Dear Tom and Alan:
I’m looking into opening a small franchise business on my own. There would probably be three or four employees, and yes, I know that when you own a small business the business actually owns you.
That’s why I’m figuring on hiring people so that I don’t have to spend every waking hour on site.
What are the best benefits to offer in order to attract the best workers?
I’ve read a little about Flexible Spending Accounts, but have to say I don’t really understand them. Besides FSAs, there are also HSAs.
One or both?
Tom: Good questions.
Let’s start with how FSAs work and how they might benefit you and your future employees. For someone starting a new business, an FSA would definitely have the most potential benefit for you.
You are allowed to contribute a sum of money (up to $2,700 for 2019). The money is not taxed and it can be used by the employee during the year.
Allowable expenses are deductibles, copays (like for office visits), coinsurance (usually a percentage paid after the deductible is met), dental, vision and…hugely important for some employees…child care!
Al: So, you might ask, how does that benefit me?
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Tom: Yet another good question.
Let’s say you fund the FSA for your employee for 2019. Whatever is unused at the end of the year reverts back to you, the employer.
For example, instead of paying 100 percent for a zero deductible health plan with a $30 office visit benefit that could cost you upwards of $800 per month every month, you offer a potential worker an account with $2,700 in it to cover medical, dental, vision and child care.
If your employee uses all of it, great. If not, whatever is left comes back to you.
Al: That could help take the sting out of a $75 doctor visit, Rx, and a $3,000 deductible.
Until I started digging, I didn’t know that you can offer an FSA even if there is no health plan.
So if you were courting a potential recruit to your business and he/she was already covered under a spouse’s plan, the obvious appeal of the FSA plan is that you’re offering $2,700 tax-free for any number of medical needs.
Contributions to an FSA account can be done by the employer, the employee, or both. According to one website I visited, if each contributes, then each can contribute the maximum. That sounds like an excellent question for your CPA.
Tom: In answer to our reader’s final question, you can’t have an HSA (which my spellcheck insists is HAS) with an FSA.
The good news for the employee is that an HSA is an individual account that belongs to the employee, goes with him/her upon leaving, and is not “use it or lose it” like an FSA.
An HSA can only be paired with a “limited purpose” FSA that only covers dental and vision.