The annual deduction limit on HSA contributions for a person with self-only coverage under a High-Deductible Health Plan for calendar year 2025 is $4,300 (up from $4,150), and a $8,550 (up from $8,300) annual deduction limit for a person with family coverage in a HDHP.

Before we dive deeper into the 2024 – Present Revenue Procedures, the following is a brief refresher on HSAs.

HSAs Explained

As explained by the IRS, a Health Savings Account (HSA) is a tax-advantaged trust or custodial account you set up with a qualified HSA trustee to pay or provide reimbursement for certain medical expenses you incur. In other words, the HSA was designed to pay for day-to-day medical costs via HSA funds that an individual or family member may incur while remaining tax-free.

The account is owned by the employee and money is deposited directly into the individual’s account.

Employees may make contributions in the form of lump sum contributions or pre-tax payroll deductions. An employer may also contribute to the account.

As soon as funds accumulate, they are available. This differs from a health flexible spending account (FSA) that has uniform coverage, in which the full balance is available on the first day of the plan year.

HSA Tax Penalties

HSAs offer numerous tax benefits, but it’s important to understand the potential tax penalties associated with these accounts. One such penalty applies to excess contributions, which are contributions made above the annual contribution limit.

If employees contribute more than the allowable limit, you will be subject to a 6% excise tax on the excess amount. Additionally, any excess contributions made are considered taxable income in the year they are made. It’s important to educate your employees to keep track of contributions to avoid exceeding the limit and incurring these penalties.

Another tax penalty pertaining to HSAs relates to using the funds for ineligible expenses. Using HSA funds for non-qualified expenses before the age of 65 will lead to a 20% penalty on the amount used for such expenses. This penalty is in addition to any income tax owed on the withdrawn amount.

After the age of 65, the penalty for using HSA funds for ineligible expenses is reduced to the ordinary income tax rate. However, it’s essential to note that even after the age of 65, using HSA funds for ineligible expenses will still result in taxable income.

To avoid tax penalties, it is crucial to provide the proper information for employees to familiarize themselves with the eligible expenses for HSA funds and ensure that contributions do not exceed the annual contribution limit. By understanding these tax penalties, users can maximize the potential tax savings offered by HSAs.

Annual Contribution Limits for 2025

It’s never too early to start thinking about future medical expenses, tax saving opportunities, and saving for retirement.

Remember, HSA contributions may be made through pre-tax salary reductions and/or on a post-tax basis, up to the maximum limit for that year. Post-tax contributions may be made up until the date an individual’s taxes are due.

Please read our disclaimer here.

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Business owners need to move fast to support their team members, but must also remain compliant with federal regulations they’re not familiar with. Yikes. While they can’t build a time machine to prevent this frantic feeling, you can learn from their mistakes and prepare yourself for the future. 

Below is an overview of FMLA. We cover your responsibilities as an employer, and helpful steps to create an FMLA policy to maintain compliance and support your people. 

What is FMLA?

The Family and Medical Leave Act (FMLA), is a federal law under which eligible employees are entitled to up to 12 work weeks of unpaid, job-protected leave within a 12-month period for specific family and medical reasons.

An employee can take their available FMLA leave consecutively or schedule intermittent leave to help balance their work and family responsibilities.

By providing this unpaid job-protected leave, the FMLA supports employees in managing significant life events while maintaining their employment status.

One of the FMLA’s cornerstone provisions is the guarantee of job restoration. When an employee returns from FMLA leave, you must reinstate them to the same position they held before the leave or to an equivalent position with the same wage, benefits (like health insurance coverage), and other terms of employment. This rule ensures that if FMLA leave is taken it does not disadvantage the employee in their career progression. 

FMLA violations by employers include interfering with, restraining, or denying the exercise of these rights and any form of retaliation.

Does FMLA Apply to Small Businesses?

FMLA applies to private-sector employers with an average of 50 or more employees for 20+ weeks in the current or prior calendar year. 

It also applies to all public and local educational agencies, regardless of their number of workers.

State Paid Family Leave Laws

Just because you, as the employer, may not qualify for FMLA doesn’t mean your company can ignore state paid family medical leave laws. 

Thirteen states, as well as Washington D.C., have mandatory paid family leave systems.

The states with mandatory laws are California, Connecticut, Massachusetts, New Jersey, Rhode Island, Washington, Colorado, Delaware, Maine, Maryland, Minnesota, Oregon, and New York. New York uses a mandatory private insurance system, meaning the state requires insurers to purchase paid leave plans that offer coverage. 

Nine other states have voluntary systems that provide paid leave through private insurance. Because laws and benefits regularly change, it’s important to stay up-to-date on your state’s requirements. 

For more information on the status of state-level family leave policies and programs, visit Bipartisan Policy Center.

How to Calculate Employees

Below are a few tips to ensure your calculations are accurate and that you maintain compliance with FMLA requirements. 

• To determine the number of workers employed each week of the year, employers must include all employees listed on the payroll who worked any part of each working day, even if they weren’t paid during that time. This includes full-time, part-time, seasonal, and variable-hour employees.
• Each employee is counted as a single employee towards the 50-person threshold. This means that part-time workers are not counted as fractional employees as they are for COBRA and ACA purposes.
• Related employers, sometimes called integrated employers, must aggregate their total employees to determine FMLA applicability. If, as a group, they have more than 50 employees for at least 20 weeks in the current or previous year, they all have to follow FMLA requirements.

FMLA Qualifications

To be eligible for FMLA leave, an individual must be considered a qualified employee. This means that, before their protected leave starts, they have worked for a covered employer for at least 12 months cumulatively, for at least 1,250 hours. 

In addition, their employer must employ at least 50 employees within 75 miles of the workplace at which the employee works.

How Employees Can Use FMLA

Only certain situations make an employee eligible for FMLA leave.

• The birth and care of a newborn child;
• Placement of a child for adoption or foster care;
• To care for a family member with a serious medical concern;
• To care for oneself when the employee has a serious health condition;
• Due to a ‘qualifying exigency’ due to a family member’s active duty status in the Armed Forces
• To care for a ‘covered service member’ with a serious injury or illness.

The Department of Labor (DOL) has defined a ‘serious health condition’ as an illness, injury, impairment, or physical or mental issue that involves either: 

1. Inpatient care in a hospital, hospice, or residential medical care facility; or 
2. Continuing treatment by a healthcare provider

Employee Notice Requirements

Because FMLA is a federal law, it comes as no surprise that there are strict guidelines for requesting FMLA leave. When you create your organization’s FMLA policy, make sure the notice requirement is clear to prevent any miscommunication and missed opportunities for your employees. 

• Employees must: notify their employer when requesting leave and provide certification of the need for FMLA leave within 15 calendar days of the employer’s request. Note that the certification must be completed by a healthcare professional and must include the dates of treatment, the nature of the condition, and the expected duration of the treatment. Employees may be required to provide additional information or documentation to support their request for FMLA leave.
• Employers must: respond to the leave request within five days. 

Can FMLA Requests Be Denied?

Yes, requests for FMLA (Family and Medical Leave Act) can be denied, but only under specific circumstances. 

Some common reasons for denial are:

• Ineligibility: If the employee hasn’t worked for the company for at least 12 months, hasn’t worked 1,250 hours in the past 12 months, or if the company has fewer than 50 employees within a 75-mile radius, the employee is not eligible for FMLA leave.
• Insufficient notice: Employees must generally give 30 days’ notice for foreseeable leave. If they fail to do so without a good reason, the employer may deny the request.
• Lack of medical certification: If the employee doesn’t provide the necessary medical certification to support their leave request, the employer can deny it until the certification is provided.
• Exhausted leave: FMLA allows up to 12 weeks of unpaid leave in a 12-month period. The employer can deny additional requests if the employee has already used up their FMLA leave for the allowed period.

