Why Section 125 Plans Beat Raises
Why Employees Love Section 125 Plans
Employees enjoy Section 125 Plans because they save money and get essential benefits without paying full price. Here’s why:
1. Lower Taxes = Higher Take-Home Pay
The biggest perk? Employees can use pre-tax dollars to pay for their benefits, lowering their taxable income. This means they pay fewer taxes and keep more money in their paycheck. Who wouldn’t love that?
2. Access to Valuable Benefits
Section 125 Plans give employees access to important benefits such as:
Health insurance
Dependent care savings
Commuter benefits
Flexible spending accounts (FSAs)
These benefits help employees manage healthcare costs, childcare expenses, and transportation costs—all while saving on taxes.
3. Flexibility and Control
Employees get to choose which benefits they want based on their needs. This flexibility makes Section 125 Plans more appealing than standard raises, which usually come with higher taxes and less control over how the extra money is spent.
Employees appreciate having the flexibility to use their benefits in the way that best fits their personal and financial needs.
Why Section 125 Plans Are Better Than Raises
Raises fade fast but smart benefits stick around Section 125 Plans give your team more real value without draining your payroll budget See why this approach works better for everyone and helps you save while keeping your employees happy and supported year round. Raises are nice, but Section 125 Plans offer far more value in the long run. Here’s why:
1. Tax Savings Benefit Both Employees and Employers
When employees receive a raise, they are taxed at a higher rate, meaning they don’t get to keep the full amount. In contrast, Section 125 Plans allow employees to save on taxes, which means they can keep more of their money without the added tax burden.
2. Employer Savings on Payroll Taxes
Employers also benefit from Section 125 Plans. For every dollar employees contribute to their benefits, employers save 7.65% on payroll taxes. This means businesses can offer valuable benefits while reducing their tax liabilities.
3. Lower Cost for Employers
Offering a raise is a significant ongoing cost for employers. But with Section 125 Plans, the cost is lower, and the benefits are ongoing. It’s a cost-effective way to provide employees with great perks without the need to increase salaries.
Section 125 Plans provide a more efficient way for employers to improve employee satisfaction without the long-term financial commitment of raises.
How Section 125 Plans Improve Employee Satisfaction
Section 125 Plans help employees feel valued and supported. By offering benefits that save money and reduce financial stress, employees can focus more on their work and feel more loyal to their employer. Here’s how:
1. Reduce Financial Stress
With health insurance and dependent care covered by pre-tax dollars, employees have less financial stress. They can pay for important expenses without dipping into their post-tax income, making their finances easier to manage.
2. Increase Employee Retention
Employees are more likely to stay with an employer who offers them valuable benefits. By offering Section 125 Plans, employers can improve retention rates, reducing turnover and the costs associated with hiring and training new employees.
3. Improve Employee Health and Productivity
When employees can access affordable healthcare, they are more likely to stay healthy and productive. Section 125 Plans help employees manage their healthcare costs, so they can focus on doing their best work instead of worrying about medical bills.
Section 125 Plans improve employee satisfaction, retention, and productivity by offering them benefits that reduce stress and make life easier.
Why This Beats Raises for Small and Mid-Sized Businesses
Raising salaries isn’t the only way to stay competitive Smart businesses are finding better ways to reward their team without breaking the budget See how this strategy delivers big value keeps your payroll lean and helps you stand out where it counts.
For growing companies, every dollar counts. Section 125 Plans let you:
Keep base salaries stable
Offer benefits that rival big corporations
Maximize your total compensation package
Save money while offering more value
Your employees win. Your budget wins. And your business earns a reputation as a great place to work.
Disclaimer: Section 125 Solutions LLC does not provide legal or tax advice. We refer employers to qualified third-party administrators for compliant Section 125 Plan setup and support.
Try Our Free Calculator
Not sure how much you could save with a 125 Plan? Our free calculator gives you a fast, accurate estimate.
Use it to:
Compare raise costs vs pre-tax benefit value
Estimate your annual payroll tax savings
See how much more your team could take home
Try the Calculator Now
📣Disclaimer: Calculations provided are for informational purposes only and do not guarantee specific savings. Actual savings will vary based on individual circumstances.
Book Your Consultation
Explore how Section 125 plans could save your business over $1,000 per W-2 employee each year. Book a free consultation to see how much you could be losing by not having one.
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