Voluntary benefits are products and services that are offered by employers but paid for mostly or 100% by employees via payroll deductions. This is in contrast to health insurance premiums, of which employers usually pay a significant portion.
Voluntary benefits can include things like life insurance, dental insurance, vision insurance, disability insurance, critical illness insurance, and accident insurance. It can even include products like identity theft protection, travel insurance, mortgage protection insurance, and medical insurance for pets.
Why would I offer voluntary benefits to my employees?
Your business can get cheaper rates for these benefits than your employees would individually, which makes voluntary benefits a bargain for employees who want the coverage. In many cases, employees are also gaining access to different types of coverage that they might not have even known about before.
And since employees pay all or most of the cost, it’s very inexpensive for employers to offer these benefits. That makes voluntary benefits a win-win for employers and employees.
Voluntary benefits can be offered by the same insurers that provide health insurance for your business, but there are also companies that specialize in voluntary benefits. A broker will be able to help you determine what voluntary benefits package will work best for your business and your employees.
Are voluntary benefits pre-tax or post-tax?
Should I Apply for a PPP Loan? Common Employer Questions, AnsweredFinances and Taxes
Depending on the type of voluntary benefit, employee contributions may be treated as pre- or post-tax.
For some benefits, it’s possible to have employees’ contributions deducted from payroll pre-tax. If you choose to do this, note that your employees may have to pay taxes on some of the pre-tax benefits they receive, if and when they need to use those voluntary benefits.
Many of the more common employee benefits are treated as pre-tax as part of a Section 125 cafeteria plan. These pre-tax voluntary benefits include:
- 401(k) contributions
- Adoption assistance programs
- Dependent care assistance programs
- Employer-sponsored accident and health plans (including FSAs and accidental death & dismemberment policies)
- Group term life insurance (up to $50,000)
- HSA contributions
- Long-term and short-term disability coverage