Question: I have 25 employees and currently pay 65% of health insurance premiums. The (small business) tax rebate is non-existant for my company, so we are considering ending our coverage but paying the employees more, using some kind of bonuses/special compensation.
- Can the employer demand proof that the insurance was bought?
- Is it feasible to ask for this every month, or is the employee locked into an insurance contract when they first sign up?
- Can the employer only give the “bonus” money to insured employees or are all employees entitled to it?
- Under what circumstances can an employer give pre-taxed money in their paychecks?
- Can the amount vary by employee?
Answer: Thank you for sending in your question, because these issues will be faced by most small-business owners over the coming year. I must start with a disclaimer: I am a licensed insurance agent, not a tax accountant or HR professional. Have said that, I believe I can answer most of the issues you raise.
- Yes, you can ask for proof of individual insurance coverage as often as you like. The individual is insured on a month-to-month basis. They can cancel their coverage or lapse it by not paying their premium.
- Doesn’t bonus compensation usually has strings attached - performance goals for example? I see no problem with requiring employees to maintain uninterrupted coverage as a condition of qualifying for the bonus.
- There is no 100% safe way to withhold pre-tax money from an employee’s pay to reimburse individual health insurance premiums. Some claim that a Health Reimbursement Arrangement (HRA) can be used for this purpose, but I believe this will have to be tested with the IRS, before we can safely do it.