Section 125 Plan

The Employee Benefits Dilemma

Today’s job market is highly competitive, and businesses are struggling to attract and retain top talent. Employees expect strong benefits, but for many employers—especially small and mid-sized businesses—offering comprehensive health benefits can be cost-prohibitive.

What if there was a way to provide employees with valuable tax-free benefits without adding financial strain to your business? A Section 125 Plan (also known as a Cafeteria Plan or Premium Only Plan (POP)) could be the answer.

This guide will show you how a Section 125 plan helps you offer competitive benefits, boost employee satisfaction, and reduce payroll taxes—all without increasing costs.

Why Competitive Benefits Matter for Retention

Employees today consider benefits a key factor in deciding whether to accept or stay at a job. A study by MetLife found that 73% of employees say they are more likely to stay with an employer who offers a solid benefits package.

Common reasons employees leave for better benefits:
✔️ High health insurance costs
✔️ Lack of pre-tax savings options
✔️ No employer-sponsored flexible spending or savings plans
✔️ Fewer tax advantages compared to competitors

A Section 125 Plan can address these issues, making your business more competitive while reducing costs for both you and your employees.

How a Section 125 Plan Works

A Section 125 Plan allows employees to pay for health insurance premiums and other qualifying expenses using pre-tax dollars—reducing their taxable income. As an employer, this also lowers your payroll tax burden, creating savings without added expenses.

✅ For Employees: Lower taxable income means more take-home pay and affordable benefits.
✅ For Employers: Reduced payroll taxes mean instant cost savings while offering competitive benefits.

📌 Example: A business with 20 employees using a Premium Only Plan (POP) could save thousands annually in FICA taxes alone!

The Cost-Saving Benefits for Employers

A Section 125 Plan helps employers save money in several ways:

📉 Reduced Payroll Taxes: Employers save 7.65% in FICA taxes on every dollar employees contribute pre-tax.
⚖️ Tax Deduction Advantages: Contributions to employees’ pre-tax benefits are 100% tax-deductible.
💼 Lower Employee Turnover: Employees stay longer when they receive better benefits.
📊 Competitive Edge: Your business can offer stronger benefits at no extra cost—helping you compete with larger companies.

Types of Section 125 Plans for Employers

Employers can choose from different Section 125 options to best fit their workforce needs:

✔️ Premium Only Plan (POP): Allows employees to pay for health insurance premiums with pre-tax dollars.
✔️ Flexible Spending Account (FSA): Employees set aside pre-tax income for medical expenses & dependent care.
✔️ Full Cafeteria Plan: Provides a range of pre-tax benefits, from medical and dental coverage to childcare and commuting expenses.

By implementing The Champ Plan, a customized Section 125 Plan from The Policy Shop, you can give employees more options, more savings, and more reasons to stay—all at no extra cost to you.

Why Small and Mid-Sized Businesses Need a Section 125 Plan

Many small and mid-sized businesses think competitive benefits are only for large corporations. But with a Section 125 Plan, businesses of all sizes can offer meaningful benefits without increasing expenses.

🔹 Are you struggling with high employee turnover?
🔹 Do employees complain about expensive healthcare options?
🔹 Are you looking for ways to save on payroll taxes?

If you answered yes to any of these, The Champ Plan is the solution you need!

How The Policy Shop Can Help You Implement a Section 125 Plan

At The Policy Shop, we specialize in helping businesses maximize tax savings and enhance employee benefits. We handle everything, including:

✅ Plan Setup & Compliance – Ensuring IRS compliance with a custom Section 125 Plan document.
✅ Payroll Integration – Helping you coordinate pre-tax deductions with payroll.
✅ Employee Education – Providing easy-to-understand materials so employees can maximize their benefits.
✅ Ongoing Support – Making sure your business stays compliant and takes advantage of cost-saving opportunities.

📞 Ready to offer better benefits without extra costs? Contact The Policy Shop today!