Section 125 plan

Solving the HR Budget Puzzle with Section 125 Plans | Stretch your HR budget with a compliant plan that delivers real financial impact.

As year-end planning approaches, HR leaders across the country face a familiar challenge: how to make limited budgets go further without sacrificing employee support.

Whether you’re a solo HR manager at a growing business or a VP of People at a mid-sized firm, every dollar in your HR budget must now serve multiple purposes—from boosting retention to improving wellness to reducing tax liability.

And when traditional benefits are only getting more expensive, HR needs a strategy—not just a spreadsheet.

That’s where Section 125 plans—like The Champ Plan—enter the conversation.

Rising Costs, Stagnant Budgets: HR’s Tough Equation

In recent years, benefits costs have climbed 5–10% annually, while most HR budgets remain flat or grow marginally. According to the latest Deloitte Human Capital Trends, 64% of HR leaders say they’re under pressure to reduce costs while still delivering a best-in-class employee experience.

That’s a high-stakes puzzle:

Improve wellness → costs more

Add new benefits → cuts into other programs

Retain talent → needs tangible incentives

Please Finance → don’t ask for more budget

The answer? Solutions that reduce tax exposure and boost employee value—like a Section 125 cafeteria plan.

The Financial Mechanics of Section 125

A Section 125 plan allows employees to pay for eligible medical expenses with pre-tax dollars. That reduces their taxable income—and, more importantly, reduces your payroll tax obligations as an employer.

Here’s how it works:

Employees elect to contribute a portion of their salary pre-tax

Contributions are used to reimburse qualified medical expenses

Your company avoids paying FICA, FUTA, and SUTA on those amounts

Employees pay less in taxes, increasing their net take-home pay

Unlike costly benefit upgrades, this plan isn’t a new line item—it’s a restructuring of how existing dollars are allocated, resulting in savings and efficiency.

💡 Use the IRS calculator to estimate payroll tax exposure and compare potential reductions with Section 125 pre-tax adjustments.

Predictable Savings, Measurable Impact

The Champ Plan is a fully managed, Section 125-compliant solution that delivers predictable cost savings and measurable value—all with minimal admin lift.

On average, companies save:

$500–$1,000 per employee per year in payroll taxes

15–20% of eligible wages allocated through the plan

Admin time, since it’s fully managed and legally compliant

These savings go right back into the HR budget, giving you flexibility to reallocate toward:

DEI programs

Learning and development

Retention bonuses

Wellness initiatives

Use Case: Add Value Without Adding Cost

One of the biggest wins for HR professionals is the ability to deliver more value to employees without having to secure additional funds from the CFO.

Here’s how:

Your team gets pre-tax reimbursements for medical, wellness, and mental health services

They see an increase in take-home pay

You reduce taxable payroll and free up budget for other strategic initiatives

📊 Explore this budget-friendly benefits plan for HR

3 HR Budget Scenarios Before and After The Champ Plan

Let’s look at three common HR realities—and how a Section 125 strategy changes the picture:

📍 Scenario 1: Flat Budget, High Turnover

Before: $100K HR budget, rising medical costs, struggling to retain team
After: $7,500 in Champ Plan tax savings → reinvested into stay bonuses + morale boost

📍 Scenario 2: Growth Mode with Limited Benefits

Before: Adding 5 new hires, can’t afford full benefits expansion
After: Champ Plan adds no-cost value + saves ~$4,000 in payroll tax liability

📍 Scenario 3: Focus on Wellness Without New Spend

Before: No funds for mental health resources
After: Champ Plan includes mental health reimbursements + $800 savings/employee/year

FAQs

❓ What line item does this fall under?

It’s typically coded as a benefits program but often nets out as a negative spend due to the tax savings it generates. Your payroll provider or finance team can easily classify it under employee reimbursements or benefits tax savings.

❓ Can I present this to Finance?

Absolutely. In fact, finance leaders love it. Present the tax savings as a payroll efficiency initiative with employee wellness upside—it checks multiple boxes for both departments.

❓ How are savings tracked?

Savings are calculated per employee per year based on the pre-tax contributions made. Your Champ Plan provider (like The Policy Shop) provides reports that map actual payroll savings against projected outcomes.

Final Thoughts: Budget Strategy Meets People Strategy

In HR, we’re often asked to do more with less—but the smartest HR leaders know it’s not about cutting corners. It’s about investing where impact meets efficiency.

A Section 125 plan like The Champ Plan gives you that rare win-win:
✅ Budget relief
✅ Real employee value
✅ Compliance peace of mind
✅ Easy implementation

✅ Request a Cost Analysis Tailored to Your HR Budget

Want to see exactly how much you could save with The Champ Plan?
Get a free analysis from The Policy Shop today.
Let’s turn your HR budget into a growth engine—not a constraint.