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Which Benefits Are Beneficial

For most collision repair shop owners, devising
an effective employee benefit plan is a guessing game at best.

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With escalating health-care costs, constant regulatory changes,
high employee turnover levels and increased competitive pressures,
employee benefits have caused many sleepless nights for shop owners
– yet employee benefits are considered a part of the basic pay
of most employees. In fact, without a well-constructed employee
benefit plan, you’ll probably have trouble attracting and keeping
good employees.

"You have to offer a well-rounded group of benefits to keep
good people," says Frank Jandura, owner of Crebassa’s Body
Shop in San Rafael, Calif. "The employee pool in our industry
isn’t a broad pool, so you want to make people part of your company’s
family, so to speak."

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While some small-business owners simply aren’t competitive, others
err on the side of excess when it comes to employee benefits.
Mike Matznick – a health insurance agent with Med/Flex Benefit
Center, Inc. in Greensboro, N.C., who has 16 years experience
– says it’s important to find a happy medium when putting together
an employee benefit package.

"A key for any small-business owner in setting up employee
benefits is to decide exactly what his budget is and what the
options are," says Matznick, also a past president of the
Association of North Carolina Health Underwriters. "You don’t
want to start out with a full package and have to cut back."

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Once an employee-sponsored plan is established, it has to be offered
to all permanent employees working 30 hours or more.

Some small-business owners go in too fast without realizing the
cost that will be incurred as they add new employees; that’s why
it’s important to be aware of these costs and add benefits as
the company grows – and as the resources become available to fund
the benefits.

While some small-business owners start out with too much too fast,
as Matznick says, most body shop owners tend to offer benefit
packages that are too thin rather than packages that are excessive.

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So how can you, the shop owner, gain a better understanding of
employee benefits and take the steps necessary toward offering
an appropriate benefits package? By understanding some of the
key components of an employee benefit plan.

It should be noted that this article is, in no way, intended to
be all-encompassing coverage of the very involved subject of employee
benefits; rather, it’s hoped that some of the points covered here
will point you in the right direction. If you want to know more,
check out your local bookstore or library for the dozens of books
that have been written on employee benefits or, even better, call
a reputable insurance agent who can help you through the myriad
of benefit possibilities for your shop.

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Payment for Time Not Worked

Payment for time not worked is an often overlooked area of the
benefit package, but it’s a very important area. Payment for time
not worked consists of vacation days, paid holidays, paid sick
leave, paid family and medical leave, jury duty and wages paid
during other excused absences.

These benefits typically are offered only to full-time employees.
The key considerations here are:

  • The experience level of the employee; and
  • The competition.

Offering someone with 20 years experience a week of vacation probably
won’t help in the hiring process. And as far as the competition
is concerned, simply try to be in line. You probably won’t gain
a lot from offering an extra week of vacation, but you may well
lose employees if you’re overly stingy.

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Another related area is family and medical leave. In 1993, Congress
passed the Family and Medical Leave Act to provide eligible employees
(full-time, part-time and temporary employees who have worked
at least 1,250 hours during the previous 12-month period) an unpaid
job-protected leave for these events:

  • Birth of a child;
  • Adoption of a child or placement of a foster child;
  • Care of a sick spouse, child or parent; and
  • Employee’s own serious health condition.

You’re required by law to abide by this act; you’ll probably also
want to write into your policy that employees may opt to first
use paid sick leave for a maternity-leave situation.

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Group Medical Insurance

The key component of most employee benefit packages is group medical
insurance. Says Jandura: "It’s pretty standard in the industry
to at least offer health insurance coverage to your employees."

Group medical insurance has been difficult to follow in recent
years but, according to Matznick, many of the recent regulatory
changes have been for the better. "Any small-business owner
with less than 50 employees now has a much greater availability
of products in the marketplace. There’s now a full gamut of products
available through HMOs, etc.," says Matznick. "These
regulatory changes have also reduced cases of employees losing
insurance."

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For small businesses to purchase group medical insurance, most
carriers require the employer to pay at least 50 percent of group-plan
employee medical premiums. This helps ensure that participation
will be high enough to justify the cost of setting up a plan for
the business.

The key questions regarding group health insurance are:

  • How should the plan be structured?
  • How much will it cost?

Let’s first address the second question on cost.

"The cost of a plan depends on a lot of different factors,"
says Matznick. "The carrier will look at the average age
and sex of the employees, as well as ask the employees individual
health questions. For existing firms, past claims will also be
considered and could impact the cost by as much as 20 percent."

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Matznick says that additional factors affecting cost are the state
in which the business is located (each state is governed by a
separate set of insurance laws), the components of the plan (i.e.,
deductibles, etc.), the number of employees and other benefits
purchased from the carrier. And, with the revisions in the insurance
laws around the country, Matznick adds that "virtually no
employer can be completely turned down for group medical insurance
in most states."