How to Create an FMLA Policy

Developing a well-structured FMLA policy is a critical step for HR leaders to ensure both legal compliance and smooth administration of employee leave. Including this guideline in your employee handbook sets clear expectations, fosters transparency, and minimizes the risk of misunderstandings or legal issues down the line. 

Below are eight steps to help you form your organization’s policy if your company meets the requirements.

1. Establish Your 12-Month Measurement Period

FMLA allows for up to 12 weeks of unpaid leave. Employers can choose how to measure their 12-month FMLA period. The four common methods include:

• Calendar year
• Any fixed 12-month period (e.g., anniversary date)
• The 12-month period starting from the first day an employee takes FMLA leave
• A rolling 12-month period measured backward from the date of leave

Decide which option works best for your organization and ensure it is consistently applied across the board.

2. Determine Your Leave Request Method

Clearly define the process for requesting FMLA leave to ensure effective communication. Outline how employees should notify HR or management (e.g., written requests, specific forms). Specify deadlines for notice, especially for foreseeable leave, and set expectations for what information employees need to provide when requesting FMLA.

3. Include Qualifying Reasons for FMLA Leave

You should list the conditions that qualify an employee for FMLA leave. These conditions generally include:

• Serious health issues affecting the employee or a close family member
• Childbirth, adoption, or foster care placement
• Certain military-related absences 

Provide examples and details to minimize any confusion about eligibility.

4. Display the Notice of FMLA Rights

Ensure compliance by posting the required Notice of FMLA Rights in a visible area, like a breakroom or common area. Doing so fulfills a legal requirement and informs employees of their rights under the law.

5. Outline How Benefits Premiums Will Be Collected

Employees on FMLA leave are entitled to maintain their health benefits. You should explain how benefit premiums will be paid during leave (whether through payroll deductions before leave or another method. Additionally, address what happens if an employee fails to return from leave and how long benefits will continue to be offered.

6. Designate Paid vs. Unpaid Leave Options

FMLA is typically unpaid, but your plan can specify conditions under which employees can substitute paid leave (e.g., sick leave, vacation time) for part or all of the FMLA leave period. Be clear about how accrued paid time off (PTO) or other benefits can be used to supplement unpaid leave.

7. Implement HIPAA-Compliant Procedures for Handling PHI

When processing FMLA requests, it’s likely you’ll receive Protected Health Information (PHI) through doctor’s certifications or other medical documentation. To protect this sensitive information, include a HIPAA Authorization form in your plan. This form ensures that your company can lawfully obtain, use, and store health information related to an employee’s FMLA leave while respecting privacy regulations.

Make sure your plan covers the following:

• Collection of HIPAA authorization: Require employees to sign a HIPAA Authorization form if they submit medical documentation for FMLA purposes. Explain that this document allows you to handle health information strictly for the FMLA process.
• Secure storage and access: Describe the protocols for securely storing PHI, whether in physical or digital formats, and outline which team members have authorized access to this information.
• Guidelines for sharing information: Clearly state that PHI will only be shared as necessary and in compliance with HIPAA. For example, FMLA information might only be accessible to HR and specific managers involved in the leave process.

Implementing these HIPAA-compliant steps in your FMLA policy helps protect employee privacy and keeps your company compliant with both FMLA and HIPAA regulations.

8. Establish Communication Guidelines for Employees on Leave

Maintaining open lines of communication with employees on FMLA leave is crucial. Outline expectations regarding periodic updates on their continuous or intermittent leave status and their return-to-work date. Make sure employees know how often they need to check in, if applicable, and if they need to provide additional medical certifications during extended leave.

9. Create a Return-to-Work Process

Your should also address how employees will be reintegrated once they return from FMLA leave. In most cases, employees are entitled to be reinstated to the same or an equivalent position. Outline any necessary steps, such as fitness-for-duty certifications or missed training, and ensure that employees understand what will happen when they return—whether they will resume their previous role or be reassigned to an equivalent one.

Maintain Compliance and Support Your Employees

While there are numerous rules and regulations for FMLA, navigating it as an employer or employee doesn’t need to be (and shouldn’t be!) confusing. By understanding the ins and outs of FMLA, as well as creating a clear organizational policy, you’ll feel more comfortable making decisions and supporting employees, all while maintaining compliance. 

The post FMLA Small Business Requirements appeared first on PrimePay.

You should also consider the actual structure of your benefits plan – specifically, whether a cafeteria plan that allows for pre-tax salary deductions for health and other benefits is beneficial for your employees and organization. While cafeteria plans can incorporate several benefit components, they can also be as simple as a premium only plan (POP).

What is a Premium Only Plan?

A premium only plan (POP) falls within the Internal Revenue Code’s Section 125, which lets employees use some of their earnings before taxes to pay for group insurance and other pre-tax contributions. It’s the simplest form of a cafeteria plan and a smart way for employers and employees to save on taxes.

Beyond the umbrella term of health insurance premiums, POPs can encompass various insurance products (including group term life insurance, disability insurance, and even dietary supplements), provided they align with the cafeteria plan’s rules.

Why You Should Offer a 125 Plan

Imagine your ideal benefits plan. Does it involve saving everyone money, empowering employees to be their best selves, or elevating your company’s competitive edge?

If you answered any (or all), you’re in luck. A POP is a win-win scenario where employees gain access to a cafeteria plan without bearing the full brunt of associated costs, and employers amplify their benefits offerings.

Moreover, integrating a 125 cafeteria plan nurtures your workforce and signals that you’re committed to fostering a supportive and financially savvy work environment. Offering a POP allows you to:

• Save everyone on pre-tax deductions: Employers realize 7.65% in FICA tax savings, and employees average 25% tax savings. 
• Invest in your team’s financial well-being.
• Set the stage for attracting the 80% of candidates who believe financial wellness is an integral part of a comprehensive benefits package. 
• Provide a menu of benefits that employees can tailor to their unique needs, enhancing their satisfaction and loyalty. 

Allowing employees to select benefits on their own time and for their unique needs adds value to the employee experience and ensures people will choose the plans and pre-tax savings that are right for them.

Maximizing Tax Savings with Cafeteria Plans

A 125 plan should be a part of your strategic financial planning, as it offers businesses and their employees a wealth of potential tax savings (pun intended). By skillfully navigating payroll taxes, a POP plan strengthens the financial defenses of both parties against unnecessary tax liabilities.

Whether it’s a health savings account, a flexible spending account, or even Archer medical savings accounts, pre-tax contributions made to these vehicles under a Cafeteria Plan can significantly reduce the tax burden.

Employer Benefits: Reducing Overhead with POP

The POP plan is a practical approach to managing overhead costs for employers. By embracing this plan, you can effectively shrink your taxable payroll. The result? Substantial savings, especially for many employers within the professional services sector. 

For example, let’s say small company Jerry’s Jungle Gyms offers a premium only plan. A possible scenario may look like the following:

• Each of the 20 employees chooses to contribute $3,000 pre-tax to their group health insurance through the POP. 
• The collective reduction in taxable income can lead to an estimated annual tax windfall of $4,590, which provides a tangible impact of nontaxable benefits on Jerry’s company balance sheet.
• Thus, Jerry’s offering of POP becomes a gesture of goodwill and a strategic move to retain talent and reduce costs.

How Employees Save Money with POP

Employees also find themselves in a favorable financial position using pre-tax dollars to pay for qualified medical expenses. By reducing their income taxes through pre-tax deductions, they witness a welcome boost in their take-home pay – a direct result of their lowered tax liabilities. 

Consider employee Susan, who earns an annual salary of $60,000. By participating in the POP and reducing her taxable income to $57,000, Susan could see her take-home pay rise by approximately $1,725. This example illustrates the tangible benefits of the premium-only plan, where saving money isn’t just a catchphrase but an actual outcome of strategic financial planning.

