“P O P” isn’t fizzy, but is does save you money. What is it? P O P stands for “Premium Only Plan”, a slimmed down version of a Section 125 plan, casually called a “cafeteria” plan or Flexible Savings Account (FSA). And it is one of the most under-utilized employee benefits around – one that any employer who has a contributory welfare benefit plan sorely needs. This concept can be an incredible way to enhance your benefits package, while simultaneously boosting your profits.
Background: Why is this known as a Section 125 plan? Because the IRS Code Section 125 is the legal authority and basis for such a welfare benefit plan – which must meet non-discriminatory requirements, as well as other reporting requirements, especially to your employees.
Why is this concept under-utilized? Because Section 125 FSAs can be a costly to set up and operate, most employers with less than 10 employees assume that they will never make it pay for itself. especially since owners are often exempted from them. But these plans include three “modules” – premium only, flexible spending, and dependent care accounts. Since much of the cost of administration (not to mention the headache of account losses due to utilization rules that favor the unscrupulous employee) are in the flexible spending accounts, the premium only module is cheap, easy to set up, and provides immediate tax relief to both employee and employer, without the headaches or administration costs of a full blown FSA. It is the simplest type of Section 125 plan and requires little or no maintenance once it’s been set up.
Premium only plans allow employees who contribute premium dollars. out of their wages, for employer-sponsored health and welfare benefit plans the ability to withhold a portion of their salary tax-free to pay for their premium contributions. Because these benefits are viewed as tax-free under the IRS Code, an employee’s taxable income is reduced. Employers win because pre-tax benefits aren’t subject to FICA, FUTA, or work comp premiums on these wages. Simply put, every dollar through a P O P reduces an employer’s payroll, reducing the employers’ costs, which immediately drop revenue to the bottom line.
Since your employees are already paying for these expenses out of pocket, a P O P gives them a great way to save money by lowering their taxes, which increases the percentage of their take home pay. With taxes likely to rise in the future, this is a ‘gimme’ for any small business employer.