Day
Hour
Minute
Second
With the fiscal year entering the last quarter, companies large and small are now anticipating and preparing for the inevitable wall of deadlines come year’s end. Since most cafeteria plans renew at the beginning of the new year, now is the time for employers to enroll in new plans. Meanwhile, employees must spend their existing FSA balances by year’s end. With companies scrambling to meet enrollment deadlines while simultaneously monitoring employee expenses for compliance with IRS rules, costly compliance mistakes are very possible.
What is a Flexible Spending Account (FSA)?
A Flexible Spending Account (also known as a flexible spending arrangement) is a special account employees put money into that they can then use to cover certain out-of-pocket health care expenses. This money is effectively tax-free.
Flexible Spending Accounts (FSA) are a tremendous benefit employers can offer to their employees. Aside from the obvious tax benefits, the full amount employees elect are available to them on day one, even if they have yet to make a contribution. However, FSA’s aren’t without their risks for both employees and employers. Aside from the $2,550 maximum, employees will find their unspent money forfeited at year’s end (excluding a $500 rollover amount) a la the “use-it-or-lose-it” rule. Thankfully, the IRS has in recent years added a two-and-a-half month grace period for employees to spend any unused funds. Employers will face considerable financial exposure as a result of the pre-funding requirement and must deal with the administrative burden of not only day-to-day administration but also nondiscrimination testing to ensure the FSA’s aren’t being used as a way to avoid taxes
Outsourcing FSA Compliance to a PEO
Because the IRS can impose serious penalties for noncompliance, many companies opt to outsource FSA enrollment and administration to third-parties, particularly PEOs. A Professional Employer Organization (PEO) is a third-party company that provides HR and HR-related services to client companies through a co-employment arrangement. The benefits of partnering with a PEO are many. First, PEOs can often leverage their size via “pooling” to secure better benefits at a lower price for their clients. Second, PEOs will then handle the administrative duties associated with these benefits, including enrollment and compliance, allowing client companies to focus on their core businesses.
Conclusion
Flex Spending Accounts must be used before the end of the calendar year, or it’s a wasted opportunity. For employers, be aware of FSA compliance and the fast approaching deadline to either renew or switch plans.
Looking for the best PEO? Contact PEO Broker, recognized as one of the top Houston PEOs.