Tip: Focus on employees’ financial literacy. Because over 60% of people say improving financial literacy is their top educational priority, you’ll empower your employees to use your benefit offerings confidently and signal to top talent that you’re invested in their future.

Avoiding Common Pitfalls of POP Implementation

While the benefits of a POP are clear, it’s essential to note potential drawbacks.

Employers must be vigilant in complying with the intricacies of Section 125 plans, ensuring that their POP plan is secured by formal written documentation and adheres to the stringent nondiscrimination rules. 

The ‘use-it-or-lose-it’ rule is another aspect that demands attention, particularly with Flexible Spending Accounts (FSAs), a feature that employers can implement in their Cafeteria Plan. Employers must convey the importance of this rule to employees effectively and the constraints on altering Cafeteria Plan elections mid-year, which are only permissible during qualifying life events. 

Tip: HR must use clear and repeated communication regarding benefits and financial resources. PWC found that only 68% of employees report using the financial wellness services their employer provides, indicating that most benefit reminders only happen during administration season instead of throughout the year. 

The Role of a Third-Party Administrator in Managing a Cafeteria Plan

We’re not going to lie: Navigating benefits and employee questions can be time-consuming and confusing, which is why the expertise of a third-party administrator is invaluable. Many third-party administrators guide employers and help them:

• Create plan documents that comply with nondiscrimination rules and other regulations.
• Communicate the intricacies of the Cafeteria Plan to their employees.
• Educate participants on maximizing benefits. 
• Conduct regular compliance reviews to ensure the plan remains up-to-date with any changes in legislation or IRS guidelines. 

Furthermore, some third-party administrators and/or benefits advisors can offer valuable insights into optimizing the plan’s structure to better align with your company’s overall benefits strategy. They can recommend adjustments that enhance the plan’s effectiveness and employee satisfaction by analyzing participation data and employee feedback. This continuous improvement cycle ensures that the POP remains a valuable asset in your company’s benefits portfolio.

Eligibility and Participation Rules for POP

While companies of various structures – from S corporations to non-profits – can sponsor a Cafeteria Plan, not all individuals within these entities are eligible to reap the benefits. For instance, owners, shareholders, and their families may find themselves on the outside looking in when it comes to participation.

S corporation shareholders with over a 2% stake encounter unique restrictions under a Cafeteria Plan These individuals and their immediate family members are barred from participating—a rule extending to the intricate web of relationships, including spouses, children, and grandparents. This limitation underscores the need for S corporations to carefully consider the implications of their ownership structure on their ability to participate in a Cafeteria Plan.

Keep an eye on these eligibility nuances to maintain a fair and compliant plan with IRS regulations.

Maximize Pre-Tax Savings with a Cafeteria Plan

It’s clear that Cafeteria Plans offer a compelling blend of tax savings, employee satisfaction, and compliance considerations. Whether you’re an HR leader looking for new ways to retain top talent or a business owner weighing the benefits of implementing a Cafeteria Plan, the takeaway is undeniable: they help build a thriving, financially healthy work environment for everyone involved.

The post Section 125 Premium Only Plans (POP): What Employers Should Know appeared first on PrimePay.

Instead, it’s the distinct lines between generations. On the surface, generational diversity in the workplace is great – people of different ages (and, therefore, experiences) bring various perspectives, values, and opportunities to the table. 

Of course, those differences between the five (yes, five) generations also bring numerous challenges, especially when it comes to HR building a multigenerational employee experience and DEIB strategy that meets all needs. 

One of those needs to consider is the company’s benefits package and how it helps support your multigenerational workforce.

The Importance of Multigenerational Benefits

Generational diversity in the workplace isn’t just about management or communication styles. It’s also about meeting employees’ needs, including the different types of benefits that support their health and wellness outside of the 9 to 5.

Specifically, Kimberly Abel-Lanier, author of 8 Ways to Motivate the Five-Generation Workforce, states that “the multigenerational workforce requires flexible leadership, policies and programs. Today’s leaders must familiarize themselves with the perspectives, needs, and influences of each generation.”

Building out multigenerational benefits packages does more than acknowledge an employee age gap. When HR leaders hone in on definitive needs and use that data to create programs and policies, they help:

• Build an inclusive culture
• Foster trust in the workplace
• Boost morale
• Increase retention rates
• Attract and retain top talent

4 Steps to Choosing the Right Benefits

As with any benefits program, you must understand employee preferences and build your offerings accordingly. The extra – and intentional – work comes with slicing and dicing your data to ensure that all generations’ needs are met in your benefits packages. 

Below are four steps to ensure you select the right benefits for your organization.

1. Understand the Top Benefit Needs of Each Generation

After studying the characteristics of the five working generations, Larry and Meagan Johnson, workplace training experts and authors of Generations, Inc.: From Boomers to Linksters–Managing the Friction Between Generations at Work, identified the societal influences that impacted each generation, emphasizing how characteristics and societal influences impact each age group differently. 

The Silent Generation (Traditionalists) —Born 1925-1945

Influenced by the Great Depression, Traditionalists are motivated by money but also want to be respected. This group typically prefers milestone recognitions, values flexible schedules and promotions, and considers long-term care insurance and catch-up retirement funding as essential benefits.

Baby Boomers — Born 1946-1964

Also referred to as the “Woodstock Generation” and influenced by the Vietnam War, Boomers tend to question authority, be well-educated, possess excellent teamwork skills, and thrive on adrenaline-charged assignments. Perks like prestigious job titles and recognition, such as the size of one’s office space and parking spaces, are also crucial to Boomers. 

Around 10,000 Boomers turn 65 daily, making benefits such as 401(k) matching funds, sabbaticals, and catch-up retirement funding of significant importance to this group. The increasing presence of older workers underscores the value they bring and the necessity for policies supporting their continued employment. As the Baby Boomers transition into retirement, it’s essential to recognize the contributions of older generations and ensure that their legacy of skills and knowledge is passed on effectively.

Generation X — Born 1965-1976

Dubbed the “Me Generation” or “The Latchkey Generation” because many are the children of full-time working or divorced parents, Gen Xers are independent, family-focused, hardworking, and socially responsible. They value benefits such as flexible telecommuting schedules and believe promotions should be based on competence, not rank, age, or seniority.

Generation Y (Millennials) — Born 1977-1997

Generation Y, commonly referred to as Millennials, and the younger generations that follow, are heavily influenced by technology, making them a tech-savvy demographic that prefers using digital devices, the Internet, and social media for communication. This influence shapes their approach to work, emphasizing the need for flexible workplaces, time off, and continuous learning opportunities. Culture is critical to them, as is working with organizations that align with their values and beliefs. Younger workers bring unique perspectives and innovative ideas, underscoring the importance of integrating their skills and fresh insights into the workforce to foster a dynamic and collaborative environment.

Generation Z (Centennials) — Born after 1997

The Facebook generation, or “Linksters” as coined by the Johnsons, is influenced by a media-saturated world. Linksters tend to be motivated by meaningful work. According to Abel-Lanier, “They want exciting projects they can be passionate about.” This group is more motivated by social rewards, mentorship, and constant feedback than money. Members of this generation also expect workplace flexibility and diversity.

2. Collect Employee Feedback

Armed with a general idea of what benefits your multigenerational workforce may prefer, the next step is to collect specific employee feedback. Consider using:

• Open-ended questions. Ask about the type of benefits they want, where they see room for improvement in the current options, and if there is any confusion or issues with accessing benefits. 
• Focus groups. Include employees of varying generations within these groups to ensure your offerings acknowledge how peoples’ needs change with different life stages.

• Ranking questions. Require employees to prioritize which benefits are most important. If you just ask employees to check off which benefits they’re interested in, it gives the benefits equal weight, which may not be the case. 

