Happiness in the fringes Featured

9:53am EDT July 22, 2002

Here’s the myth: Small businesses can’t afford to offer employee benefits. Here’s the truth: Small businesses can’t afford to not offer employee benefits. Here’s why.

First, business owners today must offer more than a salary to attract the most qualified people. Benefits are ranked as important as salary.

Second, studies have shown that a strong benefits package can increase employee productivity and company growth. A survey of 1,000 employees across the country conducted recently by Aon Consulting of North Carolina revealed that employees who have valued benefits are less likely to miss work or quit, were more satisfied with their jobs and had a higher commitment to their company’s goals.

Third, offering certain benefits can reduce the employer’s payroll taxes as well as the employees’ personal taxes.

The first two employer reasons are self-explanatory. Happy employees stay and work hard. The third reason merits some explanation.

Business owners can avoid payroll taxes on the portion of compensation shifted from salary to fringe benefits. Such benefits include group-term life insurance (up to $50,000), medical insurance, parking, employee discounts, and noncash holiday gifts. Employees who receive these benefits in lieu of salary decrease their taxable income.

Other benefits that can save business owners money include cafeteria plans; dependent care through cafeteria plans; health insurance premiums paid through a Section 125 plan; employer-provided adoption assistance through cafeteria plans; and medical savings accounts.

Through cafeteria plans, employees can defer part of their salary to pay for qualified unreimbursed medical, dependent care and adoption expenses. They can also use it to pay for certain insurance premium contributions before personal taxes are calculated from their paychecks.

Employees don’t pay Social Security taxes on this deferred amount. For business owners, this means paying less in taxes on Social Security matching funds and earning interest on unclaimed contributions employees deposit in the plan.

Unfortunately, many business owners run afoul of the laws. The trick is to avoid some of the most common mistakes when offering benefits. The biggest mistake is leaving employees out of the plan. The general rule of thumb is that, if one employee gets a tax-advantaged benefit, the same benefit must be extended to everyone. The key is to obtain competent advice by securing the services of an employee benefits consulting firm.

Other mistakes business owners make are:

  • Absorbing the entire cost of employee benefits. Employees are allowed to contribute a percentage toward the cost of insuring dependents and, in most cases, will willingly do so.

  • Covering nonemployees. Business owners must be truthful with their insurers if they want to cover employees’ relatives or friends.

  • Sloppy paperwork. Make sure the person enrolling employees and processing paperwork is knowledgeable and not so overworked that details are missed.

  • Not telling employees what their benefits cost. When kept informed, employees are more appreciative of their benefits.

  • Giving unwanted benefits. It’s only a benefit if it is valued.

Business owners should be creative when offering benefits. Employee memberships at a discount store such as Sam’s Club are always appreciated. Or how about a discounted group rate at a local day care facility, which would help employees with young children.

The bottom line for business owners is that strong companies, regardless of size, have qualified people working for them. To attract this caliber of employees and keep them happy and productive, employers must give them what they want.

Louis P. Stanasolovich is founder and president of Legend Financial Advisors, Inc., a fee-only Securities and Exchange Commission registered investment advisory firm located in the North Hills that provides asset management and comprehensive financial planning services to individuals and businesses. He can be contacted at (412) 635-9210. The firm’s Web site is located at www.legend-financial.com.