Employee Benefits-The Key to Attracting and Retaining ... · Attracting and Retaining Staff in the...
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March/April 2004 1 Employee Benefits-The Key to Attracting and Retaining Staff in the Oral and Maxillofacial Surgery Practice By John S. Bauer, CPA, CFE, FACMPE managing member Aspen Consulting Group, Ltd. Strongsville, Ohio The human resource function in the oral and maxillofacial surgery practice encompasses a broad range of staffing issues. However, next to salary, the benefit package offered to staff is often the most important consideration for the staff and the employer. From the employer’s standpoint controlling the spiraling costs of healthcare and other staff benefits offered is a constant challenge and one of the most contentious items contained in the practice’s annual budget. There is a “win-win” answer for both the employer and the staff and that is the use of a “Cafeteria Plan.” A Cafeteria Plan is a written plan (Internal Revenue Code Section 125) under which all participants are employees, and the participants may choose between two or more benefits. A cafeteria plan permits employees to choose between a selection of non-taxable benefits offered through the Cafeteria Plan or to receive cash, which is taxable. Employers can design and use Cafeteria Plans to limit the annual increases in benefit costs they have incurred in the past by establishing an annual benefit allowance per fulltime staff employee, which may be used by the employee to choose their personal benefit structure. One of the major advantages of this approach is that it treats every fulltime employee equally. The differences in costs per employee so often encountered when paying health insurance for employees and fully funding either single or married family coverage can be eliminated. Outlined below are common attributes and typical choices available in Cafeteria Plans. Benefits that can be offered include: • Health and accident insurance, including dental insurance. The coverage can include the employee and the employee’s spouse and dependents. • Group term life insurance, which can also include insurance on the life of the employee’s spouse or children. • Medical benefits for non-covered services. • Disability insurance and accidental death and dismemberment insurance. The coverage can include the employee, and the employee’s spouse and dependents. • Dependent care assistance payments. • Elective contributions under a Section 401(k) plan. Section 125(d) generally excludes any form of deferred compensation from the list of qualified benefits under a cafeteria plan; however, an exception exists for 401(k) plan contributions. • Elective paid vacation days. This permits the employee to receive more or fewer vacation days than are provided on a nonelective basis. • Long-term care. • Cash (taxable benefit). Benefits which cannot be offered: • Qualified scholarships under Section 117. • Educational assistance payments under Section 127. • Meals and lodging furnished for the convenience of the employer. • The “catch-all” fringe benefits offered under Section 132. These include qualified employee discounts and working condition fringes. Employee Advantages of a Cafeteria Plan The most significant advantage of a cafeteria plan is selection. Surveys indicate that individual employees PRACTICE MANAGEMENT NOTES A Supplement to the AAOMS Today Newsletter March/April 2004
Transcript of Employee Benefits-The Key to Attracting and Retaining ... · Attracting and Retaining Staff in the...
March/April 2004 1
Employee Benefits-The Key toAttracting and Retaining Staff in theOral and Maxillofacial Surgery Practice
By John S. Bauer, CPA, CFE, FACMPEmanaging memberAspen Consulting Group, Ltd.Strongsville, Ohio
The human resource function in theoral and maxillofacial surgerypractice encompasses a broad rangeof staffing issues. However, next tosalary, the benefit package offered tostaff is often the most importantconsideration for the staff and theemployer. From the employer’sstandpoint controlling the spiralingcosts of healthcare and other staffbenefits offered is a constantchallenge and one of the mostcontentious items contained in thepractice’s annual budget. There is a“win-win” answer for both theemployer and the staff and that isthe use of a “Cafeteria Plan.”
A Cafeteria Plan is a written plan(Internal Revenue Code Section 125)under which all participants areemployees, and the participants maychoose between two or morebenefits. A cafeteria plan permitsemployees to choose between aselection of non-taxable benefitsoffered through the Cafeteria Plan orto receive cash, which is taxable.
Employers can design and useCafeteria Plans to limit the annualincreases in benefit costs they have
incurred in the past by establishingan annual benefit allowance perfulltime staff employee, which maybe used by the employee to choosetheir personal benefit structure. Oneof the major advantages of thisapproach is that it treats everyfulltime employee equally. Thedifferences in costs per employee sooften encountered when payinghealth insurance for employees andfully funding either single or marriedfamily coverage can be eliminated.Outlined below are commonattributes and typical choicesavailable in Cafeteria Plans.
Benefits that can be offeredinclude:• Health and accident insurance,
including dental insurance. Thecoverage can include the employeeand the employee’s spouse anddependents.
• Group term life insurance, whichcan also include insurance on thelife of the employee’s spouse orchildren.
• Medical benefits for non-coveredservices.
• Disability insurance andaccidental death anddismemberment insurance. Thecoverage can include theemployee, and the employee’sspouse and dependents.
• Dependent care assistancepayments.
