Pre-Tax Employee Benefits That Reduce Payroll Costs for US Employers
Benefits cost money, there’s no denying that. As an employer, it’s a balancing act of finding the right benefits packages that not only help and “benefit” employees but also don’t drain the company dry. However, there are many perks you can offer that do just the opposite, and the right benefits packages can actually reduce what you owe to the government on every payroll run.
This is because pre-tax benefit programmes shrink the pool of wages, and you get to do so without having to cut anyone’s wages or without touching your benefits budget at all.
And when money is tight, and you need to leverage your financial levers, the following benefits are exactly what you need.
401 (k) Salary Deferrals
When an employee defers part of their salary into a 401(k), that portion never enters the taxable wage calculation. And as an employer, this means the payroll tax bill shrinks proportionally with every dollar an employee sets aside.
When you multiply this across your entire workforce, the annual savings become significantly more substantial.
A 401(k) match is always going to be a powerful benefit to offer to employees, but if you have invested in auto enrolment, you have a clear contribution matching communication and regular reminders about the match ceiling going out to all employees, you’ll see more and more employees contributing more, which in turn means a lower aggregate taxable wage bill year after year. Plus, the match you make is also tax-deductible. Meaning you get rewarded for helping your staff save for retirement.
Health Savings Account Contributions
An HSA is one of the few benefits in the US tax code that works three ways at once.
First contributions go in pre-tax, money grows tax-free, and qualifying withdrawals come out tax-free.
For employees, this is genuinely exceptional. For employers, every dollar contributed to an employee’s HSA is exempt from FICA and deductible as a business expense.
The practical effect is that the employer and employee both pay less tax on the same dollar of value changing hands. When you compare that to a pay rise, for example, where the employee pays tax, and the employer pays FICA on every additional dollar, it’s an enticing option.
Employer Arranged Vehicle Benefits
Employer-arranged vehicle benefits are one of the fastest-growing additions to US compensation schemes. This is something that is typically offered within companies that have employees across the globe, such as the UK. Rather than giving the employee a car allowance,e which is taxed as taxable income, you give them access to a structured vehicle program to let employees access a vehicle through a salary sacrifice provider like The Electric Car Scheme, meaning the employer reduces their payroll tax burden, and the provider manages all of the administrative components. While this isn’t a general thing in the US for employers, for business operating globally in countries where this is on offer, it’s a great incentive to offer as part of the well-rounded care package.