Interestingly enough, you may find that, while each generation tends to prioritize different items, they also share common concerns,. One such concern is support needs; specifically, 23% of the U.S. population is or will be caring for both the young and the elderly. The distinction is the needs behind those concerns. 

As a leading generational expert states, “The longer I study generations in the workplace, the more similarities I find in what people want out of work. Those fundamentals—meaning, purpose, good leaders, professional growth—don’t change. What changes is how each generation expresses these needs and what expectations we have about our employers’ fulfillment of them.”

3. Build a Benefits Menu

Because you’re most likely juggling different benefit interests and requests from your multigenerational workforce, it’s best practice to offer a wide range of benefits – beyond basic healthcare and retirement. 

Jenna Bunnell of Dialpad urges companies to offer various work benefits that employees can choose from. She explains, “These can cover health and wellbeing, career development, financial incentives, social offerings, volunteering opportunities, and more. Offering a pick-and-mix style package affords your team flexibility and will make them feel valued and supported, no matter their generation.”

Offering various benefits is also a way to flex those creative muscles. For example:

• Impala offers their employees a package that includes five categories of benefits (such as gym memberships, insurance, and learning and development), as well as a monthly allowance. 
• Over at Spotify, new parents get six months of paid leave, which can be used over the first three years of the child’s life. 
• Gymshark has a “Perk of the Week” and also offers employees financial education, including workshops and 1:1s. 

Benefits administration doesn’t have to be frustrating and complex. With the right software, employees can self-select the benefits they want and build their own plan.

4. Evaluate and Adapt

Organizations can evaluate and adapt their benefit offerings to improve in the following year through a comprehensive and strategic approach. Although your benefit program should align with the organization’s long-term goals and budget, remember – benefits should be people-first decisions. 

When it’s time to evaluate your program, make sure you:

• Analyze utilization data. Review the utilization rates of the current benefits offered. As a reminder, low utilization of certain benefits might indicate that they are not valued or not well communicated. High utilization, on the other hand, shows what employees value the most. 
• Send reminders throughout the year. You may notice certain benefit usage drop-offs throughout the year. Send helpful messages reminding employees of the services and benefits at their disposal and note any shift in utilization for accurate data collection.
• Benchmark against industry standards. Compare your benefits package with those of similar organizations in your industry. This will help you identify where you may be lagging and areas where you could differentiate your offerings to attract and retain talent. 

With the right HR reporting tools, you can make informed, data-driven decisions about your employee lifecycle and the benefits you offer. 

Create an Inclusive Experience for Your Multigenerational Workforce

Because the needs of your multigenerational workplace can evolve, staying responsive to your data and any changes is crucial. By following the above steps, you can not only improve your company’s benefits offerings in the coming year but also ensure that these offerings continue to align with employees’ needs and expectations. The result? Building a workplace culture that’s inclusive, responsive, and a model for others.

The post Meeting Everyone’s Needs: How to Determine Benefits for Your Multigenerational Workforce appeared first on PrimePay.

In fact, 80% of people value benefits over salary – a considerable shift from priorities a decade ago. While health insurance, flexible work, and PTO usually take precedence in employer plans, more and more leaders are focusing on employee retirement accounts. 

While the benefits of individuals having retirement plans are evident, it’s also a strategic asset for companies to offer them.

A Brief Overview of Retirement Accounts

Retirement plans, such as defined contribution plans and savings incentive match plans, offer:

• Easy ways to save for retirement
• Automatic contributions
• Potential employer-matching contributions
• Pre-tax contributions
• Tax-free investment growth

Retirement plans come in various forms, each with unique features and benefits. For example, a 401(k) plan, a type of defined contribution plan, allows employees to save a portion of their paycheck before taxes are taken out. These plans often include employer-matching contributions, which can significantly enhance an employee’s savings. 

Similarly, a savings incentive match plan for employees (SIMPLE) IRA is designed for small businesses and offers a more straightforward and less costly alternative to a traditional 401(k) plan.

Other types of retirement plans include defined benefit plans, also known as pension plans, which promise a specified monthly benefit at retirement. 

Some plans may combine features of both defined benefit and defined contribution plans. These hybrid plans, such as cash balance plans, are becoming more popular as they provide both the employer and the employee with greater flexibility and predictability.

Lastly, individual retirement accounts (IRAs) allow individuals to save for retirement outside of employer-sponsored plans. Traditional IRAs and Roth IRAs are common types of IRAs, which differ primarily in their tax treatment.

Communication about your retirement plan is key since each type has its own set of rules regarding contributions, tax advantages, and withdrawals. Both employers and employees must understand the differences and select the right plan that aligns with their retirement goals and financial situation.

Benefits of Offering Company Retirement Plans

Offering retirement plans is not just a perk — it’s a strategic move. Below are four results you’ll likely see after implementing robust retirement plans for your employees.

1. Attract Top Talent

In a competitive job market, differentiating factors can tip the scales in favor of businesses. One such factor is well-structured retirement plans. In fact, 81% of people state that retirement benefits are a “must-have” when considering a job offer. 

Alex Johnson, HR Director at InnoTech Solutions, explains: “A robust retirement plan can be the deciding factor for many candidates when they’re choosing between job offers. It’s not just about the paycheck; it’s about the future.” 

By offering these benefits, employers signal that they’re invested in their employees’ long-term success and financial stability, which can be a powerful motivator for job seekers looking for a workplace that supports their life goals and has a culture of care.

Tip: Make sure your job descriptions indicate the base salary and total compensation. Without the latter, many candidates may forget to factor in the overall benefits that a company can offer beyond immediate salary, such as matching 401K contributions, paid business retreats, and additional time off during the holidays. 

Equip your people with an employee self-service portal so they can track their total compensation, as well as PTO and other personal information.

2. Boost Job Satisfaction

If you think benefits packages are just a way to maintain compliance, it’s time to think bigger. You must intentionally design your benefits programs to create a stronger employee experience and foster a positive organizational culture.

Specifically, when you include financial benefits and retirement planning in your offerings, you help bolster employees’ sense of security about their future. Moreover, you’ll impact overall morale and workplace happiness; the National Institute on Retirement Security, 85% of people report that retirement benefits provide job satisfaction. 

Emily Roberts, CFO at Dynamic Growth Enterprises, explains the profound impact that retirement planning can have on an organization’s culture and employees’ sense of value and commitment. She shares, “When our employees know that we care about their future, they care more about their present work.”

3. Increase Loyalty

Offering a well-structured retirement plan is an effective strategy for cultivating a culture of loyalty within your organization: a staggering 94% of employees say that a strong retirement plan is critical to their loyalty to the company, according to a report by the Employee Benefit Research Institute. 

When employees see that their employer invests in their long-term financial security, they’re more likely to develop a strong sense of allegiance to the company. 

This loyalty can manifest in various ways, such as:

• A higher retention rate
• A willingness to go above and beyond in their roles
• An overall positive attitude towards the company. 

And if you’re really looking to increase employee loyalty, consider embedding financial planning programs into your professional development cadence. Recent studies show that 53% of employees report that financial planning programs are essential for increasing loyalty. 

Unfortunately, only 28% of people (Extensis Group survey) confirm that their employer offers education regarding retirement plan investments—a huge area for improvement (or, if you’re an opportunist, a way to stand out) to help increase loyalty and attract top talent. 

4. Build a Better Brand Image

Because offering retirement plans demonstrates a commitment to the long-term well-being of employees, organizations may witness an added benefit: employees becoming powerful advocates for their company. 

Jane Smith, a project manager at Global Tech Solutions, explains, “Comprehensive benefits like retirement plans are more than perks—they’re a statement that the company cares about us long-term.” The result of such sentiment? Employees share their positive experiences and contribute to the organization’s reputation as an employer of choice. 

