Employee Benefits

What is a Cafeteria Plan?

You may also choose to offer a mix of benefits for your employees to choose from, "cafeteria style." A cafeteria plan allows employees to create their own benefits package based on their needs--for example, a young, single, healthy employee who lives in an apartment may want different benefits than an older homeowner with a family who is taking care of a disabled relative. Cafeteria plans can include health, life, accident, and other types of coverage.

Cafeteria plans allow employees to save money by reducing their taxes, because they voluntarily contribute a portion of their salary to the plan pre-tax. This enables them to pay for qualified expenses with pre-tax dollars. Cafeteria plans are often accompanied by a flexible spending account, where these pre-tax dollars are kept until they are needed.

A type of cafeteria plan called a Premium Only Plan (POP) automatically deducts premiums for health and group life insurance from employee salaries pre-tax, so employees have lower taxable income and higher take-home pay. Employers will also likely pay less in FICA/payroll taxes under this type of plan.

A cafeteria plan may also include a flexible spending account.

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