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Here's the situation: new business, 10 employees, expects to grow rapidly. No plan in place currently, but wants to bonus out money for the employees to purchase their own coverage. I've heard conflicting things from TPA's over the past few years as far as what can and can not be done from the employer bonus standpoint.
First, I know there has to be a formula for the bonus that is the same for a particular class of employees (% of compensations, flat bonus, ect). That's not the issue.
Here are the two opinions I received:
#1: An employer gives everyone a $200 a month bonus in their paycheck, the employees have the option to defer that through the Section 125 plan. If they don't, it's taxable as income. The employer has to bonus out the $200 per month regardless as to whether or not an employee already has coverage through a spouse's group plan.
#2: The employer can bonus the $200 directly into the Section 125 plan and open it up only for individual premium reimbursement/HSA reimbursements. That way, employees who are not purchasing individual coverage (or contributing to an HSA) obviously won't get reimbursed.
Are both options possible? I know #1 is legit. I've heard #2 is legit from some TPA's and I've heard from others it is not. Thoughts?
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Also, I know an HRA plan could effectively act as the #2 option, but that has it's own down sides. No option for employees to defer additional amounts and no option to put the bonus in an HSA accont. The employer could set-up both a Section 125 plan and a Section 105 plan, but now the employees heads are spinning and my phone is ringing when they try to get reimbursed.
First, I know there has to be a formula for the bonus that is the same for a particular class of employees (% of compensations, flat bonus, ect). That's not the issue.
Here are the two opinions I received:
#1: An employer gives everyone a $200 a month bonus in their paycheck, the employees have the option to defer that through the Section 125 plan. If they don't, it's taxable as income. The employer has to bonus out the $200 per month regardless as to whether or not an employee already has coverage through a spouse's group plan.
#2: The employer can bonus the $200 directly into the Section 125 plan and open it up only for individual premium reimbursement/HSA reimbursements. That way, employees who are not purchasing individual coverage (or contributing to an HSA) obviously won't get reimbursed.
Are both options possible? I know #1 is legit. I've heard #2 is legit from some TPA's and I've heard from others it is not. Thoughts?
- - - - - - - - - - - - - - - - - -
Also, I know an HRA plan could effectively act as the #2 option, but that has it's own down sides. No option for employees to defer additional amounts and no option to put the bonus in an HSA accont. The employer could set-up both a Section 125 plan and a Section 105 plan, but now the employees heads are spinning and my phone is ringing when they try to get reimbursed.
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