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Employee benefits

Probably the top two things that a prospective employee takes into consideration when applying for and accepting a job are wages and benefits. Wages refer to the hourly rate or salary that an employee will receive. Benefits refers to anything an employee receives other than cash wages. There are certain benefits that are required by federal and state laws, but some benefits are optional at the discretion of the business owner.

An employer can use these optional benefits to encourage people to apply for and accept jobs at his or her business, in addition to keeping employees happy and productive. This article covers the basics of both required and optional employee benefits.

Required Employee Benefits

There are certain employee benefits that employers are required to provide by federal law: Social Security and workers' compensation. However, states and some local jurisdictions usually have their own required benefits as well, so it's important to check with your state's laws to make sure that you are providing all required benefits to your employees. Please note that required benefits must only be provided to employees, not independent contractors.

There are also certain benefits that are required of employers that fit particular criteria. For example, private businesses with at least 50 employees must comply with the Family Medical Leave Act (FMLA). This Act entitles employees to have up to 12 weeks of job-protected, unpaid leave during a 12-month period for certain purposes. The FMLA applies to leave related to the birth or adoption of a child, the care of an immediate family member who has a serious health condition, or the employee's own serious health condition. States may also have similar laws, sometimes expanding coverage to smaller employers, but employers are required to adhere to the law that is most beneficial to the employee.

Certain employers are also required to provide health insurance for their employees. Health insurance used to be an optional benefit, but with the passage of the Patient Protection and Affordable Care Act (ACA) -- also referred to as "Obamacare" -- employers with 50 or more employees are required to offer health insurance or pay a penalty. Employer-sponsored health coverage for employees is still optional and not required for businesses with less than 50 employees.

Optional Employee Benefits

There are other, non-mandatory benefits that the employer may choose to provide to his or her employees. As previously stated above, if the ACA doesn't apply to your company, health insurance is an optional benefit. Other examples include life insurance, retirement plans, corporate memberships, workplace wellnes programs, and paid time off.

As with virtually all business decisions, there are pros and cons for offering employee benefits. For example, health insuranceis not only an attractive benefit to prospective employees, it can also help retain good employees and decrease absenteeism. In addition, employees will often accept a lower salary if good employee benefits are available to them. However, offering employee benefits can also lead to concerns regarding legal compliance and mistakes in benefit plans can lead to expensive lawsuits.

In the end, it's important to determine which benefits make sense for your business. Only you, the business owner, can know and compare the cost to your business versus the benefits your business will receive by offering such benefits to your employees.

Below are definitions of common employee benefit plans, and a number of terms frequently used in those plans.

401(k) plan.   The name of this kind of plan comes from the section number of the Internal Revenue Code that authorizes it.  It is a plan that allows an employee to choose what kind of investments the employer will make on the employee's behalf. The employer selects different investments to offer, while the employee chooses which he or she prefers.  The investment options may vary in terms of risk and other factors.  

Administrator.  The person or company who handles day-to-day details of operating a health benefit or pension plan, such as processing claims for benefits, employer and employee contributions, record-keeping, and reports.  The administrator is usually identified in the plan creation documents.

Beneficiary.  A beneficiary is usually a member of an employee's family who is covered by the employee-benefits plan, and who may receive benefits under the plan.

Cafeteria plan. A plan in which the employer offers a variety of different benefits, and the employees choose those benefits that fit their individual needs.  Examples of benefits offered in the cafeteria include group-term life insurance, dental insurance, disability and accident insurance, and reimbursement of healthcare expenses.

COBRA.   A federal law that requires employers to offer employees continuing medical insurance after the employee leaves the company.  The employee pays the premiums and may continue to participate in the company's medical plan for up to eighteen months. The acronym "COBRA" stands for Consolidated Omnibus Budget Reconciliation Act.

Defined benefit plan.   This kind of plan  also may be referred to as a unit benefit plan.  These terms refer to a plan in which employees are promised that upon retirement they will receive a specific amount of money according to a formula, a calculation that may be based on how long the employee worked for the company, and how much he or she earned.  See "Fixed benefit plan."

Defined contribution plan.   This kind of plan refers to one in which the employer makes regular contributions of a specified amount of money.  In contrast to a defined benefit plan, it does not promise the employees any specific amount of retirement benefits.   The employee's retirement benefit will depend on how much was contributed to his or her account, and how the plan's investments performed over the years.  Examples of this kind of plan include a profit-sharing plan, a money-purchase plan, a target-benefit plan, stock bonus plans, and employee stock ownership plans.

Eligibility.   Different plans have different requirements about who is entitled to participate in a plan.  These eligibility requirements can include the employee's age, or how long he or she has been employed by the company.  Generally, an employee is eligible when he or she turns twenty-one, or has been employed with the company for one year. 

Employee Stock Ownership Plan (ESOP).   This plan is primarily funded by the company's own stock, and does not depend on whether the company has made a profit.

ERISA.  ERISA is an acronym for the "Employee Retirement Income Security Act," the federal law that regulates and enforces employee benefit and retirement plans.

Employee welfare plan.  See "welfare plan."

