As the end of the year approaches, employees have money on their mind. Whether they’re waiting for that annual bonus or hoping for a raise, this time of year has many people looking for ways to come up with a little extra cash. But too few employees take advantage of one of the simplest, risk-free ways to pad their bank account: Open Enrollment.
You put a lot of planning, time and effort into facilitating a successful annual enrollment period for your employees. Go the extra mile to ensure employees know that by enrolling in a few commonly available fringe benefits, they can significantly compound the power of their dollar and even earn a four-figure tax deduction. Ka-ching!
Read on for five tips your employees may not know about.
- Never waive your right to review your options.
According to the Society of Human Resources Management, 70 percent of employers allow “passive” enrollment — this means the majority of your employees have made a habit of carrying over their benefit elections throughout their entire careers. They’ve unknowingly waived their opportunity to claim what is essentially free money.
Encourage employees to think of benefits enrollment as an “annual physical” for their financial life and set aside the time to review the options being offered. Insurance plans, government tax deferment limits and personal circumstances can change drastically year over year. It pays to adjust accordingly.
- Take advantage of free money.
Nobody would say “no, thanks” to a six-figure bonus from the boss. Yet too many employees underestimate the value of their employer-sponsored retirement savings account, particularly the employer match.
According to Motley Fool, 1 in 5 employees don’t contribute enough to their 401(k) to take advantage of the full match. Often, it’s because the employee first enrolled at 2 or 3 percent and never thought to change it. This oversight alone could add up to hundreds of thousands of dollars over a career, making it one of the biggest — yet most common — financial pitfalls a little extra communication might help to avoid.
- Keep in mind that the most (or least) expensive plan isn’t always the best choice.
Suggest that employees spend some time calculating how much they, or their family, might spend on health care next year. For employees who are young, in great health and don’t take many medications, a high-deductible health care plan may be the best way to go. They’ll avoid paying a premium for services they aren’t going to use while increasing their monthly take-home pay.
On the other hand, if they or someone in their family is expecting a baby, has a chronic condition or could require a hospital stay, a low-deductible, higher monthly payment plan might be the way to go. Even employees with relatively healthy families might be surprised by how much they’re really spending on medical, dental, vision and prescription expenses — making the priciest plan the more cost-effective option in the long run.
- Opt in to the health savings account plan.
No matter how good the health care coverage is, employees will inevitably pay for out-of-pocket expenses related to wellness. Whether they’re buying band-aids, braces, medications or glasses, they’ll save about 25 percent if they funnel those payments through a health savings account (HSA). Remind employees that with this type of pre-tax account, their $100 allocation gives them the full $100 to spend on expenses. That same $100 paid into their bank account really amounts to about $70 in spending power after federal, state and Social Security taxes take their cut.
In 2019, families can set aside up to $7,000 — an all-time high amount — which translates to roughly $1,750 in tax savings. Since contributions can be auto-deducted from each paycheck or contributed ad hoc, employees can start small and then add more if, say, they realize junior needs braces mid-year. Best to note: Every dollar contributed to an HSA can be deducted from employees’ taxable income.
- Pay tax free for dependent care.
Like HSAs, dependent care spending plans allow employees to set aside pre-tax dollars to pay for eligible childcare and eldercare expenses. Like HSAs, the beauty of tax-deferment is that they’ll get 100 percent of those dollars right back without first handing 20 percent or more over to Uncle Sam.
If your spending plan makes this process quick and easy with app-based systems — this benefit should be a no-brainer for many of your employees!
Even if that raise or annual bonus isn’t in the cards for every employee this year, these simple benefit tips may still add up to an unexpected windfall. Make sure employees understand that every dollar they contribute to a 401(k), HSA or dependent care spending account can be deducted from their income when they file their federal and state taxes next spring. That’s likely to translate to a larger tax refund — or at the very least, a lower-than-expected tax bill.