Employee wants cash instead of Group Health

Rob S

We recently hired an employee that already has health insurance through a past employer, and he claims he can stay on it indefinitely (not cobra). Our plan is offered to employees at no cost, but our companies premiums have sky rocketed. He likes that plan better than ours, and the cost of his plan is half of ours. The president of our company told him this would be OK for us to pay the premium for his other plan. I already have reservations about doing this, and now I find out that they want this to be paid through accounts payable, and not through the payroll system. Other employees don’t have to pay income taxes on their portion (family) of the plan because we are a qualified section 125 plan, but I see no way that we can legally pay for his insurance without paying payroll taxes.

Am I correct that there is no way we can pay him for this that will not be taxed?

Can we legally pay someone not to go on a plan that is free to the employee?

If we can and do this for him, must we do it for other employees?

As you can probably already see, I have some reservations about this, and I really would like to see what some other people think about this.

Rob S.

carolathey

I don't think you can pay for this employee's health coverage without it being taxable income to the employee.
Can you pay someone not to go on a plan that is free to the employees? Well, you could offer him a salary that is X dollars per month higher than you would normally pay for his position and allow him to buy his own health coverage with the X dollars. You aren't paying him NOT to go on your plan; you are just subsidizing the payments he has to make to buy his coverage elsewhere.

Do you have to do this for other employees? Not sure. One issue is that you are paying this person a higher wage so you jeopardize your salary structure. I hope that someone in the forum can provide some expert advice here. This whole idea smells fishy to me too.

Rob S

I think we are technically paying him not to go on our plan. Our plan is free to the employee, but he likes his old plan. The president wants him to sign a form that if he drops his old coverage and goes on our plan, then his pay will be adjusted accordingly.

Rob S.

Terri

We offer our employees an incentive NOT take our health insurance coverage provided they can show proof that their insurance is equal or better than what we offer. We allow $100/month for single up to $300/month for family. This is a fringe benefit and processed through payroll so that taxes may be deducted accordingly. We also include this benefit in our policy manual, making it available to everyone. It's a win/win situation for the company and for the employee.

E Wart

I wouldn't touch this with a 10 foot pole!
I am sure you can do this if you have to, but wouldn't advise it.
First, if you do it, I would suggest doing the same to anyone that doesn't elect your coverage, whether they have other coverage or not. Then when employees here this, some will elect to get out of your coverage and elect the pay. If you are going to do this, you may want to look at a cafeteria plan where you give employees dollars to spend and they use it as they would like (either purchase/buy down their group medical insurance costs or get the additional money on their check. This will treat all alike, let your employees see how great their no cost insurance really is, and also let your president realize what a mess he could be getting himself into.) I would also say that yes this would probably need to be taxable income to the employee the way you are doing it, but would recommend talking with a CPA on this.
My personal feeling is that this is a benefit. If the new employee doesn't want it, that is their choice. (Just like if someone gets vacation time but chooses not to take it.)