Sat down with a new SmallBiz Owner Prospect last week to talk about implementing an employee benefits program and one of the questions that they asked was, “Can I share the premium payments with my Employees?”.
The short answer is, “Yes, of course you can!”.
The longer answer has to do with the Traditional Group Insurance carriers insisting that the split be you, the SmallBiz Owner, paying at least 50% of the Premium. They want this to be the minimum split so that there is less chance of any Employees wanting to opt out of paying for benefits because it becomes too expensive for them when they compare how much the premium costs vs their expected claims costs. The whole reason that Traditional Group Insurance works is that there are Employees that claim a lot; some that claim a small amount; and those that don’t claim at all.
The next question from that SmallBiz Owner Prospect was, “How do other businesses split their Premium with their Employees?”
For my block of business, it’s a pretty even 50-50 split…50% of my Clients pay 100% of the Premiums and 50% share the Benefit Premiums with their Employees.
For those that split their premiums, here are the Top 6 ways that they do it:
- You come up with a flat dollar amount per Employee. Example: you say that you will invest $1,000 per Employee per year…Whatever the Total Premium comes to, your Employees will pay the difference.
- Make your investment per Employee based on a percentage of their Salary. Example: you choose 2% of Salary…If you have an Employee that is making $40,000 per year, then you will invest $800 for that Employee and they pay the difference.
- Pitch in an hourly amount. Example: If your Employees are Hourly, then tell them that you’re adding benefits, which is like increasing their Hourly wage by $0.50 per hour…this translates into 52 x 40 x $0.50 = $1,040 per year and they pay the difference.
- Have the Employee pay for the Long-Term Disability (LTD) premiums. Example: If the Employee pays for 100% of the LTD premium, then if they were to go on LTD, the LTD benefit dollars they receive will be non-taxable. If you pay any percentage of the LTD premium, then the benefit dollars they receive will be taxable.
- Take into consideration how some Benefit premiums are taxed. Example: If your Benefits Program includes any of Basic Life; Dependent Life; Accidental Death & Dismemberment; or Critical Illness, then the Premium paid by you for these benefits is a taxable benefit to your Employees. Health and Dental premiums are not taxable to the Employee.
- Simply do a percentage split. Example: Tell your Employees that you’re going to split the premium 50-50 or 75-25 or 80-20, etc…
Located in Cambridge, ON Sharkey Group Insurance provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.