BASE^® Blog

Many businesses that do not currently offer health benefits often consider giving their employees raises to compensate.  They might be choosing a raise without being armed with all the facts of why this isn’t necessarily the best option in the long run. 

“Should employers give their employees a raise or offer them the Individual Coverage HRA?”

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a tax-savings plan that gives employers a great alternative when providing health benefits.  It allows employers to reimburse employees, tax-free, for qualified health care costs, choosing to offer to all employees, or to a specific class, with no contribution caps. 

The BASE® ICHRA is available to businesses of all sizes looking to streamline benefit options and cut costs without reducing the value of health benefits to their employees. 

Here are 4 reasons why offering a raise is not always the best option:

1. The employer pays taxes on the raise. For example, if the employer wanted to offer their employees an annual raise of $300 per month, it will cost the employer $322.95 per month when factoring in the 7.65% payroll tax.  At the end of the year, the employer will be spending $3,875.40 just to offer their employee a raise of $3,600 for the year. 
2. Employees pay taxes on the raise as well. For example, the employee is single, makes $35,000+ a year, the employee would have to pay $1,175.40 of the $3,600 raise in taxes.  At the end of the year, the employer is spending the same $3,875.40 to offer their employees a take-home pay of $2,424.60. 
3. Extra income could be spent on expenses other than health care. That extra money the employer offers could easily be spent on other expenses and not towards the purchase of health insurance. 
4. Retention value is lost. While an employer’s intent is to provide a health benefit through the raise, employees may not see it that way as time passes, which leaves an employer vulnerable to employees looking elsewhere for a job providing health benefits. 

 Instead of the raise, employers can offer the ICHRA and this will:

• Allow employers to set a budget
• Create some health care predictability
• Allow employers to offer a medical benefit without paying group benefit rates

 The best part about offering the ICHRA over a raise?  The reimbursements are:

• Tax deductible to the business
• 100% tax-free to the employees

According to the US Department of Health & Human Services, Labor and Treasury estimate, between 2020-2029 approximately 7 million people will shift from group to individual coverage and 800,000 employers will offer an ICHRA.  With the ICHRA gaining interest, employers are starting to think about what the best option really is. 

In the end, giving a raise may seem like the best option right away, but with a 20-30% increase of ICHRAs anticipated over the next 10 years, the ICHRA will be the best option in the long run.  Let BASE® provide the information about how the ICHRA can be the best option for your business in the long run.  Call 1-888-386-9680 to learn more about the ICHRA today or visit www.BASEonline.com!

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The DOL reports that over 200,000 filings are received per year.  In the most recent, complete year of filings, EBSA received about half of plan filings by the calendar plan-year deadline (July 31) and nearly 90% by the calendar plan-year extension deadline (October 15).  With half of businesses missing this deadline, their business can be put in a position where penalties may occur.  But what can be done so a business is never late for this important date?  Let’s take a look at the BASE® 5500 Solver and how it can be used to meet this annual deadline. 

What are the Form 5500 Series and schedules?

The Form 5500 Series is an important compliance, research, and disclosure tool for the Department of Labor (DOL).  The forms are part of ERISA’s overall reporting which assure that employee benefit plans are operated and managed in the way they were intended, including providing access to sufficient information to protect the rights and benefits of the covered participants under the employee benefit plans. 

Who is required to file?

Employers with 100 or more employees participating in any health and welfare benefit plans are required to file and helps them to easily prepare and file the 5500 Series forms and schedules electronically each year.  This comprehensive compliance solution generates custom compliant documents that are used to report important information regarding employee health and welfare benefit plans.

*Disclaimer – under certain circumstances, there may be a Form 5500 required for businesses under the 100-employee mark.  Always ask questions, do your research, and make sure your business is not late for filing the specific form.*

What is the deadline?

For health and welfare benefit plans that end with the calendar year, the Form 5500 is due by July 31 of the following year.

What are some reasons as to why businesses miss the filing?

Employers with employee retirement plans are very familiar with the Form 5500 filing requirement, while many employers are unaware that the Form 5500 filing requirement may also exist for their health and welfare plans.  Overall, there are 5 reasons as to why plan sponsors miss the filing of Form 5500 deadline:

1. Ignoring emails from a service vendor
2. Doesn’t start early enough to meet the deadline
3. Starts, but stops because they aren’t sure how to fill out the forms
4. Has their own plan and doesn’t know they need to file Form 5500
5. Just good old breakdown of communication

What are the penalties?

If a business is late, and does not file before their designated deadline, they will be eligible for steep penalties.  The IRS penalty is $25 per day, up to a maximum of $15,000.  The IRS penalty for late filing of a 5500 series returned is $250 a day, up to a maximum penalty of $150,000 per plan year. 

What can a business do to avoid missing the deadline?

Get help from a third-party administrator, like BASE®, to eliminate the reasons as to why so many businesses miss the filing and, in result, receive penalties.  With BASE®, all Form 5500 Services, data and forms, will be electronically stored with a simple filing process that can help employers prepare and file electronically.  All workflow is tracked, including signature status, and tracking of submission to and the acceptance by the DOL, and all administrative procedures are handled by BASE®, helping plan sponsors have peace of mind. 

BASE® is helping business owners ensure they aren’t late for the very important Form 5500 filing date.  Contact BASE® for more information on the BASE® 5500 Solver at 888.386.9680 or visit www.BASEonline.com. 

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