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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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First Commonwealth Bank and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.