Employee Benefits for Texas Small Business

“Mistakes” is a tough word, but allow us to also use the words false assumptions or oversights.

First, allow me to state my affiliation…

I am an employee benefits specialist who works almost exclusively with small businesses in Texas.  Services include group health insurance, voluntary benefits, Cafeteria plans, etc.   I have visited with literally thousands of business owners in the past few years and have experienced a plethora of scenarios.

First, let us deal with employers who value employee benefits and try their best to offer plans that work for both the employer and the employee:

The number one oversight I see is that employers do not take advantage of tax savings for their group health insurance.  Sometimes it is lack of information and sometimes it is distrust of the system.  Regardless, employers can save money for themselves and their employees.  Say, for instance, an employee is paying $700 for family health insurance each month via deductions from their paycheck.  With a Section 125 or comparable plan in place, the employee can save on average 15% (or $105) a month on those premiums.  The employer further can save on average nearly 10% (or $70) a month in payroll taxes because the premium is removed from the payroll base.  I’m no tax adviser, but the math is fairly simple.

Second, I see many employers who feel they cannot afford the roller coaster ride of implementing a group health plan and instead figure they can make up the benefit by paying each employee an extra, say, $200 a month and tell the employee it is for their insurance.  This has a three-pronged disadvantage.  First, the employer is paying on average $20 additional a month in payroll taxes for the “raise” (in addition to the $200).  Second, the employee is paying income taxes on the $200,  so they net maybe $165.  So, to give an employee $200 for health insurance through income, over $55 is lost between employee and employer.  The final straw comes when inevitably the employee (through no fault of their own) starts to take the benefit for granted.  After a year or so, the connection to health insurance is lost in their minds.  And, in fact, most of the time when I see this scenario, the employees still don’t have health insurance. And this whole scenario assumes each employee is young and healthy and insurance costs only $200.  Go figure.

Now let us consider the employer who is disconnected from their employees in terms of projecting need.  I have had employers tell me that their employees cannot afford voluntary benefits such as short term disability or supplemental health.  In fact, one employer told me we would never get an employee interested because none of them was interested in the group life insurance that cost only $.75 a paycheck for $10,000 in coverage.  Luckily, we got the go-ahead to see the employees anyway. Well, turns out that $.75 a paycheck was not worth the little amount of life insurance for this group, but 18 of the 22 employees found value in other options we provided.  The average employee spent nearly $60 a month in voluntary benefits – because they fit their individual needs.  The employer typically speaks on behalf of the employee without truly understanding where the need is.  Of course, the employer typically is in a different tax bracket than the employees. My job as a benefits specialist is to address the need, but sometimes who have to fight through the false assumptions just to get the opportunity to speak to the individual.

I love when an employer tells me that they want to survey their employees and see if they are interested in voluntary benefits.   If they are, then the employer will get back to me.  Behind the scenes a conversation goes like this:

Employer:  Hey folks, do you want to talk to an insurance guy that stopped by about getting some more insurance.  He says its cheap.

Employees: No, not really.

In reality, there is a reason insurance agents need a license.  The license requires a minimum amount of expertise and ethics so that we can communicate to individuals not only what the options are, but how they work and why an individual might need them.   Nearly 70% of American workers either do not have life insurance or are under-insured.  A 10 minute conversation with a professional would go a long way toward reducing sleepless nights. 

Furthermore, the most important asset a working American has is his or her paycheck.  Without sufficient insurance, the paycheck is also their biggest risk.  Lose the paycheck due to accident or illness and watch the dominoes fall.

Survey the average American worker, and most would say their employee benefits are insufficient.  Certainly the increase in health care has a large part in this, but another aspect is an employer working on false assumptions without allowing a specialist to address the needs of the individual.