Pretax Fringe Benefits Service

Fringe benefits constitute one of the main advantages of a corporation over a sole proprietorship. Fringe benefits (such as health insurance, medical reimbursement plans, a company car, a travel expense account, education, and group life insurance) are personal expenses and are nondeductible in a sole proprietorship. In the case of a corporation, however, they are tax deductible. The value of the benefit is tax-free to owner employees if they meet certain conditions. Flexible spending accounts or cafeteria plans are fringe benefits that owner-employees can use to pay for medical expenses and day- care costs. The payments are made with pretax earnings as payroll deductions or employer contributions.

What Are Fringe Benefits and Why Are They Important?

In addition to salary, employers may provide fringe benefits. Benefits can include many perks that will allow you to choose a job that has the most compensation for your work. Many employee benefits are considered standard, however, a number of employers are offering flexible benefits packages. As you begin your job search, you need to know what you should be looking for in a benefit package. It is important to keep in mind not only benefits you will utilize now but also those you will use in the future. You may need to plan for a future family or for your retirement.

What Are Examples Of Benefits?

The most common benefit packages include health insurance, dental insurance, life insurance, disability insurance, paid vacation time, paid holidays, paid sick leave, and retirement plans. A more comprehensive package may include child-care services, a flexible work schedule, maternity leave, relocation expenses, and education programs. Benefits are most often offered in packages, but there are also cafeteria-style plans where employees choose the types of benefits they want. You need to decide which benefits are the most important to you.

What Are Some General Questions That I Should Ask?

Once you are offered the job, you will want to ask the following questions:

  • Are there any monthly or per-pay-period costs for the overall plan?
  • Who is covered (Spouse, children)?
  • When does each component of the benefit package actually begin? (Some many not begin when employment begins, but may start months later).
  • Are any of the benefits taxable?
  • If benefits are provided cafeteria style, can additional restrictions be involved?

What Should I Know About Medical/Health Insurance?

One of the first things to know is what type of plan the company has. The most prevalent types are PPOs, HMOs, and Blue Cross/Blue Shield. A PPO is a list of company-approved health care providers for insurance coverage. HMOs offer comprehensive health care in one integrated facility. They emphasize preventative care so an HMO may pay for some services that others may not. Blue Cross/Blue Shield is a widely recognized nonprofit organization offering hospital and health benefits. Here are a few things you should ask:

  • What expenses are covered and are there any deductibles or co-pays? (Often times there will be annual or per-office-visit deductibles. Co-pay is the percentage the company pays versus the percentage you will pay. Make sure you ask about prescriptions because co-pays and deductibles often apply to them).
  • Are there any exclusions for pre-existing conditions?
  • Does the plan have open enrollment or is there a medical exam or evaluation needed to enroll in the plan?

What Should I Know About Dental and Optical Insurance?

You will want to know what expenses are covered. For example, is preventative care covered? Exams, dental cleanings, and dental x-rays are usually covered. You will want to ask :

    • Are there any deductibles, co-pays, or annual and lifetime maximums?
    • Are surgical care and orthodontics covered?
    • Are eyeglasses and contact lenses covered?

What Should I Know About Life Insurance?

Although it may not seem important now, as you add loved ones to your life, life insurance will become important. This benefit will make sure your family receives compensation for their loss in the event of your death. You will want to know the rates and whether or not the rates are set for the duration of employment. Many companies will offer you opportunities to purchase additional term insurance at or above market price. It is usually better to purchase additional coverage separately. Some companies also offer accidental death insurance or business travel insurance. If it’s offered free, take it; but these types of insurance are not necessary.

What Should I Know About Disability Insurance?

Disability insurance allows you to continue to have income in the event that you are disabled and cannot work. Most companies have short and long term (after 6 months) disability insurance. You will want to ask what the percentage amount (the percentage of total salary) is, whether it can change over time, and what it is based on?

What Should I Know About Vacation Days, Holidays, and Sick/Personal Days?

Vacation Days –
A standard vacation plan provides 2 weeks during the first year and one additional day per year of service after that. They may accumulate in different ways. You will want to ask:

      • How many days are allowed in the first year? in the future years?
      • When do vacation days begin accumulating and is it according to the calendar year or is it based on your date of hire?
      • What is the maximum number of days allowed?

Most employers cover six standard holidays including New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Most will also cover the day after Thanksgiving or Christmas Eve. Many companies will offer set holidays and also one floating holiday to be used at the employee’s discretion. If you are starting midyear, you may want to ask how many will be offered to you in the first year.

Sick/Personal Days –
Many companies have formal sick days for salaried staff. They may also provide personal days where an employee may take off for any reason. You will want to know how many days are allowed and how they accumulate.

What Should I Know About 401(k) Plans?

401k is a tax-deferred retirement plan that both the company and the employee contribute to. An employee usually does not have access to the employer’s contributions until the employee is vested. Vesting is the right to receive the pension fund, especially in the event of termination or early retirement. Some important questions:

      • How much is the company matching?
      • What is the maximum amount of matching and employee contribution?
      • How long does it take to vest the company matching and is there partial vesting during the interim?
      • What happens if there is early retirement?

What Should I Know About Profit Sharing and Stock Options?

Profit Sharing-
Profit sharing is the sharing of a company’s profits with the employees of the company. It can be a great benefit if the company is profitable, but the amount may be stated as an “up to” amount. Ask what the company has paid out in the past. Do not count on any promises that it will be greater in the future.

Stock Options –
ESOP is the acronym for employee stock ownership plan. This gives you the advantage of buying stock below market value, which gives you an automatic profit. The stock purchase is often free from any broker fees. Most companies will allow you to reinvest your dividends commission-free to buy more stock. You should sign up for the maximum allowable unless you have little faith in your company’s financial performance.

What Should I Know About Tuition Reimbursement?

Tuition reimbursement is when a company pays for courses completed by an employee. Courses normally covered are those relating to the job the employee holds. Ordinarily, the IRS considers this benefit tax free if you are studying in your current field. You will want to know what types of courses are covered and what the yearly maximum is.

What Are Some Other Less Visible Benefits?

        • Some companies offer a free/reduced rate to a health club or have an on-site facility.
        • Dependent care is another benefit, which includes child care or elderly care. This can include on-site childcare facilities where a parent can have lunch with his/her child. Some companies may not pay directly for these costs but will offer programs for allocating funds for these expenses from pretax funds. If you do not currently have children, you may want to ask about maternity leave also.
        • Employee assistance programs help employees with any special needs or counseling.
        • Comp time allows employees extra time off for extra hours worked.
        • Some employers offer adjustable work schedules with flex days (employees pick the hours they want to work).
        • Parking reimbursement can be a great benefit if you work in a city like New York where parking is expensive.
        • Many companies offer expense reimbursement where the company pays for any business-related costs like travel or meals.
        • Many times an employer will cover expenses associated with relocation.