Introducti on
Running a small business often means balancing tight budgets with the need to provide competitive employee benefits. Health care costs, payroll taxes, and employee retention challenges can weigh heavily on an owner’s mind. One powerful but often underutilized solution is the Section 125 plan for small business, also known as a cafeteria plan.
Why Small Businesses Benefit the Most
Payroll Tax Savings Add Up Quickly
Even a business with 10–50 employees can save thousands annually on payroll taxes. Every pre-tax deduction reduces the employer’s share of Social Security and Medicare contributions.
Affordable Way to Offer Benefits
Small businesses often struggle to match the health benefits of larger competitors. By adopting a Section 125 plan, owners can expand benefits without dramatically increasing costs.
Employee Retention and Recruitment
Talented employees are more likely to stay with a company that offers flexible, tax-efficient benefits. A section 125 plan for small business signals that you care about employee well-being.
Customization and Flexibility
Employers can choose from a variety of benefit types —premium-only plans, flexible spending accounts, dependent care assistance, or full cafeteria plans— based on their budget and workforce needs.
Components of a Section 125 Plan for Small Business
PremiumOnly Plan Flexible Spending Account
Employees pay their share of insurance premiums pre-tax. This is the simplest form and often the best starting point for small businesses.
Employees set aside pretax money for medical, dental, vision, or dependent care expenses. While “use-it-or-lose-it” rules apply, this option offers meaningful tax savings.
Dependent Care Assistance Plan
Helps employees cover eligible child care or dependent care expenses with pre-tax contributions. This can be especially valuable for working parents in small business environments.
Full Cafeteria Plan
Employers provide a credit or contribution amount that employees can allocate across multiple benefits. While more complex, it offers maximum flexibility and employee satisfaction.
Final Thoughts
For small business owners, every dollar counts. A Section 125 plan for small business is one of the most powerful yet underutilized tools to reduce costs, improve benefits, and strengthen employee satisfaction. With Lumara Health as your partner, you gain not just a plan, but a complete strategy—one that ensures compliance, maximizes tax savings, and creates real value for your business and your team.
