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Employers are mandated by law to provide and/or pay into:
- Social Security
- Unemployment compensation
- Workers’ compensation (in all states, except Texas)
- Short-term disability benefits (for certain states such as New Jersey)
- Health insurance (for employers with 50 or more full-time equivalent employees)
Some of these programs are funded through taxes paid by employers, and in some instances, both employees and employers are taxed in order to fund the program.
Employers may choose to offer certain benefits based on their budget, employee demographics, and workplace culture. Some benefits that are commonly offered to employees include, but are not limited to:
- Health insurance
- Retirement plans
- Disability insurance
- Employee discount programs
- Wellness programs
- Paid time off (vacations, sick leave, bereavement leave)
- Employee assistance programs
- Life insurance
- Meals or meal allowances
- Educational assistance
Affordable Care Act (ACA):
The ACA requires employers with 50 or more full time (or equivalent) employees to offer health coverage that meets certain requirements or face a possible penalty.
Employee Retirement Income Security Act (ERISA):
ERISA is designed to ensure that employees receive pension and other benefits promised by their employers when they retire. A retirement plan subject to ERISA must, among other things generally:
- Be in writing
- Require assets to be held in a trust
- Name one or more fiduciaries to administer the plan
- Describe how it will be funded as well as the plan’s claim procedures
Consolidated Omnibus Budget Reconciliation Act (COBRA):
COBRA permits employees (and their qualified dependents) who would otherwise lose their health insurance coverage due to certain qualifying events to continue coverage through their employer, or former employer, at group rates. COBRA places certain notification requirements on plan administrators.
Health Insurance Portability and Accountability Act (HIPAA):
HIPAA mandates the adoption of a series of provisions to simplify and ensure the privacy and security of healthcare information. Whether a group health plan is insured or self-insured and the type of information that is shared with the plan sponsor will determine the complexity of HIPAA compliance.
Health Reimbursement Arrangements (HRA):
A health reimbursement arrangement (HRA) is a tax favored benefit that reimburses employees for eligible healthcare costs not covered by their employers’ health plan. Typically an HRA is used in conjunction with a high deductible health plan (HDHP). An HRA is strictly employer-funded. Employers contribute a specified amount into an employee’s HRA, and those funds are then used to reimburse employees for the costs of eligible out-of-pocket medical expenses. An employer sets up an HRA through a licensed insurance company or broker, and determines the amount available for an employee to be reimbursed, per coverage period, for eligible expenses.
Health Savings Accounts (HSA):
A health savings account (HSA) is a tax advantaged way to save money to pay for healthcare. HSAs enable employees to pay for health-related expenses incurred before reaching an insurance deductible as well as qualified medical expenses not covered by their insurance plans. Similar to an HRA, an HSA is typically paired with an HDHP. Both employees and employers can make tax-deductible contributions annually to HSAs, in accordance with federal limitations. Employees may then withdraw money from their HSAs, tax-free to pay for qualified medical expenses.
Cafeteria plans are written plans maintained by an employer that meets specific requirements of Section 125 of the Internal Revenue Code. The plan provides employees the opportunity to contribute a certain amount of their earnings to a designated account or accounts on a pre-tax basis. Flexible spending accounts (FSAs) are a common type of account available under a cafeteria plan.
Health Flexible Spending Accounts (FSA):
Health flexible spending accounts (Health FSAs) are employer-established benefit plans and may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. However, employees do not have to be covered under any other healthcare plan to participate. Health FSAs reimburse employees for qualified medical expenses and are typically funded through voluntary salary reduction agreements that are made on a pre-tax basis.
Dependent Care FSAs:
Dependent care flexible spending accounts allow an employee to set aside a specific amount of his or her pre-tax earnings to pay for eligible childcare expenses. Unless the plan provides otherwise, all funds in a dependent care FSA must be used during the tax year in which they are set aside, or they will be forfeited. For more information, visit the IRS website.
Paid Time Off (PTO):
Offering paid time off can help you demonstrate your commitment to your workforce, attract and retain employees, and remain competitive in the marketplace. Paid time off can also boost productivity and help reduce unscheduled absences by giving employees the ability to schedule their time off.
Some employers bundle leave into a single paid-time-off (PTO) bank, rather than have separate allotments for sick, vacation, and other personal leave. With a PTO program, employees are typically able to use their accrued time off for any reason. This can make it easier to track time off.
Some employers offer paid time off to both full-time and part-time employees. However, if you offer PTO to full-time employees, you are generally under no obligation to offer it to part-time employees. Employers that offer PTO to part-time employees usually do so on a pro rata basis.
Accrual versus frontloading:
Employers can allow employees to accrue PTO over the course of the year or frontload PTO (grant all leave at the beginning of the year). While frontloading might be easier to administer, the accrual method can reduce costs if the employee leaves the company during the year. For example, an employee who receives two weeks of frontloaded vacation on January 1 and then quits on January 2 may be entitled to a payout for the unused time. Accruals require the employee to earn the time each pay period.
Carryover and payout:
Some states explicitly prohibit policies that force employees to forfeit accrued, unused vacation and other PTO (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over accrued but unused PTO from year to year, or pay employees for the unused time at the end of the year. In some cases, a reasonable cap on accruals may be permitted. Similarly, in these states, employers are required to pay out any accrued, unused PTO at the time of separation. In some other states, employers are allowed to have use-it-or-lose-it policies only if the company has a written policy communicating the rule to employees. Check your state law to ensure compliance.
Paid Sick Leave:
While no federal law requires employers to offer paid sick leave to employees, some states and a number of local jurisdictions have passed legislation requiring employers to do so. Among other things, these laws address employee eligibility, accrual, permitted reasons for taking leave, and notice requirements. Covered employers should review these laws carefully to make sure their sick leave programs are compliant. Employers should also note that these laws may apply to you if you have employees working in these jurisdictions—even if your business is located elsewhere. Check your state and local law to ensure compliance.
Other Types of Leave:
Depending on your size and jurisdiction, you may be required to provide the following types of leave (in some cases such leave must be paid, in other cases it may be unpaid):
- Voting leave
- Election duty leave
- Emergency responder leave
- Pregnancy leave
- Family and Medical leave
- Small necessities leave
- Crime victims leave
- Domestic violence leave
- Bone marrow, organ, or blood donation leave
- Military leave
- Disability leave
Check your state and local laws to ensure compliance.