I've been involved with the financial services industry since 1991. Over the past 27 years, I have interacted with thousands of small business owners.
Here are 5 things you should always avoid when choosing employee benefits for small business:
1. Paying premiums
It's almost unanimous that Canadians associate a benefit plan with insurance provided by an insurance company. When you think of employee benefits, do you think of a defined benefit plan that spells out the specifics of what can be claimed? Do you think of a template that treats all employees the same way assuming they have the same needs? Do you wonder if there's a better way?
There is, and it's called a health spending account or an"HSA". The nature of a health spending account is flexibility and choice. A health spending account puts the decisions of how, where and when to use the benefit where it was intended - in the hands of the employee.
2. Confusing insurance and benefits.
A quick Google search defines a benefit as "a payment or a gift". The definition of insurance is "an arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium". Non-catastrophic events like dental services, vision and chiropractic treatments fall outside of the definition of insurance.
When setting up a benefit plan, use a health spending account to provide tax-free benefits for non-catastrophic events. Use insurance to cover catastrophic events such as death, a critical illness or disability from an accident or sickness. A health spending account provides a tax-free cash reimbursement to the employee to be used and directed as needed. Until there's a claim for benefits, there's no cost for the employer and no premium to be paid.
3. Confusing health and dental benefits with health and wellness benefits
The Income Tax Act makes it possible for an employer to provide tax-free health and dental benefits to employees. There is an extensive list of services that receive this special tax-free treatment. It includes all dental services, vision, paramedical services, prescription drugs (including medicinal marijuana) and medical services and supplies. Here is a list of ALL eligible expenses. This is where a health spending account reigns supreme. It's the most simple and cost-effective way to provide this special class of tax-free benefits to employees.
What's not included (and often confused with) are health and wellness benefits for fitness activities and related supplies and services. A few examples are gym memberships, running shoes, Pilates, yoga and any other fitness or sports training activities, memberships and supplies. These health and wellness benefit reimbursements are taxable benefits that must be included as income when paid to employees.
4. CommissionsThe relationship between commissions and premiums creates a natural conflict for the advisor. Recommending a pay as you go, low fee health spending account will result in a significant pay cut for the advisor. This is the main reason there's so much resistance among brokers and advisors to recommend a change to a health spending account. Advisors that put the client first (and take a long-term approach) usually transition customers to a health spending account. From the advisor perspective, this is short-term pain for long-term gain thinking. It's a situation that will ensure a long term mutually beneficial relationship between the advisor and the business owner. It's also a win for employees as resources are conserved, leaving more money to fund claims. The advisor's interests are now aligned with the business owner and employees. A happy client is more likely to refer business to the advisor. Most importantly, employer resources intended for employees are no longer lost in a premium.
5. Complicating the uncomplicated
Health and dental benefits aren't complicated. A Health Spending Account (HSA) is a simple tax-free arrangement to reimburse an employee for health and dental expenses.
- The employer determines the amount of benefit to provide each employee
- Employees submit their receipts to the administrator who verifies eligibility and directly reimburses the employee
- All eligible health and dental bills are reimbursed up to the benefit limit set by the employer
- A professional administrator (such as Olympia) manages the plan
- The administrator stores the information about the claim (which is accessible by the employer and the employee)
There are no complications with a health spending account. The plan is transparent and easy to use. The employers cost is never more than the amount of the employees claimed benefit, plus an administration fee. An HSA is a flexible benefit that meets the diverse needs of any group of employees.