Moreover, by showcasing a dedication to sustainable employee benefits, businesses can also project an image of stability and reliability to customers and partners, potentially leading to more business opportunities. For example, a strong brand image rooted in social responsibility can attract investors looking for companies with ethical business practices and a forward-thinking mindset.

Help Employees Feel Financially Secure

It’s clear that retirement planning is crucial for the financial security and welfare of employees and employers alike. Even if you already offer a competitive benefits package, there’s always room to grow.

Consider educating your workforce about the benefits and operation of these plans, including tax advantages and employer-matching contributions. Simplification and automatic enrollment can enhance participation, while open dialogue about retirement planning ensures employees fully leverage these crucial benefits.

Ultimately, by prioritizing retirement planning and offering comprehensive plans, businesses can establish a supportive and forward-thinking culture that benefits both the employees and the company’s long-term success.

The post 4 Reasons Why Company Retirement Plans Pay Off for Businesses appeared first on PrimePay.

One such compliance rule is filing Form 5500. Below is a quick run-down of the ins and outs of the form – including Form 5500 filing requirements, due dates, and versions – to help you remain compliant this year.

What is Form 5500?

The Form 5500 Series ensures that employers administer and manage employee benefit plans in compliance with certain established standards. Form 5500 also ensures that employers supply or give participants, beneficiaries, and regulators access to adequate information to protect their rights and benefits under employee benefit plans.

Thanks to a collaboration between the DOL, the IRS, and the Pension Benefit Guaranty Corporation, employee benefit plans can use the Form 5500 Series forms to meet annual reporting requirements under Title I and Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code.

Who Files Form 5500?

Every plan covered by ERISA (including health and welfare plans) must file Form 5500. 

As outlined by the DOL, these benefit plans generally include:

• medical, surgical, or hospital benefits
• some employee assistance programs
• sickness or accident benefits
• disability benefits
• death benefits
• supplemental unemployment or vacation benefits
• apprenticeship, or other training programs
• daycare centers
• scholarship funds
• prepaid legal services
• severance pay
• Life
• prescription drug
• Vision

It’s important to note that even small businesses can file under ERISA just like any other employer and must adhere to the same Form 5500 filing requirements.

Form 5500 Filing Exceptions

There are exceptions based on the plan’s size, funding arrangement, and sector, including:

• Governmental and church plans.
• Unfunded, fully insured, or a mix of insured and unfunded welfare plans with fewer than 100 participants at the start of the plan year (also called “small” plans).
• Welfare programs administered outside of the United States that primarily benefit non-resident aliens.
• Plans where only a few management or highly compensated employees are covered by unfunded or insured welfare programs.
• Plans are only kept to comply with workers’ compensation, unemployment compensation, and disability insurance requirements.
• Participating welfare benefit plans in a group insurance arrangement that submits Form 5500 for the participating plans.
• Apprenticeship or training plans that satisfy specific criteria.
• Specific unfunded welfare benefit plans financed by dues.
• Only the owner and/or spouse of a completely owned trade or firm, or the partners and/or spouses of partners in a partnership, have access to welfare benefit programs.

Note: Please refer to the DOL’s Health and Welfare Form 5500 Requirements Report for additional information.

Which Version of Form 5500 Should I File?

Your organization’s size and your retirement plan’s structure determine which version of Form 5500 you must complete.

1. Form 5500

Most organizations that have a plan with 100 or more participants use Form 5500, Annual Return/Report of Employee Benefit Plan.

Form 5500 reports information about a plan’s qualification, financial condition, investments, and activities.

2. Form 5500-SF

Most organizations that have a plan with fewer than 100 participants requiring a submission use Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Form 5500-SF also reports information about a plan’s qualification, financial condition, investments, and activities.

3. Form 5500-EZ 

Most organizations with a “one-participant” plan and/or a foreign plan use Form 5500-EZ, Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan.

Note: Prior to 2021, one-participant plans could use Form 5500-SF. Employers of such now must use Form 5500-EZ.

What is the Form 5500 Due Date?

The due date for Forms 5500, 5500-SF, and 5500-EZ is “the last day of the seventh month after the plan year ends.” In other words, if your plan is scheduled for the calendar year, your Form 5500 deadline is July 31. 

Need more time? You can file for an extension using Form 5558.

For additional information, refer to the IRS Form 5500 Corner.

The post Everything to Know About Form 5500 Filing: Requirements, Types, and Important Deadlines appeared first on PrimePay.

Building benefits packages can be complex, so it’s essential to follow straightforward, actionable steps to determine which benefits matter most and how to offer them effectively.

The advice below focuses on how to build a benefits plan to enhance employee satisfaction and drive retention, all without compromising your company’s financial well-being.

Understanding Small Business Employee Benefits

Did you know that nearly half of your team might be eyeing the exit if they’re unhappy with company benefits? This fact may sound surprising, but it’s one to recognize as you build out benefits for your small business. 

That’s because, as a small business owner, your team is one of your most valuable assets. You don’t want your top talent (and their experience, knowledge, and skills) to walk out the door, especially over something in your control. Therefore, your benefits plan and other policies should acknowledge your employees’ needs, well-being, and financial future. 

Note: While a study by SHRM found that health care was the most important benefit to employees, it’s important to examine retirement, leave, additional disability coverage options, and mental health as well. In fact, business spending for mental health coverage has risen 53% since March 2020, which signals that more and more companies are recognizing the importance of mental wellness in the workplace.

The Role of Health Insurance in Benefit Packages

Most people immediately jump to group health insurance when they think of benefits, and for good reason. Health insurance provides a safety net for employees by covering qualified medical expenses and promoting regular healthcare access (BTW: have you scheduled your yearly physical yet?).

Selecting an appropriate health insurance plan for a small business entails weighing factors such as whether to offer a single plan or various health insurance plans for employees. Options include:

• Preferred Provider Organization (PPO) plans
• Health Maintenance Organization (HMO) plans
• Health Savings Account (HSA)-qualified plans
• Flexible Spending Account (FSA)-qualified plans
• Indemnity (AKA fee-for-service) plans

Retirement Savings Plans: A Key Employee Perk

Want to really step up your small business benefits package? Include a retirement savings plan. By doing so, your benefit offerings will help support employees’ present well-being and allow them to establish financial security for the future. 

Options for retirement savings plans among small businesses can include:

• SIMPLE IRA
• SEP IRA
• Traditional or Roth IRA
• Solo 401(k)

However, when selecting benefits for your small business, matching or contributing to retirement plans may not be in your current budget. If that’s the case, build out your other offerings, but put retirement benefits on your roadmap. 

Besides caring about your people’s financial well-being, including retirement benefits can:

• Give you the competitive edge. Only 22% of small and medium-sized businesses offer retirement benefits. Adding this option to your small business benefits package will make you stand out to candidates.
• Help attract top talent. If you want to tip the scale in your favor and secure top candidates, a retirement plan will help. A study by Businesswire found that 62% of candidates consider the availability of a retirement plan when deciding whether to accept a job.
• Increase retention rates. Regarding retention rates, many HR leaders focus on findings from the employee lifecycle. But financial planning has emerged as another contender to consider – 76% of employees are likely to be attracted to another company that cares more about their financial well-being. 

Additional Coverage: Disability and Life Insurance

Beyond health insurance and retirement plans, employees appreciate additional coverage options like disability and life insurance as part of their benefits package. Disability insurance, for instance, provides a safety net for employees with work incapacity, enabling them to meet financial responsibilities and provide for their families.

The associated costs for disability insurance for small businesses typically range from 1% to 3% of their income. This investment is invaluable in ensuring employees’ financial security and peace of mind, making it a key component of a competitive benefits package.

