Insurance premiums can be easily predicted, as can childcare. Medical expenses may be a different story, however, and your employees must be forewarned. First, there is the matter of goodwill as was mentioned above. Somewhat more measurable, however, are the monetary savings to the business. As the taxable wages for Social Security and Medicare are reduced, so are the related taxes, which must be paid by the employer.
Cafeteria plans share certain administrative hassles and formalities with retirement plans.
For example, the plan must be in writing and filed with the Department of Labor. Elections to participate must also be written. A cafeteria plan must not discriminate in favor of the highly compensated employees and must be tested for discrimination annually. For instance, no more than 25 percent of the plan's benefits can be paid on behalf of key employees. Any benefits received by the highly compensated group from a discriminatory plan become taxable to them.