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Are flexible spending accounts right for your hospital?
With enough employee participation, flexible spending accounts are a great benefit that attracts-and retains-solid team members.
When it comes to keeping great team members, a challenging work environment and competitive compensation and benefits top the list of essentials. And of course, health insurance is a basic.
But you might also consider offering team members a flexible spending account, also known as an FSA or an IRS section 125 cafeteria plan. With these accounts, participants contribute part of their pay on a pre-tax basis, and then they are reimbursed from this fund for medical expenses, dependent care expenses, or adoption assistance.
To offer this benefit, you must put the plan for these accounts in writing and appoint an administrator to handle reimbursements. This administrative task can be time consuming, and often employers will appoint third-party administrators to handle the job. Payroll service companies can also administer the plan. The IRS dictates that practice owners usually can't participate in these plans.
So, there's a cost to providing these plans, and it can be significant if you hire a third party to administrate them. My personal rule is that when you spend money on the practice, the benefit you see needs to exceed the cost. In this case, most of that benefit is intangible. Ideally, these plans help to promote employee goodwill and help you attract and retain better employees.
There are actually some cost savings, too. Amounts contributed by employees aren't taxable for FICA and Medicare tax purposes, so the amounts the employer pays go down, too. For example, if employee contributions totaled $18,000, you'd save $1,377 in FICA and Medicare tax at the employer rate of 7.65 percent.
Before considering whether to offer a plan, survey your staff members to see if there would be enough employee participation to warrant the cost. Typically these plans work better with practices that employ 25 team members or more.
Gary I. Glassman
Gary I. Glassman, CPA, is a partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member.
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