Fixed benefit plan.   In this kind of plan, the amount of retirement benefits is based on a formula that does not include the number of years the employee worked for the company.  It could be a particular dollar amount, and it may be based on some percentage of the employee's pay.

Flexible benefit plan.   See "cafeteria plan." 

Individual Retirement Account (IRA).  People who are not covered by any pension plan at work may use an IRA to save for retirement.  In a traditional IRA, the contributions are made from the person's taxable income, and grow tax-free in the IRA.  A Roth IRA is funded from a person's income, but that income is not taxed in the year it is earned.  Instead, the income grows over the years and is taxed when the person withdraws it after he or she retires.  Note that an IRA is not considered a "Pension Plan," and the provisions of ERISA do not apply. 

IRC.    This is an acronym for the Internal Revenue Code.

Keogh Plan.   This is a qualified retirement plan for self-employed individuals. Contributions to this plan are tax-deductible. The individual can direct the investment of the funds that are put into a Keogh, e.g., stocks, bonds, or mutual funds.

Money-purchase plan.   A defined-benefit plan in which the employer must contribute a specific amount of money each year to each participant's account.  The amount of each contribution generally depends on that person's pay.

Multi-employer plan.   In this kind of plan, two or more employers pool their contributions for the benefit of their employees.  The plan may be established and maintained according to the terms of a collective bargaining agreement between the employers and a labor union.  But this kind of plan may also be set up for the employers' non-union employees.

Normal retirement age.   By law, an employer cannot dictate when an employee must retire.  That can be deemed age discrimination.  However, the employer may create a pension plan based on an assumption that employees will decide to retire at some age, and the employer can decide what that age will be. Companies frequently pick age 65; others pick 62 or 59. 

Participant.   Another way of saying "employee," "participant" refers to an employee who is covered by (or "opts" to participate in) any employee-benefits arrangement. 

Plan sponsor.   The entity that establishes and maintains a benefits plan The plan sponsor is usually an employer, but may also be an employee organization created for the purpose of offering benefits.  If the plan is a "multi-employer plan," the committee or other entity that established the plan is considered the plan sponsor.

Portability.   This term refers to an employee's ability to transfer vested benefits to an IRA or some other pension plan, after he or she leaves the company.  Without portability, the employee could be subject to large tax bills.  These days, the term "portability" also may refer to an employee's ability to transfer eligibility for medical insurance coverage without running into the problem of coverage denials based on a pre-existing medical condition.

Profit-sharing plan.   The name of this kind of plan is a little misleading.  A profit-sharing plan may be funded from the company's profits, but is not required to be. The terms of a profit-sharing plan will set forth a formula to determine how much should be contributed each year, or the plan may leave the amount to the employer's discretion.  Unlike other kinds of plans, a profit-sharing plan may be set up in a manner that makes it tax-exempt.  Refer to the entries for "employee stock option plan," above, and "stock bonus plan," below, for a description of two common forms of a profit-sharing plan.

Qualified plan.  A qualified plan is one that complies with ERISA.  It requires certain standards of vesting and accrual of benefits, and compliance with "nondiscrimination rules."  A qualified plan entitles the employer and its employees to the favorable tax treatment provided in the Internal Revenue Code.

Retirement plan.   A retirement plan provides retirement income, or it is a savings device in which contributions appreciate over time, with income taxes deferred until withdrawals are made when an employee reaches a certain age (or takes money out before reaching that age).

SIMPLE plan.   "SIMPLE" is an acronym for "savings incentive match plans for employees."  It describes a plan in which employees can make tax-deferred investments and the employer makes matching contributions.  The plan can take the form of an IRA or a 401(k) plan.

Simplified Employee Pension (SEP).   In a SEP, the employer directly funds IRAs or annuities that are established by or on behalf of the employees.

Stock bonus plan.  This  plan is funded by shares of the company's stock. 

Summary plan description.  This document summarizes the major features of an employee-benefit plan: what kind it is, how it is funded, who is eligible to participate, what steps must be taken to participate, how benefits will be paid out, etc.

Target-benefit plan.  In this kind of plan, the employer has some idea of what participants should receive for retirement benefits.   The employer then uses an actuarial formula that will meet that target amount by the time the employee is ready to retire.  It does not promise a particular amount of benefits, however.

Thrift or savings plan.  This kind of plan indicates that the participating employees must make contributions.  The employer may make matching contributions, but isn't required to do so.

Top-hat plan.   A top-hat plan is one offering unfunded deferred-compensation plans for upper management or highly compensated employees.  A top-hat plan is not subject to some provisions of ERISA.  See "top-heavy plan." 

Top-heavy plan.  This plan provides benefits for key employees, such as officers or owners of the company, that are worth more than 60 percent more than the benefits offered to regular employees.  A top-heavy plan may require shorter vesting periods for regular employees to balance things out.  See "vesting."

