What is a Premium Only Plan?
A Premium Only Plan is a fringe benefit plan, which is authorized under the IRS code Section 125. It is a tax reduction plan, not an insurance plan. A Premium Only Plan allows employees to pay for their portion of benefit plan costs on a before-tax basis.
What can we expect to save with this plan?
On average, the employee savings will be approximately 30% and employer savings 7.65% of the employee contributions for benefits.
Do we need a lot of employees in order to benefit?
No. The tax savings are created by the employee’s contributions for insurance. As long as the plan does not favor key executives and owners, there is no minimum number of employees necessary in order to have a plan.
Which employees are eligible for the plan?
All employees that you, the employer, declare eligible. If you allow part time employees to participate, you must allow all part time employees to participate. The business owner may also participate if the owner is actually considered an employee by the corporation.
What are the benefits of a Premium Only Plan?
Generally, employers will payroll deduct an employee’s portion of the benefit plan costs right out of his or her paycheck. The benefit cost is deducted AFTER taxes have been taken out of the employee’s paycheck. What this means is that LESS taxes are taken out of the employee’s paycheck. Less taxes means MORE MONEY in the employee’s pocket.
In addition, many states require having a Premium Only Plan in place when offering group benefits.
Does the company have to have a certain insurance carrier?
No. It does not matter where or what medical benefits are available to you. It only matters that the employee is paying for some portion of their benefits.
Must all employees participate?
No. Only those employees who have premiums for which they would like to save on taxes should consider participation.
When can my plan begin?
As soon as you decide to begin saving for yourself and your employees.