Wellness programs can enable employees to lose weight, stop smoking, learn about health risks, and more. So it’s a great idea for employers to encourage their staff to improve their health? And why not offer incentives for this purpose? And maybe even save employment taxes? All of this all sounds good, but be cautious before you take any action.
Here are some things that wellness programs can do, as well as the problems that wellness programs present, and what you must do if you want to move forward with them.
Value of wellness programs
While wellness programs are more common in large corporations there is no reason why they can’t be used in small businesses. In fact, wellness programs are commonplace in all-size companies these days. A healthy workforce can:
- Increase productivity and performance. One study that found that 90% of business leaders believe promoting wellness leads to greater productivity and performance.
- Increase profitability. It’s been estimated that every $1 invested in wellness returns $2 to $5 in profits (through reduced absenteeism and lower health care costs).
- Provide incentives for self-improvement of employees who participate. These can range from t-shirts and pedometers, to special health screening, gift cards, tickets, and other prizes.
- Be a hiring/retention tool. More than half of workers in small businesses who were surveyed said a benefits package is extremely important to their decision to take a job or stay with an employer.
Problems
Sounds great so far? That’s true. But there are problems for the unwary.
- Benefits may be taxable to employees. And if they’re taxable, they’re subject to payroll taxes, for an added cost to employers. Take this situation highlighted earlier this year by the IRS: a promoter sells a self-funded wellness program which paid for with employees’ pre-tax contributions plus small after-tax contributions; a large portion of the pre-tax contributions are returned as cash or rewards that the promoter said were not includible in income or wages. And because they were pre-tax contributions, the employer was to save on FICA taxes. The IRS said the returns to the employees were taxable. And the employer owed payroll taxes on this income. The arrangement isn’t insurance so payments to employees from the program cannot be excludable (compared with benefits received through health insurance plans).
- Employee privacy is at risk. An EEOC rule permits employers to require employees to share their personal health information in exchange for financial incentives.
- Employers can be penalized. If the program is discriminatory, an employee can bring the matter to the EEOC. An employer with 15 to 100 employees could potentially face punitive damages of up to $50,000. And civil litigation by an employee is permissible.
- Wellness plan rules could be changed. In the summer, a federal court said that because of incentives (including discounts up to 30% on the employees’ share of health coverage for wellness program participants), wellness plans aren’t voluntary. It ordered the EEOC to review its rules so that employees who don’t want to disclose their health information aren’t penalized; they should be protected by the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA).
Actions
If you want to offer a wellness program, be sure you do it right.
- Follow DOL rules. A final rule that took effect in 2014 is designed to ensure that wellness plans are nondiscriminatory. You can find extensive guidance through the DOL’s Employee Benefits Security Administration.
- Consult a benefits expert. Talk with your CPA to get a good idea of the dollars and sense of it all. Also work with a benefits expert; the dollars you invest in these fees can save you in costly mistakes.
Or instead of having a formal wellness program, just make wellness part of your company culture. Some ideas: offer healthy snacks in the break room, allow employees sufficient time to exercise during work hours (walking at lunch hour, using stationery bikes provided on the premises), and use health-conscious equipment (ergonomic chairs, standing desks, etc.)
