Many SimplyInsured customers choose to share the monthly health insurance costs with their employees. This can happen in many ways, including, but not limited to:
- Employer covers a percentage of the plan premium and the employee pays the rest
- Employer covers the employee's premium, but employee covers any additional premiums for their dependents
- Employer covers a base health plan (say, a bronze plan), but the employee covers the price difference if they choose to upgrade to a higher level plan (say, silver, gold, or platinum)
When this happens, there needs to be a way for employers to receive the premiums from their employees on a monthly basis. This is typically done via pre-tax payroll contributions. This has several advantages:
- The premiums are withheld from the paycheck automatically, so there is no need for a separate collections process
- The premiums are taken out of the employee's paycheck pre-tax, so the actual reduction in take home pay is less than the amount of the premium
- It's fully compliant with IRS guidelines, like "Section 125"
Below we'll cover a variety of nuanced issues around these payroll deductions. Feel free to click on a particular question to jump to that topic.
- How does billing work? Why do I pay the full premium amount including my employees' contributions?
- How does a payroll deduction work?
- Is our health plan pre-tax eligible? What is IRS Section 125?
- What paperwork do I need to file to be IRS Section 125 eligible?
- How do I set up payroll deductions in my payroll system? How do I know how much to deduct?
- Can SimplyInsured manage payroll deductions for me?
- When do I start making deductions from my employees' paychecks?
- What if an employee leaves my company before the end of their coverage? How do I get reimbursed?
How does billing work? Why do I pay the full premium amount including my employees' contributions?
This is a common question. Many employers assume that if they are splitting the premiums with their employees, say 50/50, that the bill they receive from the insurance carrier each month will be for 50% of the total premium. This is not the case. In these situations, the employer pays the insurance company the full premium amount, and then the employer is reimbursed by the employee via pre-tax payroll deductions.
For example, let's say for one employee the monthly premium is $300, split 50/50 between the employer and the employee. The insurance company will bill the employer for the full $300 per month, and then the employer will withhold $150 per month from the employee's paycheck.
So, while you do pay the full premium to the insurance company, the net impact on your bottom line is only 50% of the cost once payroll deductions are factored in.
How does a payroll deduction work?
When you set up a payroll deduction, you are in essence paying your employee less. Rather than you paying your employee and having them "pay you back" for their health insurance, you simply just remove the health insurance premium amount from their paycheck, and thus- the amount of money you pay out to the employee is reduced.
Is our health plan pre-tax eligible? What is IRS Section 125?
In general, all plans sold by SimplyInsured are pre-tax eligible (employee premiums can removed from their paychecks before taxes). This is governed by an IRS rule called Section 125.
You can read more about Section 125 here:
There's a lot to unpack, but it can be drastically simplified for the purposes of health insurance. Your plan is eligible for pre-tax deductions if you meet two conditions:
- You offer at least one plan where you pay at least 50% of the employees' premiums
- Note: You do not need to pay 50% of their dependents' premiums
- If you offer more than one plan, you only need to pay 50% of the lowest cost plan
- You do not offer a higher level of benefits to Highly Compensated Employees
- If you offer the same contribution to all of your employees, you are definitely ok
If you give certain employees a higher level of benefits (or pay for a higher % of their premium), you need to be sure that you are not favoring "Highly Compensated Employees" (employees who make over $120,000 per year).
What paperwork do I need to file to be IRS Section 125 eligible?
In short- nothing. As long as you meet the key criteria laid out above, you are eligible. You do not need to file any paperwork. SimplyInsured keeps this information on file for you if you ever need it, but the vast majority of the time, no filings are necessary.
If you need backup documentation for whatever reason, please file a request with SimplyInsured here:
File a SimplyInsured Support Request
How do I set up payroll deductions in my payroll system? How do I know how much to deduct?
SimplyInsured makes this really simple. First, login to your SimplyInsured Employer Dashboard. Click the button that says "Payroll" or "Payroll Integration".
You will see a screen that looks like this:
Be sure to set the payroll period to the same frequency as your payroll (Monthly, Semi-Monthly, Bi-Weekly, Weekly).
The numbers listed under "Employee Deduction" are the amounts you need to withhold out of each paycheck.
NOTE: Here are some tips to consider when entering the deductions for insurance premiums,.
- The deductions for your health insurance purchased through SimplyInsured should be entered as pre-tax deductions.
- Make sure that the payroll table is set to reflect the correct payroll frequency for your company (weekly, biweekly, etc.).
- Ensure that you are entering deductions as a dollar amount ($) rather than as a percentage of salary (%).
- Make sure you set this as a recurring deduction rather than a one-time deduction
- If your payroll provider has a place for you to enter the company contribution for insurance premiums, make sure you do so! This will make it easy for you to find this information later when you are filing your company's taxes.
With these tips in mind, you can find your payroll provider in the list below and follow their instructions on setting up your payroll deductions:
Can SimplyInsured manage payroll deductions for me?
In short, yes! SimplyInsured insured can manage your payroll deductions, so long as you use an online payroll service, such as, but not limited to: ADP, Paychex, Intuit Full Service Payroll, Quickbooks Online, Square Payroll, Gusto, and various other online services.
To link your payroll deductions to SimplyInsured, go to your SimplyInsured Employer Dashboard and click "Payroll" or "Set Up Payroll". You'll see a screen that looks like this:
Just choose your payroll provider from the drop down, and enter the Username and Password that you use to login to your payroll provider. So, if you use ADP, enter your ADP username and password.
SimplyInsured will then be able to sync up your deductions and keep them up to date as you add and remove employees, or make changes.
Note: It can take a few days for the payroll sync to happen, and a SimplyInsured team member may have to reach out to you for additional information.
When do I start making deductions from my employees' paychecks?
Typically, you want to start taking deductions during the first coverage month. So if your coverage begins on May 1, you would want to start taking deductions out of the May paychecks.
What if an employee leaves my company before the end of their coverage? How do I get reimbursed?
When an employee leaves the company, their coverage typically runs through the end of the month. If the employee leaves early in the month, that may mean that they have not completed the payroll deductions for the month.
If that happens, typically you can increase the deduction on the employee's final paycheck to cover the full month's employee contribution.