Big Employee Benefits For Little or No Money

Barbara Weltman One of the main challenges of all businesses is to attract and retain qualified workers. The challenge is amplified for small businesses because they often can’t pay for the same range of fringe benefits offered by large companies. However, small businesses can offer many highly-desirable perks without breaking the bank.

Flexible spending accounts
You can help employees pay for medical expenses and/or dependent care costs on a pre-tax basis with virtually no cost to your company. You set up the plan and administer it- taking payroll deductions and disbursing funds to employees for covered expenses.

How it works:You set up a plan, called a “flexible spending arrangement (FSA),” to pay for medical expenses or dependent care costs. To participate personally, the owner must be an employee of his or her C corporation (self-employed individuals, partners, limited liability company members and S corporation shareholders who own more than 2% of their corporation cannot participate). Employees then agree to have a portion of their wages put into the plan (each pay period or at another regular interval rather than receiving the wages in cash. Contributions are not treated as current earnings, so they’re not taxed to employees.

Employees then obtain reimbursement from the plan for any covered expenses. For example, if an employee puts $1,000 into a medical FSA for 2005, she can submit claims for reimbursement of the cost of eyeglasses or other medical expenses not covered by health insurance. Amounts not used by the end of the year are forfeited by employees (“use-it-or-lose-it”) and revert to the employer.

Your cost: Administration of the plan. Payroll deductions can, of course, be handled through payroll companies if you use them. Disbursements can be handled in-house (if you have only a few employees) or through third-party administrators. These are independent companies, such as Employee Benefit Specialists ( that you hire to handle all aspects of flex plans for you.

Savings to employees:Employees do not owe income tax on their contributions. What’s more, they save their share of Social Security and Medicare (FICA) taxes on their contributions.

Savings to you:There are both direct and indirect savings to employers who offer flex plans, amounts that can well offset any administrative costs. You save on employment taxes with respect to employees’ salary-reduction contributions. And, depending on the state in which you operate, you may also save on workers’ compensation costs because these are often based on W-2 wages (which do not include contributions to FSAs).

Employees can get an idea of what participation in a flex plan can save them by using an online calculator (go to and, under “Benefits info & services, click on “Flexible spending accounts”).

Referral services
One of many difficulties for working people is juggling their personal and business lives. Employers can help substantially by providing free referral services to employees. These may include referrals to:

  • Legal services to find attorneys for personal matters.
  • Elder-care services for those who need assistance in caring for elderly or infirm parents or a spouse.
  • Day care and other dependent care options to help employees make their own child-care arrangements.

    While there’s virtually no out-of-pocket cost to you in giving out names and telephone numbers of resources, there is some risk involved.

    If referrals don’t work out, employees may blame you for having provided them, so check out referrals carefully and make sure employees understand that you are merely providing information and not warranting any services they obtain.

    Flex time
    Employees with families or other outside commitments may value the option to arrange their work schedules around their needs. Depending on your business, you may be able to accommodate employees in this regard, something that may be more valuable to them even than extra money.

    For example, one software company allows a mother with small children to start work after she’s seen them off to school, even though the rest of the staff starts earlier. This arrangement for a highly talented programmer engenders company loyalty and other employees are not jealous because they know they too can have special work schedules as needed.

    Flex time options include:

  • Modified work hours, such as starting later and working later (or vice versa)
  • Working longer hours to compress five work days into four
  • Sharing of a single job by two workers

    Wellness resources
    To the extent that workers stay healthy, you save money. You can keep insurance costs down (if you pay for some or all of this coverage). And you don’t need to use temporary workers or pay overtime to your current staff to replace those who cannot show up for work because of illness or other conditions.

    Programs range from in-person counseling to telephone coaching for such issues as smoking cessation, weight loss or disease management (e.g., diabetes). Other programs may include counseling for such problems as loss and grief, gambling, eating disorders and stress management.

    These programs usually are handled through benefit companies offering employee assistance programs (EAPs). Examples: ComPsych Corp. ( and Employee Services Inc. (

    Cost: Depending on the benefits you offer and the size of your company, monthly costs can be under $1 per employee.

    Copyright © 2005 by, Inc.

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