4 Steps To Creating and Rolling Out an Employee Benefits Program

Crafting a benefits package for small businesses is an intricate process. Below are four steps to set you in the right direction as you design and communicate your employee benefits plan. 

1. Design Your Small Business Benefits Program

The first – and arguably, the most complex – step is designing your benefits package. To develop a comprehensive package, execute the following four tasks:

1. Strategic planning
2. Careful budgeting
3. Selection of suitable benefits plans
4. Determining fair and competitive employer contributions

Yes, there are four steps within the first step… but these action items ensure that your benefits package is financially sustainable for the business and valuable and appealing to the employees.

Note: Your business size and financial runway are pivotal in the benefits you can afford to provide. Small and medium-sized companies should recognize which employee benefits attract and retain talent and tailor their benefits program to reflect their findings.  

Set Your Benefits Budget

Consider the average cost of health insurance premiums when establishing your benefits budget. These costs can range from $703 to $8,435 per year for single coverage and from $1,997 to $23,968 per year for family coverage. While expenses fluctuate based on your business’s size and the range of benefits provided, it’s recommended to allocate 15-30% of your revenue to pay your employees (this percentage includes both salaries and benefits). 

Determine Employer Contributions

To determine employer contributions to benefits plans, carefully assess the business’s financial resources alongside the needs and priorities of the employees. This process involves considering various benefits options – like medical insurance, retirement plans, and student loan repayment programs – while ensuring that the benefits align with employees’ expectations and provide meaningful value.

For health insurance, employers typically cover approximately 80% of premiums for single coverage and around 70% for family coverage. For retirement savings plans, the standard practice for employer contribution typically ranges from 3% to 6%. These contributions can significantly impact employee satisfaction by demonstrating the employer’s commitment to their well-being and future.

Note: As mentioned, tighter budgets may not allow for high employer coverage or retirement contributions. Until your budget increases, consider offering alternatives – such as free financial planning workshops – to demonstrate your prioritization of employee wellness. 

2. Implement Employee Feedback in Benefits Selection

What good is offering pet insurance if none of your employees own an animal? Needless to say, it’s crucial to incorporate employee feedback as you begin planning your benefit offerings. 

In short, by conducting employee surveys and customizing benefits options based on insights, small businesses can ensure their benefits package meets the diverse needs of their people.

Conduct Employee Surveys for Benefit Preferences

Administering employee surveys is an active way to grasp benefit preferences. This approach empowers employees to vocalize their needs in a constructive way and ensure the benefits package remains relevant and appealing. 

To gather valuable insights into what employees value most, select a suitable methodology, craft well-designed questions, and prioritize confidentiality. High employee participation is important, so it’s crucial to not only email out a link but also announce the timeline during an All Hands meeting and have department and team leads encourage direct reports to complete the survey.

Customize Benefits Options

You’ll want to brush up on your tightrope skills, as selecting suitable benefits plans is a balancing act between the business’s spending capacity and employees’ preferences. The key is to offer various benefits that employees value so they can choose the options that best suit their needs.

Customizing benefits options allow employees to select the coverage that aligns with their unique needs. While executing multiple options requires extra time, resources, and communication, the rewards are worth the effort– research shows that 40% of employees increase their loyalty to their employer if benefit options are customized to meet their needs. 

Luckily, HR software can facilitate the customization process. Benefit Administration functionalities during open enrollment can provide employees with a personalized experience, enabling them to explore and understand their benefits options at their own pace. 

HR software with benefit administration features, like Enrollment Wizards, makes choosing the right benefits a breeze and takes the lift off HR teams.

3. Communicate the New Benefits Package

You’ve spent months budgeting, researching, consolidating data, and finalizing your plan. Now comes step three, perhaps the most vital step of all: announcing the offerings to employees. 

To ensure your communication efforts go smoothly and equip people with the right information for open enrollment, craft a clear message, select multiple channels for notifications, and involve key stakeholders. 

Whether through email, video conferencing, or in-person meetings, communication should be straightforward, concise, and accessible to all employees. In this strategy, everyone receives the same message, understands the benefits, and learns how to maximize them.

Note: Transparency is important here. For example, let’s say 63% of employees desire commuter benefits but it’s not feasible for your budget. Communicate your reasons for not including it in your small business benefits package (and potentially offer other ways to offset commuter costs) so employees feel heard and respected. 

Create Clear Communication Materials

Insurance and benefits explanations are usually as clear as mud. It’s therefore important to use simple language and avoid technical jargon so employees understand their options for the year.  

Visual aids such as infographics and charts can further enhance comprehension, making the information more relatable and easily understood. Online tools and personalized benefits counseling can also contribute to a better understanding of the benefits and encourage employees to engage with their benefits actively.

Host Informative Sessions

Hosted informative sessions allow employees to ask questions and better understand their benefits package. These sessions can be organized as Q&A sessions, lunch and learn sessions, or virtual meetings to provide employees with easy access to information.

Make sure your sessions cover many topics, including health insurance coverage, retirement benefits, and employee assistance programs. They should also be well-organized, with speakers prepared to deliver concise and relevant responses to employee inquiries. 

4. Monitor and Adjust Your Benefits Offering Annually

You’ve designed your benefits plan. You’ve rolled it out company-wide. The process is over, right? Not so fast. 

You’ll want to regularly monitor and adjust the benefits you offer to continue meeting the needs of your people. 

Adapting to Employee Needs

You’ve most likely heard the quote, “The only thing constant is change,” which fortunately (or unfortunately) is incredibly applicable in the business world. Changes in work arrangements, economic fluctuations, and increased emphasis on work-life balance are some factors that can lead to shifting employee benefit offerings.

Some key indicators signaling the need for adjustment include a low benefits enrollment rate, frequent questions and complaints about benefits, and low employee morale. 

Regularly Review Benefits Utilization

You should also review benefits utilization within your comprehensive annual review. This process includes:

• Soliciting feedback from employees on their experiences with current benefits
• Reassessing plans to ensure ongoing value
• Adjusting the benefits package in response to usage data and market dynamics

By conducting employee surveys, tracking changes in benefits preferences, and disseminating updates through multiple communication channels, you can better adapt your small business benefits package to meet these evolving needs and continue to offer value. 

Critical signs of successful benefits usage include:

• High utilization rate
• Low emergency department use
• Minimal prescription drug utilization
• High employee capacity
• Low staff turnover rates
• High benefits utilization rate

Designing a People-First Small Business Benefits Package 

A well-rounded benefits package is vital for small businesses to attract and retain top talent and enhance employee satisfaction and productivity. To create a people-first benefits plan for your small business, set your budget, allow employee input, communicate your offerings, and adjust accordingly. 

By staying responsive to employee needs and preferences, small businesses can ensure their benefits package remains competitive, valuable, and fiscally responsible, contributing to the success of both their employees and the business.

The post Benefits for Small Businesses: How to Design and Implement Your Plan appeared first on PrimePay.

The Internal Revenue Service (IRS) released the annual cost-of-living adjustments affecting the maximum contribution limits for several pre-tax benefits, including health FSAs, transit/parking accounts, and HSAs. 

The IRS confirmed that for plan years beginning on or after Jan. 1, 2024, the contribution limit for health FSAs will increase another $150 to $3,200. For those plans that allow a rollover of unused funds, the maximum rollover amount will increase by $43 to $640 for 2024.

Additionally, the monthly contribution and reimbursement limit for transit and parking FSAs will increase by $15 to $315 per account in 2024.

Employees must use FSA funds within a plan year. Remember that health FSAs have a “use-or-lose” rule, meaning that any funds left unused at the end of the year are forfeited to the employer.

Employees should always know their contributions and benefits. When you equip your people with a self-service portal, they can easily access their specific benefit information without any back-and-forth with HR. 

