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:
- 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.
- 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.
- 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.
- 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!