Employee Benefits and Payroll Tax Computations
Benefits/Taxes Percent of Salary - use this information in calculating your budget assignment line items.
Health & Life Insurance 11.35 (required for full-time employees)
Social Security and Medicare 7.65% (required for all employees)
Retirement Plan (401 k) 6.00% (required for full-time employees)
Worker’s Compensation 1.07% (required for all employees)
Unemployment Compensation Fund 0.17% (required for all employees)
Arizona State Withholding 0.023% (required for all employees, if in AZ or use the appropriate state withholding for your state, if applicable)
Employee benefits are such a common part of the workplace today that many assume these benefits are required by law. But generally, municipal recreation staff receive the following benefits.
Offering benefits can reflect your commitment to keeping a satisfied workforce and can help you remain competitive in attracting competent workers.
Because the federal tax laws allow an employer to deduct the cost of many employee benefits as a business expense, the financial burden of providing these benefits is greatly reduced.
A. Healthcare Coverage
Healthcare coverage is the benefit most employees covet. Medical treatment is expensive today and it's difficult for an individual seeking coverage to find some that's affordable. Of course, employees enjoy the greatest benefits if the employer foots the entire bill. But even if an employer pays none of the cost of coverage or just a part of it the employee benefits by being able to participate at relatively low group rates.
1. Types of Coverage
Traditionally, employers who have provided healthcare coverage have done so through an indemnity or reimbursement plan which pays the doctor or hospital directly, or reimburses the employee for medical expenses he or she has already paid. Blue Cross/Blue Shield is a traditional type of plan.
While traditional coverage allowing employees to seek out their preferred medical provider is still widely used, a growing number of employers today provide coverage through the alternatives of a health maintenance organization (HMO) or a preferred provider organization (PPO).
An HMO is comprised of hospitals and doctors who provide specified medical services to employees for a fixed monthly fee. Within the HMO service area, covered employees must use the HMO hospitals and doctors unless it's an emergency or they receive permission to go elsewhere.
A PPO is a network of hospitals and doctors who agree to provide medical care for specified fees. Often the network is put together by an insurance company that also administers it. Employees usually can choose between using the network's hospitals and doctors or going elsewhere.
B. Retirement Plans
Retirement plans provide income to older people when they're no longer part of the workforce. If the plans you offer meet certain IRS guidelines, your contribution to the benefits qualifies as a business expense and is deductible from your company's gross income.
1. Defined Benefit Plans
In a defined benefit plan, you promise to pay an employee a fixed amount of money, usually in monthly increments, after he or she retires. You may base the payments on a formula that combines the number of years the employee has worked and the amount of his or her earnings. You may also choose some other method of setting the timing and amount, such as a fixed monthly sum not tied to length of service or earnings.
To fund a defined benefit plan, you typically invest money in stocks, bonds and mutual funds that you expect will grow over the years. You must contribute enough to the plan to pay the promised benefit. Otherwise, you'll have to make up the difference if the plan's investments go bad.
2. Defined Contribution Plans
In a defined contribution plan, you set up an account for the employee and contribute to it. At retirement, the employee gets whatever is in the account.
You may structure the defined contribution plan where the municipality will contribute a specific amount per employee each year, such as five cents for each hour worked. Or you may structure it as a profit sharing plan in which you have the discretion to decide each year how much to contribute, with your contributions allocated to the employees' accounts in a specified way usually in proportion to their pay. In either case, the size of the pension checks an employee receives each month after retirement will vary according to the interest rate paid on the employee's pension account and other economic factors.
3. 401(k) Plans
A 401(k) plan consists of a retirement account for each employee who participates. An employer can choose whether or not to make contributions, and how extensive those contributions will be. You might, for example, choose to contribute only if company profits reach a certain level or to match contributions of only the lower paid employees. You can contribute an amount equal to up to 15% of an employee's salary to an employee's 401(k) account, but the employer's contribution can't exceed $22,500 a year.
C. Other Employee Benefits
1. Life Insurance
One of the least expensive benefits offered to employees is group term life insurance. This is life insurance that pays off only if the employee dies during the policy term usually 5, 10 or 20 years. You can deduct the premiums you pay for up to $50,000 of group term life insurance for each employee. And employees don't pay tax on the premiums you pay.
2. Disability Insurance
Consider offering disability insurance to help employees offset income lost if they suffer a serious injury or illness. You can probably find a group policy under which you pay part of the premium and the employee pays part. Some plans give employees the option of continuing their coverage after they leave your business. They then become responsible for the entire premium.
Your business can take a tax deduction for the premiums it pays, but if an employee receives payments under the insurance policy, the employee will owe income tax on those payments. If the employer and employee each pay part of the premium, the employee will owe income tax on part of the payments received.
4. Dependent Care Assistance
The tax laws let your business deduct expenses you pay for assistance to employees who must care for their dependents a major concern today with more workers having to take care of young children, aging parents, or both. Your payments qualify for the tax deduction if they enable an employee to care for:
|a dependent age 12 or younger for whom the employee can claim a personal exemption|
|a dependent who's physically or mentally incapable of taking care of himself or herself, or|
|the employee's spouse if the spouse can't take care of himself or herself.|
|the amounts you deduct can be for bills you pay or money you reimburse to an employee for:|
|at-home child care|
|in-home care for elderly or disabled adults who live with the employee|
|care at a licensed nursery school or kindergarten, or|
|care at a dependent care center that provides day care for more than six people.|
You can also provide dependent care assistance at your own on-site facility.
Dependent care payments up to $5,000 a year ($2,500 for a married employee filing a separate return) are tax-free to the employee; as noted, your business can deduct these payments as a business expense. For employees with lower household incomes, there's a dependent care tax credit that's more valuable to them than dependent care assistance provided by an employer even though the care the employer provides is not included in the employee's income for tax purposes. If you offer a dependent care plan, let employees know about tax credit alternatives so they can choose the best option.
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