• Elective contributions under aSection 401(k) plan. Section125(d) generally excludes anyform of deferred compensationfrom the list of qualified benefitsunder a cafeteria plan; however,an exception exists for 401(k)plan contributions.
• Elective paid vacation days. Thispermits the employee to receivemore or fewer vacation days thanare provided on a nonelectivebasis.
• Long-term care.• Cash (taxable benefit).
Benefits which cannot beoffered:• Qualified scholarships under
Section 117.• Educational assistance payments
under Section 127.• Meals and lodging furnished for
the convenience of the employer.• The “catch-all” fringe benefits
offered under Section 132. Theseinclude qualified employeediscounts and working conditionfringes.
Employee Advantagesof a Cafeteria PlanThe most significant advantage of acafeteria plan is selection. Surveysindicate that individual employees
PRACTICE MANAGEMENT
NOTESA Supplement to the AAOMS Today Newsletter March/April 2004
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have vastly different preferences forfringe benefits depending on theirpersonal situation. The ability tochoose a tailored benefits packagecan be very valuable to an employee,and thereby to the employer.
Employee fringe benefits are adoptedto attract, motivate, and retainemployees. These are the sameobjectives of any compensationarrangement, but all employees likecash because it can be spent as theyplease. Employees expect a certainlevel of fringes in addition to cash, anda cafeteria arrangement allows choice,a benefit similar to cash. Fringebenefits also offer the advantage ofnontaxability. If the employee“purchases” a non-taxable fringethrough a cafeteria plan, he or shegenerally does so with pre-tax dollars.
Employee TaxAdvantagesPurchased benefits are acquired withpre-tax dollars. The employee taxadvantages include the 1) pre-taxbenefit of reduced income and socialsecurity taxes; and 2) the post-taxbenefit of increased take-home pay.
Employee DisadvantagesThe first principal disadvantage isthe “use it or lose it” principle. Anyallocated money not used within ayear must be forfeited. Proper plandesign and employee education canminimize the “use it or lose it”principle and create significant taxsavings.
Employer Advantagesof a Cafeteria PlanEmployers can plan and implementas part of their overall benefitstructure the ability to establishannually a fixed amount they wishto incur in costs in providingemployee benefits. Full-timeemployees can be treated equally inthe benefit planning through the useof a Cafeteria Plan.
Employer TaxAdvantagesThe employer tax advantages include1) salary reductions allocated tonon-taxable benefits are not subjectto the employer FICA and FUTAtaxes; 2) depending on state law,workers’ compensation taxes may bereduced; and 3) reducedcompensation may reduce theemployer’s required contribution toa qualified plan.
Employer DisadvantagesThe internal and externaladministrative expenses associatedwith the cafeteria plan should beconsidered in relation to thepractice’s benefit planning goals forcost containment and the tax savings
associated with the implementationand use of a Cafeteria Plan.
Examples:• Flexible Benefits/Cafeteria Plan• Tax Savings Plan• IRS Section 125
GuidelinesSection 125 tax law imposes thefollowing requirements, which mustbe considered in the design of acafeteria plan:
1. Limitations on who canparticipate:As mentioned earlier, allparticipants in a cafeteria planmust be employees. A self-employed individual is not anemployee. A self-employed
AAOMS PRACTICE MANAGEMENT NOTES
Illustration of Employee Payroll
Typical Cafeteria
Gross Pay. . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000. . . . . . . . . . $2,000
Medical Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 0. . . . . . . . . . . . -100
Medical Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 0. . . . . . . . . . . . -100
Dependent Care Expenses. . . . . . . . . . . . . . . . . . . 0. . . . . . . . . . . . -200
Taxable Income . . . . . . . . . . . . . . . . . . . . . . . 2,000. . . . . . . . . . . 1,600
Taxes (30%) Federal, State, FICA . . . . . . . . . . -600. . . . . . . . . . . . -480
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400. . . . . . . . . . . 1,120
Post Tax Medical Insurance. . . . . . . . . . . . . . . -100 . . . . . . . . . . . . . . 0
Post Tax Medical Expenses . . . . . . . . . . . . . . . -100 . . . . . . . . . . . . . . 0
Post Tax Dependent Care Expenses. . . . . . . . . -200 . . . . . . . . . . . . . . 0
Net Spendable Income . . . . . . . . . . . . . . . . . $1,000. . . . . . . . . . $1,120
Increase in Monthly Spendable Income . . . . . . N/A . . . . . . . . . . . . 120
Increase in Annual Spendable Income . . . . . . . N/A. . . . . . . . . . $1,440
Illustration of Employer Savings
The savings are based on 10 employees sheltering$2,000 each on an annual basis:
Annual salary sheltered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000
FICA savings 7.65% of $20,000. . . . . . . . . . . . . . . . . . . . . . . . . $1,530
FUTA/SUTA savings of approximately 3% . . . . . . . . . . . . . . . . . . . 600
TOTAL SAVINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,130
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individual is treated as his or herown employer. Leased employees*are treated as employees if theleased employee performs serviceson a substantially full-time basisas part of an agreement betweenthe employer and a third party,with the agreement lasting aminimum of one year. Theservices performed must besimilar in nature to what theother employees perform.
