Hey, me too. But it’s tough, right? We small business owners need to have good fringe benefits available. But identifying which benefits to provide—and then finding a way to economically and efficiently provide those benefits—is tough.
Therefore, I’ve got an idea for you. I think you combine a handful of small-business-friendly tax law provisions to provide a decent small business fringe benefits package. A package that will work well for most employees—and one that will compare pretty favorably to what big employers offer.
Sound interesting? Let me share the details…
Small Business Fringe Benefits Pension Plan
You can go a bunch of different directions with a pension. But many of those directions cost significant money to administer. A small business 401(k) plan, for example, can easily run $3,000 to $4,000 a year–an amount that’s often as much as the matching contributions the employer pays.
And then, unfortunately, many small business pensions actually leave your employees with a pension benefit of, well, dubious value.
Why not, given this reality, go with a Simple-IRA plan. Any large financial services firm (including my favorite, Vanguard’s Simple-IRA plan) will provide your firm and its employees with a Simple-IRA plan for free.
These plans really work pretty well for most employees. With a Simple-IRA your firm will let employees contribute up to $12,500 to a special type of IRA account (up to $15,500 if the employee is aged 50 or older). And then the firm can provide up to a 3% match.
Note: The match calculation works like this: The employer typically matches the employee’s contribution dollar for dollar up to 3% of the employee’s wages. Suppose, for example, that the employee makes $10,000 annually. If she contributes $100, the employer contributes $100. If the employee contributes $300 to the Simple-IRA, the employer contributes $300. If the employee contributes $500, the employer still only contributes $300.
Caution: You need to set up a Simple-IRA before October. In other words, to have a Simple-IRA plan in effect for 2017, you need to have the plan set up before October 1, 2017.
Small Business Fringe Benefits Health Insurance
Today’s small business health insurance marketplace is, well, problematic in many states. Obamacare’s small business exchanges didn’t really get going in every state. And then the old approaches small businesses used (like employer payment plans) were outlawed (at least initially) by Obamacare.
Note: For more information about how Obamacare impacts small businesses refer to this post: Really Simplified Guide to Small Business Obamacare Rules.
Fortunately, in 2016, Congress created a slick workaround which may give you a quick and dirty way to provide a health insurance benefit: The Qualified Small Employer Health Reimbursement Arrangement (also known by the acronym QSEHRA).
Another blog post here (Qualified Small Employer Health Reimbursement Arrangements) provides you with the details, but with these plans you simply reimburse employees up to $4950 annually ($10,000 if the health insurance plan covers an employee and family) for their health insurance.
Clearly, these QSEHRA plans should work smoothly for many small businesses—and in a way that’s great for their employees.
Small Business Fringe Benefits Education Assistance
Lots of other fringe benefits options are available, too, but can I mention one other valuable benefit that can make good economic sense for a small business to offer as an incentive to employees and potential employees?
You may want to consider offering education assistance. More specifically, you may want to reimburse, on a case by case basis, the costs of college or similar training when the education allows someone to do their job better.
Now note, this approach differs from many “big company” tuition assistance reimbursement programs which will pay for many types of college costs. But with those programs, unfortunately, you have to follow some more complicated rules including falling under annual limits and avoiding discrimination in favor of owners. That’s probably too complicated for many small businesses.
Fortunately, you have a way to keep things really easy: If the education helps someone do their job better, the expense of the education should be deductible as job training. Which means you can easily deduct the costs for anyone. That gives the employee who wants to build their skills a valuable tax-free benefit. And it lets you partner with an employee to grow their skills and allow them to become better at the role they pay.
Note: The Treasury Regulation that lets you easily deduct education that amounts to job training is Reg. Sec. 1.132-1(b)(2).
Putting It All Together
So here’s what I’m thinking…
A little reading later today. A bit of poking around the Vanguard.com website maybe today, maybe tomorrow. And, voila, you can begin telling employees your firm now offers the following: a pension plan, a health insurance benefit, and educational assistance.