When candidates are considering a job offer, the employee benefit offerings may be the deciding factor. For many people, company paid benefits are so important that they may consider taking a lower paid job for better company benefits.
In today’s era, health care coverage is among the most important benefit a company can offer. Another common benefit that attracts and retains qualified employees is paid vacation time and personal leave. Along with paid time off is short-term and long-term disability coverage.
Does your company offer short-term and long-term disability coverage? Disability coverage is a type of insurance that pays a portion of an eligible employee’s wages while they are out of work for a temporary non-work related disability, such as an injury, serious medical condition or pregnancy. If you do offer disability coverage, your employees will receive more of a benefit should they need to use the coverage if the benefit is not company paid.
The Internal Revenue Service determines if the disability payment is taxable based on how the premium/payroll deductions are paid.
- If the employer pays the entire premium, then the benefit received would be 100% taxable to the employee.
- If the employer pays a portion of the premium and the employee pays the balance with after-tax dollars, then the benefits would be taxable in the same proportion as the percent of the premium paid by the employer.
- If the employer pays a portion of the premium and the employee pays the balance with pre-tax dollars through a Section 125 Cafeteria Plan then the benefits received would be 100% taxable to the employee.
- If the employer pays nothing and the employee pays the entire premium with pre-tax dollars, then the benefit received would be 100% taxable to the employee
- If the employer pays nothing and the employee pays the entire premium with after-tax dollars, then the benefit received would not be taxable.
When offering a Benefit Package, some benefits such as disability coverage are more advantageous to the employee if paid at least in part if not entirely by the employee with after-tax dollars. Employers can still cover the cost of the disability premium by increasing the employee’s base pay.
For more information on disability plans, please reach out to Genesis HR Solutions at AskUs@genesishrsolutions.com or 800-367-8367.
Genesis HR Solutions is the premier PEO provider for Massachusetts based businesses.