2. Limits on how and when choicescan be made and changed:By definition, a cafeteria planmust permit the employee tochoose between two or morebenefits. The choice of benefitsmust be made prior to the start ofthe year and generally cannot bechanged. The employer canprovide a given amount of moneyto utilize in the purchase ofbenefits, which is not a salarydeduction for the employee.Additionally, the plan mayprovide that the employee choicesbe made through salary reductionwhere the employees agree toreduce their compensation inexchange for purchasing non-taxable benefits under the plan. Ifthe employee elects to allocatecompensation to the purchase of abenefit, the allocated amount isforfeited if the employee does notactually use the benefit.
The following circumstances willpermit the employee to revoke anexisting election of benefits andmake a new one within a singleplan year:• Marriage or divorce• Death of a spouse or child• Birth or adoption of a child• Termination or commencement
of employment of a spouse• Switching from full-time to
part-time employment by theemployee or the employee’sspouse
• Switching from part-time tofull-time employment by the
employee or the employee’sspouse
• Court ordered change incoverage, such as an ERISAqualified medical support order
• Employee’s spouse ordependent becomes eligible forMedicare or Medicaid coverage
• An unpaid leave of absence bythe employee or the employee’sspouse
• A significant change in thehealth coverage of theemployee or the employee’sspouse attributable to aspouse’s employment
• A significant change in the costor coverage offered by anindependent third partyprovider of health care underthe plan
3. Limits on what benefits can beincluded:Generally, a cafeteria plan canoffer the employee a choicebetween cash and non-taxablefringe benefits. However, certainnon-taxable fringes are eitherunavailable or limited as part of acafeteria arrangement. See page 1for a list of permitted benefits.
4. Limits on discrimination andfavor of highly compensatedemployees:A properly designed cafeteria planmust meet non-discriminatorytesting standards. Annually, theplan must completediscrimination testing as well asthe appropriate reporting to theInternal Revenue Service.
5. Recordkeeping and disclosurerequirements:The plan must maintain sufficientrecords to permit a determinationthat the requirements of anystatutory benefit exclusion aresatisfied.
Successful oral and maxillofacialsurgery practices recognize that oneof their greatest assets is a
knowledgeable, well-trained workforce. A Cafeteria Plan with itsability to allow employees topersonally select their benefits andwith tax savings advantages is one ofthe keys to attracting and retainingquality employees.
*Recent trends in human resources haveresulted in a greater use of ProfessionalEmployer Organizations (PEO’s), commonlyrecognized as “employee leasing” entities.PEO’s and employers contractually create aco-employment relationship with the staffand the PEO, for a negotiated fee, assumesthe human resource responsibility forpayroll, employee benefits, qualified plans,etc. Because the PEO has a large census ofemployees, they have the ability to negotiatemore favorable rates for employee benefitsthan a smaller employer organization. Theuse of Professional Employer Organizationsis an extensive area that will be reviewed ina future article
John Bauer is a member at Aspen ConsultingGroup, Ltd. and can be reached at [email protected], 1-877/238-7032 (toll free),and www.aspen-ltd.com
Copyright © Aspen Consulting Group, Ltd.2004. All Rights Reserved.
This article is intended to provide generalinformation; readers should not rely on thearticle for individual legal and financial advicewithout consulting a professional. The viewsexpressed in this article are those of the authorand do not necessary reflect the opinions ofAAOMS.
This is number 81 in a series of articles on practicemanagement and marketing for oral andmaxillofacial surgeons developed under theauspices of the Committee on PracticeManagement (Larry J. Moore, chair, Robert W.Emery, Brent T. Garrison, Jerry L. Halpern,Rickey L. Hurst, Donald P. Lewis, Jr., RobertT. Watts, Jr., Robert L. Coles, consultant, andThomas M. Weil, consultant) and AAOMSstaff. Complete sets of previously publishedPractice Management Notes are available online atwww.aaoms.org.
All articles in Practice Management Notes arepublished only with the consent of the authors,who have expressly warranted that their worksare original and do not violate copyright ortrademark laws. AAOMS is not responsible forany violations of copyright/trademark law on thepart of these authors.
PracticeBuy-Ins and
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YOUR PARTNER • THE OBLIGATIONS THAT YOU
UNDERTAKE IN A PARTNERSHIP • WHAT IT MEANS
TO SELL AN INTEREST IN YOUR PRACTICE • YOUR
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THIS IS A GOOD DECISION FOR YOUR
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PERTINENT TO OMS PRACTICES
Who should attend?Residents and OMSsconsidering what tolook for whenjoining a practice.
Register online at
www.aaoms.org
A Special One-Day Stand-Alone Meeting
Saturday, May 15, 2004Presented by Sandra E. D. McGraw, JD, MBA, The Health Care Group
Hyatt Regency Minneapolis, Minneapolis
