOTAL COMPENSATION
Of course, the amounts will vary depending on how much you contribute to employee benefits. But as you can see, even with fairly conservative estimates, the amount is significant. A hidden paycheck communication gives employees a big-picture view and increases their appreciation for employer contributions.
There are a variety of ways in which you can present hidden paycheck information. It can be as simple or elaborate as you choose. At myBenefitStatements, we have a number of formats available (click here for sample formats). Or you could make it an annual tradition, presenting hidden paycheck information or a benefit statement at year-end in the form of an annual total pay statement for every employee.
No matter how you choose to convey the information, revealing hidden paycheck amounts is a worthwhile endeavor. It can help you get the word out about how much you actually spend, raising employee awareness of your investment in your human capital. It can build valuable good will, which is a critical commodity, especially in times of economic hardship, when your need for a competitive edge is greatest.
A Look at Healthcare Reform’s Impact on HSAs and FSAs
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If your company currently sponsors a flexible spending (FSA) or health savings account (HSA) to allow employees to pay out-of-pocket medical expenses with pre-tax dollars, be prepared for upcoming changes.
Under the new law, maximum annual FSA contributions are reduced, and there are new regulations affecting how the funds can be used. The intent of the new rules and penalties is to generate revenue which can be used to fund aspects of the health care reform package.
FSAs and HSAs (assuming the employee is covered under a qualified high deductible health plan) allow an employee to contribute tax-free funds that can be used to pay for deductibles, drug co-pays, treatments that are not covered by health insurance, and other qualified medical expenses.
Beginning on January 1, 2013, the annual limit for FSAs will be set at $2,500. Previously, the IRS had stipulated that employers could establish their own FSA contribution limit, and according to the Center on Budget and Policy Priorities, these limits generally fell into the $2,000 to $5,000 range. In 2009, Mercer’s National Survey of Employer-Sponsored Health Plans stated that the average yearly employee contribution was $1,424.
Annual limits for HSAs, however, were not affected by the new legislation.
Be aware that some restrictions will become effective more quickly. For example, as of January 1, 2011, FSA and HSA participants will no longer be able to spend the funds on over-the-counter medications unless a physician has specifically prescribed them. Also starting next year, non-qualified withdrawals from HSAs will be subject to a 20% penalty instead of the 10% penalty which is currently applied.
Our sister division can help you with all your FSA, HRA and HSA questions. Click over to myCafeteriaPlan.com to learn more about how we can help you communicate with your employees.
IRS Health Care Tax Credit Available for Small Businesses
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The recent health care legislation signed into law by President Barack Obama contains a Small Business Health Care Tax Credit that will help small businesses with the cost of providing their employees with health care. The tax credit’s benefits are available immediately for the 2010 tax year.
According to the Congressional Budget Office, small businesses are expected to save an estimated $40 billion by 2019, due to the Small Business Health Care Tax Credit. The tax credit is effective retroactive to January 1st, 2010 and covers up to 35 percent of a small business’s premiums, with the rate increasing to 50 percent on January 1st, 2014.
While non-profit organizations are eligible for the credit, they will receive a lower percentage. Tax exempt organizations will be able to receive up to a 25 percent tax credit in 2010, which will be raised to 35 percent in 2014.
The tax credit has broad eligibility, covering 4 million small businesses. Any business that pays at least 50 percent of employee health care costs, employs the equivalent of 25 or fewer fulltime workers (allowing eligibility for companies with 50 part-time workers), and pays an average employee salary of $50,000 or less (not including owners and their family members) will be eligible for the Small Business Health Care Tax Credit.
The maximum credit of 35% is available for small businesses with 10 or fewer fulltime workers and an average salary of $25,000 or less. For businesses that pay employees between an average of $25,000 and $50,000, the tax credit gradually phases out. The gradual phase out also applies to businesses that employ an equivalent of 10 to 25 full time workers (20 to 50 part time workers).
Businesses are able to claim the credit for a total of six years. They will be eligible to claim the credit for four years, from 2010 to 2013, and then any two years after the 2013 date.
To keep businesses from abusing the system by picking a high-cost plan, the Small Business Health Care Tax Credit will only be eligible for the average health insurance cost of the state where the business is located. This information will be provided by the IRS at a later date.
For more information, refer to the IRS website at http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6.
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