In the wake of COVID-19 and a renewed importance in finding experienced, engaged nannies, more and more families are pursuing benefits to add to their compensation packages in order to attract amazing candidates to their family’s role. Offering benefits is also a benefit to the employer – families can offer a candidate higher take-home pay while minimizing employment taxes at the same time.
Our domestic payroll partners at HomeWork Solutions have compiled the following information for families to consider while crafting the compensation package needed to excite the right candidate!
Employers can provide health insurance to employees through a Small Business Health Options Program (SHOP), though these plans are not available in all states. With these plans, the employer chooses the coverage to offer, makes premium payments directly to the insurance company, and may choose to deduct some portion of the premium from employee pay. Once established, these plans are fairly easy to administer, but the onus of selecting coverage and making payments is on the employer.
There are also two options for reimbursement arrangements that allow employees to choose their own health insurance coverage. Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) and Individual Coverage Health Reimbursement Arrangement (ICHRA) are tailored for small employers not offering group health insurance, and support employees obtaining coverage on their state health insurance exchanges. Employers choose the maximum amount of the benefit in a given year, subject to caps of $5,300 for an individual and $10,700 for a family. The employee provides the employer proof of qualified expenses in the form of receipts with a reimbursement request. The employer keeps this documentation and reimburses the employee directly on a pre-tax basis. FICA tax savings of an HRA for a single employee can be as much as $405 for both employer and employee ($910 total). The Employee also benefits from a reduction in income taxes.
Educational expenses for graduate or undergraduate courses paid for or reimbursed by an employer (up to $5,250) are considered non-taxable educational assistance. This includes tuition, fees, books, supplies, and equipment. Educational Assistance Programs should be written documents, and employees cannot choose to receive this money as cash compensation instead of educational assistance. The Coronavirus Aid, Relief, and Economic Security (CARES) Act) also introduced an opportunity for employers to pay an employee’s qualified student loans and interest on a pre-tax basis. This exclusion expires on January 1, 2026. Between now and then, consider stretching the impact of that bonus a little further by offering to help your employee repay a student loan.
If your employee will be using their own vehicle while working, you should be reimbursing them for the expense incurred. The IRS establishes the maximum non-taxable reimbursement rate each year (currently $0.56 per mile), and employers in Illinois, California, Massachusetts, Montana, Pennsylvania, New York, Iowa, and the District of Columbia are required by law to provide this reimbursement.
Qualified Transportation Benefits can be provided to your employee tax-free. Mass transit passes (bus, subway, rail, etc.) can be purchased or reimbursed up to $270 per month (2021). Parking costs near the worksite or a mass transit location used by the employee can also be provided or reimbursed up to $270 per month (2021).
Household employers can contribute towards an employee’s retirement savings in a few different ways. Simplified Employee Pension (SEP) IRAs allow for contributions of up to 25% of employee pay, while SIMPLE IRAs allow employer non-elective contributions of 2% or matching contributions up to 3% of employee pay. Employer contributions to SEP IRAs and SIMPLE IRAs are not subject to FICA taxes, saving 7.65% in employer taxes. Further, employee contributions to an IRA are not subject to income tax until withdrawal.
Total compensation may sound complicated, but the team of experts at HomeWork Solutions is here to help you craft the plan that is right for you. Please let our team know if you need an introduction to their amazing staff!
What are some of the ways that you create an attractive compensation package? We’d love to hear about your personal experiences or best practices!
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