Vesting.  The process by which contributions to a pension plan for a particular employee may no longer be forfeited.  It usually requires that the employee be with the company for a specified period of time before he or she will be eligible for the benefits after retirement. Until then, the employee is "not vested," which means if something happens, like the employee quits or is fired, or if the company has lay-offs, the employee may lose those benefits (the contributions are paid out in a lump-sum, see "Portability" above).  Some plans provide for "graded vesting," which means that an employee is vested over time, so that each year a higher percentage of contributions are nonforfeitable, until 100% are nonforfeitable.  With graded vesting, the vesting period may be up to seven years.  A plan providing that an employee is not vested at all until the specified amount of time elapses is referred to as "cliff vesting."   With cliff vesting, the vesting period cannot exceed five years.

Welfare benefit plan.  A welfare benefit plan provides medical benefits and other non-pension benefits to employees and their families.  The kinds of benefits that may be offered are those that are provided to individual employees as money or services.  These benefits include, for example, various kinds of insurance, special arrangements for pre-paid legal services, scholarships, training programs, education, and daycare.  In some cases, the employees can choose which benefits they would like to participate in, according to their individual needs.  These kinds of plans are described further under "cafeteria plans." 

Withdrawal liability.  If an employee takes money out of a retirement plan too early, he or she will probably be liable for income taxes and a tax penalty.  The idea is to make early withdrawals unattractive so that funds will stay invested for retirement.

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Michael Ferrin
Michael Ferrin

1115 E. Livingston Street, Orlando, FL 32803

Bar #46095(FL)     License for 2007 years Member in Good Standing

Practice Areas: Bankruptcy and debt | Chapter 13 bankruptcy | Chapter 7 bankruptcy | Child custody | Criminal defense | Divorce and separation | Employee benefits | Family | General practice | Guardianship
Jonathan Eric May
Jonathan Eric May

1395 Brickell Avenue Suite 900, Miami, FL 33131

Bar #110057(FL)     License for 2014 years

Practice Areas: Child custody | Child support | Commercial real estate | Discrimination | Employee benefits | Litigation | Real estate | Sexual harassment
Erik William Berger
Erik William Berger

3744 Dupont Station Court South, Jacksonville, FL 32217-2516

Bar #130478(FL)     License for 1997 years Member in Good Standing

Practice Areas: Employee benefits | Personal injury | Social security | Workers compensation
Peter James Mougey
Peter James Mougey

316 S. Baylen Street Suite 600, Pensacola, FL 32502-5996

Bar #191825(FL)     License for 2000 years Member in Good Standing

Practice Areas: Antitrust and trade law | Arbitration | Employee benefits | Financial markets and services | Securities and investment fraud
Gregory Michael Dell
Gregory Michael Dell

National Headquarters 2404 Hollywood Blvd, Hollywood, FL 33020-6607

Bar #299560(FL)     License for 2000 years Member in Good Standing

Practice Areas: Employee benefits | Insurance | Personal injury
Scott Thomas Fortune
Scott Thomas Fortune

1807 3rd St N., Jacksonville Beach, FL 322507491

Bar #342815(FL)     License for 1982 years Member in Good Standing

Practice Areas: Accidents | Business | Constitutional | Discrimination | Employee benefits | Employment and labor | Insurance | Litigation | Mediation | Personal injury | Sexual harassment | Wrongful death | Wrongful termination
Roy David Oppenheim
Roy David Oppenheim

2500 Weston Rd Suite 209, Weston, FL 33331-3618

Bar #710016(FL)     License for 1987 years Member in Good Standing

Practice Areas: Class action | Commercial real estate | Employee benefits | Entertainment | Foreclosure | Limited liability company (LLC) | Litigation | Medical malpractice | Partnership | Personal injury | Real estate
Paul Anthony Kelley
Paul Anthony Kelley

Post Office Box 783276, Winter Garden, FL 34778-3276

Bar #725651(FL)     License for 1987 years Member in Good Standing

Practice Areas: Criminal defense | Employee benefits | Employment and labor | Entertainment | Insurance | Personal injury | Social security | Workers compensation
John Vincent Tucker
John Vincent Tucker

5235 16th Street North, Saint Petersburg, FL 33703-2611

Bar #899917(FL)     License for 1991 years Member in Good Standing

Practice Areas: Employee benefits | Insurance | Life insurance | Military law
Thomas J Ueberschaer
Thomas J Ueberschaer

601 N. Baylen St., Pensacola, FL 32501

Bar #988847(FL)     License for 1993 years Member in Good Standing

Practice Areas: Administrative law | Defective and dangerous products | Employee benefits | Insurance | Medical malpractice | Personal injury | Social security | Workers compensation
Thomas J Ueberschaer
Thomas J Ueberschaer

929 Jenks Ave., Panama City, FL 32401-2533

Bar #988847(FL)     License for 1993 years Member in Good Standing

Practice Areas: Administrative law | Defective and dangerous products | Employee benefits | Insurance | Medical malpractice | Personal injury | Social security | Workers compensation
Stuart M Address
Stuart M Address

611 SW Federal Hwy Ste A, Stuart, FL 349942925

Bar #989606(FL)     License for 1993 years Member in Good Standing

Practice Areas: Business | Civil rights | Constitutional | Discrimination | Divorce and separation | Employee benefits | Employment and labor | General practice | Intellectual property | Internet | Landlord or tenant | Personal injury | Sexual harassment | Wrongful termination

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