Flexible spending accounts (FSAs) help employees put away pre-tax money to spend on specific medical and health. While FSAs offer benefits to employers and their workers, there are some things that might make your company ineligible to offer such an account. Consult with an accountant about how beneficial starting a program might be or if it might become a burden.
The Great Resignation sent some industries into near panic mode as they lost a significant number of employees and scrambled to find replacements. In the third quarter of 2022, around four million Americans parted from their jobs every month. Gartner predicts the number of separations will remain as high as 24% for several more years.
As with any new program you might consider adding to your benefits package, weigh the pros and cons of flexible spending to see if it’s right for you.
Tax Benefits for Employers and Employees
FSAs act as a tax buffer for workers. Rather than paying taxes on their gross income, employees can pay on the net, which allows them to subtract things such as a contribution to a tax deductible account such as an FSA. Reducing the amount you owe to the IRS is a nice perk employees look for when job hunting.
An FSA saves employers money because they don’t have to contribute to payroll taxes on the amount of money a worker places in an FSA. Employer taxes are lowered by the employee contribution. You might also save money by not paying for insurance packages for minor things that might be covered by the account.
You might even attract top candidates who otherwise would look elsewhere for a position. FSAs are attractive employee perks that help workers lower their tax bill and spend money on the approved medical expenses they want.
Increased Employee Satisfaction
Businesses can also promote employee well-being and improve the health of their employees by offering flexible spending accounts. Healthier employees are happier and more productive. Brands save money by retaining their top workers and improving satisfaction. Healthy workers take less days off, which impacts how much work they do and their attitude while doing it.
Anything you can do to improve your retention numbers will help build your business over time. If you constantly have to spend money to recruit and train replacements, you won’t gain the same momentum as a company with a positive culture that keeps loyal workers on the team for decades.
Although FSAs are only one part of the equation when it comes to keeping employees happy, it’s a great perk to offer. If you can get the management and offering of an FSA down to a science, you can organize other aspects of your benefits program, making life easier for your staff.
You’ll give your employees more flexibility in how they can utilize their health care funds. Since mental health is a problem for many workers, having better access to counseling can lead to better balanced happier workers.
Even if employees don’t leave because you’re paying them well, they may feel discouraged without the benefits they need and want. Some may “quietly quit” and stay in the job but not really engage or do more than they absolutely must. Offering this one perk can help them see you care about their needs as a human being.
Gaining a Competitive Advantage
Because offering the benefits people want attracts and retains top talent, you may gain an advantage over the competition. Assuming you’re offering a competitive wage and following the lead of removing degree requirements from around 90% of the roles in companies, adding FSA as a perk will keep you on par with other companies in your field.
Happier employees work harder. You may find you get more accomplished than other brands and can scale up more rapidly when you invest in employees’ mental and physical well being. Positive attitudes are contagious. However, employees often don’t want to pay out of pocket to get professional counseling.
Fortunately, an FSA can be used to talk to a therapist. Workers who feel happy and well-adjusted are going to be more likely to do their best work.
Who Can Start an FSA?
FSAs are typically started by a small business, although there may be more advantages to large corporations offering them. Individuals cannot start their own FSA–it must come from a company. Any employee of the company can participate with certain restrictions.
Your employees do not have to be full-time to take advantage of a plan. Your policies as their employer will dictate when and how they can contribute. For example, you might offer an open enrollment period to make paperwork more manageable.
You should also set minimum and maximum contribution limits, which expenses are eligible for use and any other details that make the plan easier to understand and use without penalties.
Change Your Company Culture
Offering an FSA forces your company leaders to figure out the paperwork and put in some extra effort. However, when you show workers you care about their needs, your leadership attitudes will change as well. Although it takes a bit of extra work, you’ll see how much your staff benefits and the positive changes to the business’ productivity.
Implementing an FSA provides benefits such as tax savings for employees, attracting and retaining top talent and gaining a competitive advantage in your field. Consider implementing a plan today to see if your company would thrive by adding an FSA as part of an overall benefit package.
Eleanor is editor of Designerly Magazine. Eleanor was the creative director and occasional blog writer at a prominent digital marketing agency before becoming her own boss in 2018. She lives in Philadelphia with her husband and dog, Bear.
