PwC’s 2023 Employee Financial Wellness Survey found that 57% of employees think finances are the top stress in their lives. They worry that the cost of their expenses is increasing and that wages aren’t keeping up. Small businesses with tight profit margins can only do so much when it comes to increasing wages or paying for employee benefits. But they can help employees better manage their personal finances by offering various voluntary wage withholding options to employees and explaining what they are all about. Some of these voluntary wage withholding options were covered in previous blogs, but here’s a fresh look in light of law changes and current economic conditions.
A fresh look at wage withholding options:
Voluntary wage withholding to buy U.S. savings bonds has been around for a long time. With the relatively high interest rates now payable on Series I bonds (the rate for May 1, 2023, through October 31, 2023, is 4.3%, this can be a good investment vehicle…at least for the moment. Employees should understand that they can opt not to report the accrued interest on savings bonds until they are cashed in or reach final maturity (30 years).
For employers to enable employees to buy U.S. savings bonds through payroll withholding, employees must set up a TreasuryDirect account and choose the type of savings bond—series EE or I—they want to purchase. Employers then send funds to the employees’ account. Employers can learn more from TreasuryDirect.
Pet ownership in the U.S. is high. The cost of wellness exams, shots, and treatments for conditions for pets can be staggering. Yet only a small percentage of employers offer pet insurance as an employee benefit even though it’s paid exclusively through employees’ wage withholding.
Employers can help employees obtain pet insurance at a nominal administrative cost to the company. Many big insurers offer this option for small businesses, including MetLife and Nationwide. If coverage is obtained through ASPCA, there’s a 10% discount on the group rate.
With the end of the pandemic, more and more employees are returning to the workplace. The cost of commuting is a nondeductible personal expense for employees. Employers are permitted to cover some commuting costs on a tax-free basis for employees. The dollar limit is $300 per month in 2023 for free parking, transit passes, and van pooling, although employers can’t deduct these amounts.
Small employers may not be able to afford to pay for this benefit but can enable their employees to pay on their own for monthly transit passes on a pre-tax basis using payroll withholding. There’s no minimum number of employees required to opt for this arrangement and there are no income limits; owners and high-earners can use the arrangement to the same extent as rank-and-file employees.
Employers can easily arrange this if they use a payroll company such ADP or Paychex. They can also find companies enabling employers to buy vouchers for their employees, such as Commuter Benefits and Payflex.
Other voluntary withholding uses
Employers can arrange various plans and programs to help employees pay for personal expenses at group rates and on a tax-advantaged basis. This includes:
- Dependent care
- Disability coverage beyond what employers are required to provide
- Health coverage
- Life insurance
- Retirement savings
Anne M. Mulcahy, former CEO of Xerox, said: “Employees who believe that management is concerned about them as a whole person – not just an employee – are more productive, more satisfied, more fulfilled. Satisfied employees mean satisfied customers, which leads to profitability.”
Show you care about employees and their personal financial concerns by providing options they can use to pay for the things they want or need. Check the administrative cost to the company for helping employees do this through wage withholding.