So just how much is the typical per-employee cost for group medical
insurance? While Matznick again cautions that there are many variables,
he estimates that the typical monthly cost for a small business
in North Carolina (to cover employees only, not including dependents)
ranges from $80 per employee for an average employee age of 25
to $200 per employee for a company with an average employee age
in the 50s.

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Because many internal plan variables can affect the cost of group
medical insurance, consider the following components when devising
a plan:

  • Deductible Level – The deductible level is the amount of out-of-pocket
    expenses that will be incurred before group medical plan payments
    kick in. The higher the deductible level, the lower the per-employee
    cost of the insurance.

  • Percentage Payment of Covered Expenses – This represents the
    percentage of payment made on covered expenses out of the group
    medical plan after deductible levels have been met. Most plans
    are set at 80 percent. The lower the percentage payment level,
    the lower the per-employee cost of the insurance.
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  • Out-of-Pocket Maximum – Most plans set out-of-pocket maximums
    for each person within a family covered under the plan and for
    an entire family unit. This protects the employee in the case
    of excessive medical costs that might arise in one year. For instance,
    a plan might call for out-of-pocket maximums of $500 per individual
    covered and $2,000 per family. The higher the out-of-pocket maximums,
    the lower the per-employee cost of the insurance.

  • Dependent Coverage – Nearly all group medical insurance plans
    include a dependent coverage option that allows employees to cover
    spouses and children. The dependent coverage generally is the
    same coverage that’s provided to the employee in terms of deductibles,
    etc. Most employers in the collision repair industry require the
    employee to pay most or all of the dependent coverage premiums.
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  • Prescription Drug Card – A prescription drug card enables
    employees to purchase most prescription drugs with a flat copayment
    level. A typical card might have a per-prescription copayment
    of $10 with the remaining portion paid out of the plan. The inclusion
    of a prescription drug card increases the per-employee cost of
    the insurance.

    While you may not be at a stage in your business to offer your
    employees a premium group medical insurance plan, you need to
    start somewhere. (And if you don’t offer health insurance and
    haven’t looked into the option for a while, you might be surprised
    at how affordable some group plans have become.) You may need
    to start out with high deductibles, low-percentage payment levels,
    high out-of-pocket maximums and no extra frills like a prescription
    drug card, but it’ll be a plus in the hiring process to have
    something to offer.

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    Group Dental Insurance

    If you own only one or two shops and have only a few full-time
    employees, then you probably haven’t offered group dental insurance
    in the past. And unless your employees could guarantee nearly
    100 percent participation, you probably couldn’t have found a
    carrier to sign you up anyway.

    With fewer than 20 employees at Crebassas, Jandura was unable
    to find a dental carrier for many years. He was, however, able
    to build a track record with Kaiser Medical that finally led to
    an ability to offer group dental and vision coverage in addition
    to group health.

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    "We’ve found dental and vision coverage to be important,"
    says Jandura. "Employees tend to be concerned about their
    paycheck. They don’t pay much attention to the extraneous things
    until something bad happens. We’ve found that our employees are
    glad we have full coverage when they crack a tooth or need glasses."

    Often, group dental insurance is set up as an employee-paid plan,
    meaning that the only cost to the business is the administrative
    cost associated with the plan. In fact, if you have even as few
    as 10 permanent employees, an employee-paid group dental insurance
    option would probably be a nice enhancement to your benefit package.
    With employee-paid group dental insurance, you’re still offering
    a good benefit to your employees because they’re able to purchase
    group dental at lower rates than if they attempted to buy dental
    insurance on their own.

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    As with group medical coverage, group dental includes a few key
    variables that determine the premiums. Some plans cover only preventive
    and basic care, while others also cover major care and/or orthodontics
    needs. Most plans cover 100 percent of reasonable and customary
    amounts charged for preventive care – dental checkups and cleanings
    (usually limited to two per year). For other dental expenses,
    there’s typically a deductible per person and per family. After
    the deductible is met, a payment percentage, usually ranging from
    50 percent to 80 percent, is established. Nearly all group dental
    plans also limit the total amount that can be paid out to one
    family during a calendar year; these caps generally range from
    $500 to $1,000.

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    Medical Spending Account/Section 125

    A component of the tax law changes in 1986 was Section 125, which
    pertains to medical spending accounts. Section 125 allows businesses
    to set up these accounts for their employees with the money allocated
    to be put into the spending account, coming out of employee pay
    before taxes are calculated and withheld. The end result is the
    employee pays less taxes.

