The Cafeteria Plan Essay

641 words - 3 pages

Benefits are a big deal when trying to decide what company you want to work for, salary is the most important benefit but you should consider other benefits also. Some companies have a benefits package called the cafeteria plan, this plan allows employees to pick from a group of benefits such as, medical, accident, disability, vision, dental and group term life insurance. There are advantages and disadvantages of a cafeteria plan for both the employer and for the employee, but over all the cafeteria plan is one of the most important packages employers can offer to it's employees.Advantages to the employers for offering a cafeteria plans is to improve employee morale and to create a more competitive recruitment offer. This cafeteria plan also offers the employer way of getting a big tax break. The employee's don't pay as much taxes so the employer won't pay as much taxes. This is also a good way to keep valuable employees, because you offer a variety of benefits. Also flexible benefit plans can help small employers provide necessary benefits in a way that helps ease rising costs.Some advantages of a cafeteria plan are that it is an excellent way for the employee to pay fewer taxes by allowing a company to deduct the cost of certain eligible benefits before taxes. When existing health benefits are deducted from an employee's paycheck on a pre-tax basis, the employee's take home pay increases, allowing him or her to take advantage of additional supplemental insurance products at little to no additional cost, compared with the original income prior to the cafeteria plan. In addition, it gives the employees the power to choose the benefits that meet their individual needs.Disadvantages for the employee to take part in a cafeteria plan are that newly hired employees must sign up for a section 125 cafeteria plan within the first 30-60 days of employment. The only other time the employee can make changes is during the open enrollment because it works on a calendar year, so employees cannot add, drop or change benefit elections at any other time of the year, except in cases of life changing events. Such as change in family status, marriage, birth, divorce, or death or loss of employment. You also have to consider this when making your decision, when you redirect taxable income away from Social Security this could result in not having as much Social Security benefits at retirement. Since the employer bears, the entire cost of all tax-free benefits in a flexible benefit plan there is a cap on the total benefits any one employee may elect for a plan year.A cafeteria-style benefits plan is one of the most valuable programs an employer can offer to its employees. This is a great tool that can be used to manage rising health care costs. A cafeteria plan defined by section 125 of the IR code allows each employee participant to select between cash and one or more qualified nontaxable benefits. Cafeteria plans give employees the freedom to construct their own benefits program to fit individual or family circumstances. Reason to consider cafeteria plans include: They give employees choices from among a wide variety of nontaxable employee's benefits. Employees can choose or reject benefits as needed. As a result, resources are better used. They give quality employees incentive to stay. They give the employer a positive differentiating factor when recruiting new employees.


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