Cash in Lieu
Ever had an employee ask for you to pay them since they aren’t taking your health insurance? I have and without a plan it’s a bit of a mess. First and foremost, having a stated corporate compensation philosophy will mitigate the risk of making decisions on the fly that could open you and your company up to liability. Too many times I’ve seen a back of the napkin calculation from an executive wanting to hire this “rock star”. It appears disorganized and while it may provide the candidate with what he or she wants, it may compromise your company’s internal structures. I’m necessarily for or against these types of arrangements but am proposing that they be thought out and documented.
I’ll outline a couple of simple steps to help you develop your own plan. First you need to determine what you are willing to pay the employee cash in lieu of enrolling in and what value you assign to it. Certain benefits aren’t waived and the employee is automatically enrolled such as basic life and disability coverage, at least for most employers. Retirement plans are structured and regulated in a such a way that most employers don’t have much they can do there.
There are benefits that allow for some creativity by the employer. They are typically what’s called contributory benefits. Meaning that the employee will have to pay some amount if they choose to enroll. Since they must elect to enroll, they can then waive enrollment. That’s really the first test, can the employee waive this benefit. The second is does the employer pay some portion of that benefit if the employee were to enroll. Health, dental and vision are benefits that typically meet the above criteria. Next you would need to determine which and then how much each of these benefits are valued at. Do you have two health plans with different contribution strategies? Do you have a HSA that the employer deposits employer funds into? Think these things through up front.
One of the most important steps is determining the eligibility of the employee to waiver coverage. For an employee to be eligible for a cash in lieu program they should have other qualified coverage in place and provide HR with a waiver or attestation to that effect. Should the employee’s life situation change and the enroll in your group plans then the cash in lieu arrangement would cease. Aside from having a compensation plan this type of arrangement for be part of a plan document to ensure that your company is abiding by the required laws and regulations of your jurisdiction.
Hey, if you agree, disagree or have any valuable contribution please post a comment.
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Bryan (@nsurancing) is an experienced consultant. He has a successful history of working in insurance, retail and government contracting.