Business owners have to make tough choices when it comes to providing benefits to their employees. Many companies, especially newer or smaller ones, may understandably prioritize flexibility. No one wants to get locked into a benefits offering that’s cumbersome to administer and expensive to maintain.
Well, there’s one possibility that has the word “flexible” built right into its name: the health care Flexible Spending Account (FSA). And these arrangements certainly offer that.
No HDHP required, employee contributions allowed
You’ve probably heard about Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs). These increasingly popular benefits options allow employees to pay for qualifying health care costs with pretax dollars. But each one comes with a critical catch: You must offer HSAs in conjunction with a high-deductible health plan (HDHP), and your business can be the only contributor to an HRA.
These limitations don’t apply to FSAs. An HDHP isn’t required, and both employees and the business itself can contribute to the account. Employee contributions are made pretax directly from their compensation, and any contributions you make as an employer aren’t included in your company’s taxable income. (Note: For employees who have an HSA, their FSA would be limited to funding certain “permitted” expenses.)
So there’s that flexibility we mentioned. You can establish an FSA relatively quickly without having to commit to an HDHP, and both you and your employees can contribute. Now the drawback: FSAs are “use it or lose it” accounts. In other words, a participant generally must forfeit any unused balance remaining in his or her account after year end.
There is, however, a way to soften this downside. Employers can include in their FSAs either a grace period of up to 2½ months or a $500 carryover amount. Doing so can add even more flexibility to the FSA concept.
If you decide to establish a health care FSA, be prepared to regularly communicate with employees about it throughout the year. When funding their accounts, participants will need to carefully estimate how much money they’re likely to spend over the course of the year. And around the end of the year you’ll need to remind them that, if funds remain in their FSAs, employees will need to incur reimbursable expenses by Dec. 31 to use up those dollars (again, assuming you don’t have a grace period or carryover amount).
No easy answers
There are no easy answers when it comes to employee benefits these days. But FSAs can be a relatively simple to administer benefit that’s appealing to employees.
We help you plan, forecast and analyze your financial data
so you can get on top of your finances today to grow your
small business big tomorrow.
Should you buy a business vehicle before year end?
5 Ways to Dance Through Digital Disruption
Find the Right Path Forward With KPIs
Ensuring a Peaceful Succession With a Buy-Sell Agreement
Intelligent Insights: A CFO's Strategic Methods for Cost Controls
4 Surefire Ways to Sustain Business Growth
5 Factors that are Bad for your Business Financial Health
Top 8 Financial Tools for Small Business Owners
Small Business Owners' Top Tax Mistakes and How to Avoid Them
Top 5 Bookkeeping Systems for Small Business 2017
What Are Your Financial Statements Telling You About Your Business?
Small Business StartUp New Research Credit Claims, Explained
Financial Tools: Useful List for Growing Businesses
Capital Budgeting Techniques Maximizing Future Profits
Key Profit Drivers You Should Not Ignore
Small Business Tech Trends: Power of Cloud and Mobile Bookkeeping
Growth Game Plan: 30+ Ways to Improve Profitability
Medical Practice Growth Strategies: Improving Profit Margin for Doctor's Clinic
Is Your Business Growing? Profit and Loss Explained for Small Businesses
How Profitable are your Customers?
Dont Let Founders Syndrome Impede Your Succession Plan
Bridging the divide with a mezzanine loan
Critical connection: How costs impact pricing
4 Ways To Get (and Keep) Your Business Data in Order
Valuation often affects succession plans in hard-to-see ways
How to Maximize Deductions for Business Real Estate
Fortifying Your Business With Enterprise Risk Management
4 Tips on Making your Marketing Emails a Blast
Fun fact: Phone service was taxed early and has been taxed often ever since.
Get Smart: How AI Can Help Your Business
7 Steps to Choosing a Successor for your Family Business
Year-End Bookkeeping Reminders You Dont Want to Miss for your Non-Profit Organization
Can't Keep Up with the Deadlines? 6 Tips for Attorneys to Achieve a Stress-Free Year-End Tax Preparation
6 Key Points that Construction Companies Must Have to Prepare for the Year-End Financial Closing and Tax Filing
Find Time for Strategic Planning
Making the Right Choice About Your Office Space
8 Things You Should Consider for Compliance When You Hire Independent Contractors
4 Ways to Encourage Innovation in Customer Service
Light A Beacon to Your Business with A Mission Statement
Turning Employee Ideas Into Profitable Results
Use Bench Marking to Swim With the Big Fish
5 Questions to Ask Yourself About Social Media
3 Ways to Supercharge Your Supervisors
Blockchain May Soon Drive Business Worldwide
Taking It to The Streets: 7 Marketing Strategies to Consider
Say, Just How Competitive Is Your Business Anyway?
Ask the Right Questions About Your IT Strategy
Bookings Vs. Shippings: A Sales Flash Report Primer
Could a long-term deal ease your succession planning woes?
Fun fact: Sit back and enjoy your frequent flyer miles