Employers can also implement a means for employees to make any contributions to their coverage on a pre-tax basis merely by adopting a plan document that allows for this feature. Both employees and employers save on taxes and therefore increase their spendable income. Employees reduce taxes because the pre-tax contributions toward premiums or Spending Accounts are not subject to federal, state, or social security taxes. Employers save on the employer portion of FICA, FUTA, SUTA and Workers Compensation premiums. Employees receive benefit improvements at a time when such improvements are unlikely, due to cost pressures.
Employers experience a renewed appreciation from their employees.
The company, in effect, is giving the employee a raise without the cost of the raise coming from the employer. One of the best things about Section 125 is that the company does not need to modify its current program. The addition of Section 125 is an enrichment, not a change. Many employers find, however, that implementing the program provides an excellent opportunity to make benefits plan changes that have been under consideration. The proper introduction of a flexible benefits plan depends largely on the ability to administer the plan.