Two Exceptions to the FSA Rule

Two exceptions to the use-or-lose rule permitted by the IRS are rollover and grace period. HR teams must communicate company policies to employees well in advance so people can plan accordingly.

1. Rollover: If funds are not used by the end of the year, up to $640 can be rolled over from the 2024 plan year into the next plan year. 
2. Grace Period: An employer can adopt a grace period for their health FSA. As explained by the IRS, “A grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month and 15-day period.” 

A health FSA may incorporate either of these features; however, a plan may not have a rollover and grace period. 

Plans may also include run-out periods that provide participants additional time to submit claims incurred during the plan year (typically 90 days). This can be in addition to either a rollover or grace period.

How Can PrimePay Help?

PrimePay provides pre-tax benefits administration of, including HRAs, HSAs, and FSAs. When you choose PrimePay’s pre-tax benefit plan administration, you receive a dedicated service team, access to our support portal, automated claims processing, and a PrimePay debit card and mobile app.

Schedule a call today

Please read our disclaimer here.

The post FSA Contribution Limits for 2024 appeared first on PrimePay.

One of those upcoming adjustments for 2024 is the out-of-pocket maximums and projected employer mandate penalties under the Affordable Care Act (ACA).

As you gear up for 2024, keep this information handy.

A Quick Review of the ACA

The Affordable Care Act (also referred to as Obamacare) is a healthcare reform law enacted in 2010 that makes health insurance coverage affordable and available to more people, expands Medicaid, and seeks to lower the cost of healthcare by supporting innovative medical care delivery methods.

The ACA mandates certain employer-sponsored coverage responsibilities and benefits that depend on the structure and size — i.e., the number of full-time employees and full-time equivalents — of the business.

If you have 50 or more full-time employees or full-time equivalents, your business is considered an Applicable Large Employer (ALE). Two provisions of the ACA apply only to ALEs: 1) the employer shared responsibility provisions, and 2) employer information reporting for offers of minimum essential coverage. Note: non-ALEs that sponsor self-insured group medical plans are also required to report offers of minimum essential employee coverage.

The first provision means you need to offer minimum essential health care coverage to your full-time employees and their dependents or make an employer shared responsibility payment to the Internal Revenue Service (IRS) — also referred to as the “employer mandate penalty” — if you fail to provide coverage.

The second provision means you also have to send annual reports to the IRS about the health care coverage you offered if any — and send a statement to employees with the same information that you provided to the IRS.

The Different Types of ACA Penalties

Under the Affordable Care Act (ACA), there are different types of penalties that can be imposed on employers who fail to meet certain requirements regarding health insurance coverage for their employees. These penalties, often referred to as the “A” and “B” penalties, are designed to ensure that employees have access to affordable and adequate health coverage.

Understanding these penalties is important for employers to avoid potential financial liabilities and comply with the ACA provisions. In the following sections, we will delve into the details of each type of penalty and how they are calculated.

What is the 2024 ACA Penalty 4980H(a) Amount?

The 2024 ACA penalty for 4980H(a) amount is $2,970. The 2024 ACA penalty for 4980H(a) is an important consideration for businesses that do not offer health insurance coverage to their full-time employees. This penalty is also known as the “hammer penalty” and is calculated based on the number of full-time employees a company has.

To understand how the penalty is calculated, let’s consider this very simple example of John’s Pizza Parlor. In 2024, John’s Pizza Parlor has 75 full-time employees and does not offer Minimum Essential Coverage (MEC) to its employees. The penalty is triggered when at least one full-time employee obtains a Premium Tax Credit through the marketplace.

For each full-time employee, John’s Pizza Parlor would be subject to a penalty of $2,970.

In the case of John’s Pizza Parlor, if 10 full-time employees obtain Premium Tax Credits, the penalty amount for the business would be roughly $29,700.

Note: It’s critical to consult with a professional to ensure the calculations for your unique situation are correct.

It’s important for businesses to be aware of the 2024 ACA penalty 4980H(a) amount and the potential impact on their organization. By offering health insurance coverage to their full-time employees, businesses can avoid these penalties while ensuring their employees have essential coverage.

What is the 2024 ACA Penalty 4980H(b) Amount?

The 2024 ACA penalty 4980H(b) is $4,460. The 2024 ACA penalty 4980H(b) amount is assessed on a per-violation basis when an employer offers unaffordable or non-Minimum Value coverage to their employees, and an employee receives a Premium Tax Credit (PTC) from a state or federal health exchange.

For each employee who receives a PTC, the penalty is roughly $372 per month or $4,460 annualized. This penalty is designed to incentivize employers to offer affordable and comprehensive health insurance coverage to their employees.

To illustrate how the penalty is calculated, let’s consider an example. ABC Company will have 100 full-time employees in 2024. Out of these employees, 20 obtain PTCs from a health exchange because the coverage offered by ABC Company is either unaffordable or does not meet the Minimum Value requirements.

In this case, ABC Company would be subject to a penalty of $4,460 per employee who receives a PTC. Therefore, the total penalty for ABC Company would be $89,200 ($4,460 multiplied by 20 employees).

It is important for employers to ensure that their health insurance coverage meets the affordability and Minimum Value standards set by the ACA to avoid being subject to these penalties. Employers can consult with healthcare experts or insurance providers to navigate the complex regulations and ensure compliance with the ACA requirements.

Understanding 4980H 2024 ACA Penalties

In 2024, under section 4980H of the Affordable Care Act (ACA), employers are subject to penalties for not offering affordable and comprehensive health insurance coverage to their full-time employees. There are two penalty provisions under this section: 4980H(a) and 4980H(b).

The 4980H(a) penalty is applicable to large employers with 50 or more full-time employees (including full-time equivalent employees) who do not offer minimum essential coverage to at least 95% of their full-time employees and dependents. If an employer fails to meet this requirement, they may be subject to an annual penalty.

The penalty is calculated based on the number of full-time employees (minus 30) and is multiplied by 1/12 of the applicable premium tax credit (PTC) amount. The PTC amount for 2024 is roughly $372 per month.

The 4980H(b) penalty is applicable if the employer does offer coverage to their full-time employees but it is not considered affordable or does not meet the minimum value requirements. The penalty for this provision is $4,460 per employee who receives a PTC from a health exchange.

Understanding these penalties is crucial for employers to ensure compliance with the ACA and to avoid substantial financial consequences.

ACA Out-of-Pocket Maximums for 2024

In 2024, the ACA out-of-pocket maximum for employers with sponsored group health plans can impose on enrolled employees will be $9,450 for individual coverage (up from $9,100 last year) and $18,900 for family coverage (up from $18,200 last year). These changes both represent a 3.8% increase from the previous year.

2024 Employee Benefits Adjustments

The IRS recently released the new required employer responsibility amount for 2024 to determine affordability will be 8.39%, decreasing from 9.12% in 2023. This percentage is used to assess whether an employee is offered affordable minimum essential coverage, per subsection (b) of the employer mandate. For taxable years and plan years beginning after December 31, 2023, this revenue procedure will be in place.

Get the Right Guidance

It’s critical that you apply correct yearly adjustments for employee benefits and determine any other impact these adjustments may have on your business. Partnering with an HR solutions provider can help you get the guidance you need.

Please read our disclaimer here.

The post 2024 ACA Penalties: Out-of-Pocket Maximums & Employer Mandates appeared first on PrimePay.

In the highly competitive labor market, businesses are doing whatever they can to attract and retain talent. If your business has employees that commute long distances, like from the suburbs into the city, it may be time to consider offering a commuter benefits program, meaning more tax savings for both you and your employees.

What are transit and parking benefits?

