Cost to Implement a POP (Premium Only Plan) for Small Businesses

POP Plan Setup Costs for Small Businesses

If you’re a small business owner looking to offer benefits to your employees while saving money, a POP (Premium Only Plan) might be just the solution you need. But before diving in, you’re probably wondering—how much does it cost to set up a POP plan for small businesses? The good news is that POP plans are one of the most cost-effective ways to provide benefits to your team, and they offer significant tax savings for both employers and employees.

In this article, we’ll break down the costs of implementing a POP plan for your small business and explain why it can be a smart financial move. We’ll also highlight the savings and benefits that come with offering this type of plan.

What is a POP Plan?

A Premium Only Plan (POP) is a simple and affordable employee benefits plan. It allows employees to pay for their health insurance premiums with pre-tax dollars. This means employees can reduce their taxable income and pay less in taxes, and your business can save on payroll taxes as well.

Here’s how it works:

• Employees elect to have their health insurance premiums paid through the plan.
• The premium deductions are made before taxes are calculated.
• Both the employee and the employer benefit from tax savings.

For small businesses, this can be a great way to provide employees with a valuable benefit while keeping costs manageable.

How Much Does It Cost to Set Up a POP Plan for Small Businesses?

The cost to set up and maintain a POP plan for a small business can vary depending on a few factors, such as the number of employees, the provider you choose, and whether you handle the setup yourself or outsource it to a third-party administrator. Let’s break down the costs involved:

1. Initial Setup Costs

Setting up a POP plan usually involves a one-time setup fee. This fee is typically paid to a third-party provider who will help you create the plan, ensure it complies with IRS regulations, and set up the necessary paperwork. The setup fee is usually affordable, especially for small businesses.

For small businesses, the initial setup costs for a POP plan typically range from $500 to $2,000, depending on the complexity of the plan and the provider you choose. Providers will typically handle the creation of your plan documents and ensure compliance with IRS rules, making the process much easier for you.

2. Ongoing Administrative Costs

Once your POP plan is up and running, there are ongoing administrative costs. These costs cover tasks such as handling employee enrollments, managing payroll deductions, and conducting compliance testing. In most cases, a third-party provider will take care of these tasks for you, but you will need to pay an annual fee for their services.

For small businesses, the annual administrative costs typically range from $1,000 to $3,000 per year. This fee will cover:

• Employee enrollments and deductions
• Ensuring the plan remains compliant with IRS rules
• Managing updates and changes to the plan

While the ongoing administrative costs can add up, they’re still relatively affordable, especially when you consider the tax savings and employee satisfaction that come with offering a POP plan.

3. IRS Compliance Testing Costs

One of the key requirements for a POP plan is compliance with IRS regulations. The IRS requires businesses offering Section 125 plans (which includes POP plans) to perform nondiscrimination testing. This testing ensures that the plan doesn’t disproportionately favor higher-income employees over lower-income employees.

If you work with a third-party provider, they will usually handle the compliance testing for you. However, there is often an additional cost for this service. For small businesses, nondiscrimination testing typically costs between $500 and $1,000 per year.

It’s important to stay compliant with IRS rules to avoid penalties and ensure the tax benefits of your POP plan are maintained.

What Are the Savings for Small Businesses?

While there are costs involved in setting up and maintaining a POP plan, the savings for small businesses are significant. The tax savings alone can make offering a POP plan a smart financial decision for your business.

1. Payroll Tax Savings

The biggest benefit of a POP plan for small businesses is the payroll tax savings. By allowing employees to pay for their health insurance premiums with pre-tax dollars, you reduce your taxable payroll. This means you’ll pay less in FICA taxes (Social Security and Medicare taxes), which results in significant savings for your business.

For example, let’s say you have 10 employees, and each employee contributes $2,000 per year to their health insurance premiums through a POP plan. Your business would save 7.65% of that total amount in payroll taxes. That’s $1,530 in savings for just 10 employees.

2. Lower Employee Taxes

Not only does your business save on taxes, but your employees do as well. Since their health insurance premiums are paid with pre-tax dollars, their taxable income is reduced, which means they pay less in federal and state taxes.

This is a major benefit for employees, as it increases their take-home pay. When employees are happy with their benefits and the tax savings, it boosts their satisfaction and helps improve retention.

Is a POP Plan Right for Your Small Business?

Now that we’ve broken down the costs and savings associated with a POP plan, you may be wondering if it’s the right choice for your small business. Here are a few things to consider:

• Size of your business: POP plans work well for businesses of all sizes, but they are especially cost-effective for small businesses.
• Employee needs: If your employees already have health insurance or are looking for a simple way to save on healthcare costs, a POP plan is a great option.
• Long-term savings: While there are some setup and administrative costs, the savings on payroll taxes and the benefits to your employees make it a worthwhile investment in the long run.
• Ease of setup: Setting up a POP plan is relatively easy, especially when you work with a provider who handles most of the details for you.

If you’re looking for a way to offer valuable benefits without breaking the bank, a POP plan is a smart option.

How to Get Started with a POP Plan for Your Small Business

If you’re ready to start offering a POP plan to your employees, here’s how to get started:

1. Choose a provider: Look for a third-party provider who specializes in Section 125 plans and has experience working with small businesses.
2. Decide on benefits: Choose the benefits you want to offer through the POP plan (typically health insurance premiums).
3. Set up your plan: Work with your provider to set up your POP plan, ensuring it meets IRS compliance.
4. Communicate with your employees: Make sure your employees understand how the POP plan works and how they can take advantage of it.
5. Administer the plan: After setup, your provider will handle ongoing administration, so you can focus on running your business.

Conclusion

Setting up a POP plan for your small business is an affordable way to offer valuable benefits to your employees while saving money on taxes. With setup costs ranging from $500 to $2,000 and annual maintenance costs between $1,000 and $3,000, a POP plan is a smart investment that can help your business and employees save money in the long run.

If you’re looking for an easy and cost-effective way to reduce payroll taxes and offer tax-free benefits to your employees, a POP plan is a great choice. It’s simple to implement, easy to manage, and provides significant savings for both you and your team.

Get started with a POP plan and start saving today.