A commuter benefit program allows employees to set aside tax-free money to pay for their commuting to pay for expenses incurred for parking, public transportation and vanpooling expenses to and from the office. The IRS administers the law that allows employers to give eligible employees these benefits. There are two separate benefits available: Parking and Transit/Vanpool accounts. Both amounts have increased to $300 (for each) in 2023. Here’s a breakdown of what each benefit entails:

Transit and Vanpool benefits:

• $270 pre-tax per month set aside to pay for mass transit and vanpooling expenses.
• Eligible expenses include ticket vouchers for public transportation (including subways, ferries, and buses) and costs to participate in an employer-sponsored vanpool.
• Uber and Lyft may qualify.
• Bridge or highway toll expenses are not eligible for reimbursement.

Parking benefits:

• $300 pre-tax per month allocated for parking expenses at/near work or public transportation lot.

Parking and transit/vanpool accounts may only reimburse expenses incurred to enable the employee to commute to work and cannot be used to reimburse expenses for another family member or for non-work-related reasons. For commuter benefits, elected amounts can be changed as often as an employer’s policy allows, as set forth in the plan document. The use-or-lose-rule doesn’t apply, so balances roll into the next plan year. However, once contributed, funds cannot be cashed out, they can only be used for qualified parking or transit expenses.

The maximum monthly limits described above also apply to the maximum amount that can be reimbursed per month pre-tax. An employee cannot be reimbursed more in a subsequent month simply because they spend less for any given month. For example, if an employee only incurs $250 in parking expenses in one month, they cannot be reimbursed $310 pre-tax in the subsequent month, because that exceeds the statutory limit.

As a reminder, the Tax Cuts and Jobs Act (Tax Reform) passed in late 2017 eliminated the employer deduction for employee assistance in the form of parking or transit benefits. However, this change did not affect an employer’s ability to offer parking and/or transit benefit to their employees or an employee’s ability to withhold pre-tax funds to pay for qualified expenses. In fact, some cities and states have begun mandating that employers make these benefits available to employees; we’ll get into that a little later.

Tax savings

Remember those tax savings I mentioned? Here’s an example: Suppose an employee contributes the maximum available per month to both parking and transit accounts ($300 each) in 2023, resulting in $600 per month set aside for transportation benefits. Those contributions would ordinarily be subject to income taxes.

Employee Savings

For this example, suppose the participant is in a 25% tax bracket (including federal, Social Security, FICA and state taxes). Because these funds benefit from tax-favored status, the employee would enjoy monthly savings of $150. Annually, that would result in a savings of $1,800!

Employer Savings

For this example, let’s say that you have 50 employees with $600 in qualified monthly expenses at 7.65% FICA tax savings. You would enjoy monthly savings on $2,295.00 and annual savings of $27,540!

Eight places that have implemented transit benefit mandates.

Some cities and states now mandate that employers provide pre-tax transportation fringe benefits to their employees. Notably, these laws only require employers to offer pre-tax transit and vanpooling benefits, i.e., employers are not required to provide pre-tax parking benefits as part of their commuter benefit plan. Although this benefit is not required, employers may offer this benefit under federal law. However, merely offering a parking benefit will not satisfy the transit mandates.

These examples are not exhaustive and many other cities around the country have or are implementing transit mandates. Make sure to check with your broker or tax professional to further discuss laws in your area.

Remember, regardless of the design of the transportation benefit provided, employers may no longer take a tax deduction for contributions made to employees’ transit benefits.

New York City

• Effective Date: January 1, 2016
• Applicable to: For-profit and non-profit employers in the five boroughs (Manhattan, Brooklyn, the Bronx, Queens, and Staten Island) with 20 or more full-time employees (30 hours or more per week).
• Requirements: Employers must offer pre-tax commuter benefits for transit but not for parking.
• Enforcement: The Department of Consumer Affairs (DCA) enforces the law and runs public education and outreach campaigns.

Seattle

• Effective Date: January 1, 2020
• Applicable to: Businesses and tax-exempt organizations with 20 or more employees.
• Requirements: Employers must offer the opportunity for a monthly pre-tax payroll deduction for transit or vanpool expenses.
• Penalties: A 90-day grace period to comply before penalties ($500 per month, per employer) are imposed. Employees must work at least 10 hours per week within the city to qualify.

Philadelphia, PA

• Effective Date: December 31, 2022
• Applicable to: Employers with 50 or more covered employees working an average of 30 hours or more per week in the past 12 months in Philadelphia.
• Requirements: Employers must provide at least one commuter benefit option: a pre-tax payroll deduction for fare or qualified bicycle expenses, an employer-paid benefit supplying a fare instrument, or a combination of both.
• Usage: Benefits can be used from January 2023, with financial benefits for organizations through reduced payroll taxes.
• Penalties: Non-compliance could result in penalties.

San Francisco Bay Area

• Launch Date: March 26, 2014
• Applicable to: All employers (private, public, or non-profit) with 50 or more full-time employees in the jurisdiction of the Bay Area Air Quality Management District.
• Objective: Reduce air pollution and traffic congestion by decreasing single-occupant commute trips, and provide tax savings for both employers and employees.
• Requirements: Employers must register on the program website and choose one of the following commuter benefit options:
  • Option 1: Pre-tax benefit election, allowing employees to exclude their transit or vanpool costs from taxable income as per federal law.
  • Option 2: Employer-provided subsidy (minimum $75 per month) covering the monthly cost of the employee’s commute.
  • Option 3: Employer-provided transit such as a low-cost bus, shuttle, or vanpool service.
  • Option 4: Alternative commuter benefit that effectively reduces single-occupant vehicle trips and/or emissions.

Washington D.C.

• Effective Date: January 1, 2016 (Penalties began on November 14, 2019)
• Applicable to: Employers with at least 20 employees in D.C.
• Requirements: Employers must offer at least one of the following benefits:
  • Option 1: Employee-paid pre-tax benefit (including commuter bicycling costs from 2026).
  • Option 2: Employer-paid direct benefit (transit pass or vanpool cost reimbursement).
  • Option 3: Employer-provided transportation service at no cost to the employee.
• Penalties: Fines ranging from $100 to $800 per covered employee per month for non-compliance.

Berkeley and Richmond, California

Berkeley

• Effective Date: 2009
• Applicable to: Employers with 10 or more employees based in Berkeley or with offices located there.
• Requirements: Employers must offer a commuter benefit program with options such as a pre-tax plan, a transit subsidy, or an employer-provided shuttle service.

Richmond

• Effective Date: December 18, 2009
• Applicable to: Employers with ten or more employees working at least 10 hours per week in Richmond.
• Requirements: Employers must offer one of four options, similar to those mentioned in the San Francisco Bay Area section, including a pre-tax election, employer-paid benefit, employer-provided transit, or an approved alternative commuter benefit.

New Jersey

• Effective Date: March 1, 2020
• Applicable to: Employers with at least 20 employees (not in a collective bargaining agreement).
• Requirements: Employers must offer a pre-tax transportation fringe benefit.
• Penalties: A penalty between $100 and $250 for the first violation, with additional fines for continued non-compliance.

Philadelphia, PA

(As previously summarized)

• Effective Date: December 31, 2022
• Applicable to: Employers with 50 or more covered employees (working an average of 30 hours or more per week for the past 12 months in Philadelphia).
• Requirements: Offering at least one type of commuter benefit, including pre-tax payroll deductions for various commuting expenses or employer-paid benefits.
• Usage: Benefits become usable in January 2023, with financial benefits for organizations through reduced payroll taxes.
• Penalties: Non-compliance could result in penalties.

How can PrimePay help you offer commuter benefits?

• Pre- and post-tax contribution management to meet the transit mandate requirements for eligible transit services.
• Debit card convenience for purchasing qualified transit expenses.
• Optional: Add a parking account to allow employees to use pre-tax income to pay for qualified parking expenses under the federal tax law. No additional administrative fee to add this account.

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