    These spending accounts can be set up for health-care expenditures
    and day-care needs. As mentioned, the funds are deducted from
    the employee’s check before taxes are withheld. Once uncovered
    medical bills or child-care expenses are paid by the employee,
    he submits proof of the expenses and is reimbursed from the spending
    accounts. There’s one catch: Any funds left in the account at
    the end of the year are forfeited by the employee. This is designed
    to prevent employees from "sheltering" additional income
    from Uncle Sam.

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    If you aren’t already offering Section 125 Medical Spending Accounts
    to your employees, you should consider doing so. "The business
    owner should pay careful attention to the needs of the employees,"
    says Matznick. "If there are a lot of employees spending
    a lot of money each year on health care and child care, Section
    125 can save them a lot of money."

    Section 125 is available to just about any employer and, according
    to Matznick, the administrative costs to set up these accounts
    "are minimal, and the owner comes out a hero for the money
    saved by employees."

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    Section 125 also allows most small businesses to deduct group
    medical insurance premiums from employee paychecks on a pretax
    basis, which can result in substantial tax savings to the employees.

    Group Life Insurance

    There are a number of different group life insurance products,
    many of which can be offered by small businesses. Most plans allow
    employees to purchase term life insurance (no cash value is accumulated)
    at reduced group rates. The amount purchased typically is based
    on a certain multiple of the employee’s annual base pay. Rates
    are based on the age and sex of the employee and, in some cases,
    on whether or not the employee is a smoker.

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    You can offer group life even if you employ only five to 10 people,
    and this is another benefit you may choose to offer as either
    an employer- or an employee-paid benefit. You may also offer a
    combination with basic term life coverage offered for every employee
    and a supplemental life plan offered for those who wish to purchase
    additional group life insurance. This benefit isn’t very expensive
    to offer, particularly if all or part is employee paid.

    Group life insurance plans might also include dependent life coverage
    and accidental death and dismemberment coverage.

    Group Disability Insurance

    There are two types of group disability insurance: short term
    and long term. Short-term coverage usually covers a disability
    beginning on the eighth day after the disability and continuing
    up to 180 days, while long-term coverage typically starts either
    90 or 180 days after the disability occurs. Both types usually
    pay 60 percent of the employee’s base pay.

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    "Disability insurance is an area that fewer employers are
    providing for their employees," Matznick says. "But
    during a person’s working lifetime, he’s much more likely to become
    disabled than he is to die."

    According to Matznick, disability coverage is inexpensive compared
    to group medical coverage, with premiums usually comparable to
    those charged for dental insurance. Also, more and more insurance
    carriers are allowing businesses to offer disability coverage
    as an employee-paid benefit as long as the participation percentage
    is high enough.

    Qualified Retirement Plans

    Two basic categories of retirement plans are qualified and nonqualified.
    Qualified retirement plans must be offered to all eligible employees
    and must conform to IRS guidelines, and nonqualified plans are
    written by the small-business owner and can be offered to as few
    or as many employees as the owner desires.

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    "In a start-up phase or during the formative years of a small
    business, nonqualified plans tend to be more attractive,"
    says Ken Anderson (CLU, CHFC), senior associate with Principal
    Financial Group in Greensboro, N.C. "The owner is putting
    his neck on the line and sets up a nonqualified plan to benefit
    himself. As a business matures, he may turn to a qualified retirement
    plan to take care of all employees."

    The two most common types of qualified retirement plans are 401-K
    plans and pension plans. With most 401-K plans, the employee is
    able to save a certain portion of his income, usually 1 to 15
    percent, on a pretax basis, and the employer typically matches
    a certain percentage of a portion of the money saved. For instance,
    the employer might agree to match up to 50 percent of the first
    6 percent put in by the employee. So, if the employee makes $2,000
    per month and elects to put in 6 percent ($120), then the employer
    would contribute an additional 50 percent of that 6 percent –
    $60.

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    A 401-K plan offers two key advantages to employees: They’re able
    to save on a pretax basis and pay Uncle Sam less, and they benefit
    from the employer match.

    Jandura has offered a 401-K plan with an employee match for several
    years and says it’s been well-received by his employees. "Americans,
    in general, are great spenders, but not good savers," says
    Jandura. "Now, some of my employees have some pretty good
    funds built up in their accounts. People take an interest when
    they start seeing the dollars going up, and they start putting
    more money into the plan."

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    Most 401-K plans do, however, involve a few restrictions. First,
    the employees usually are required to work with the business for
    a certain period of time (six months to one year) before they’re
    eligible to participate. Second, many 401-K plans include a vesting
    schedule for the employer-match portion, meaning there’s a delay
    between the time the funds are put up by the employer and the
    time these funds are credited to the employee’s account. Third,
    because of the pretax designation, penalties are imposed by the
    IRS (in addition to normal taxes that are withheld) if the funds
    are withdrawn by the employee before retirement.

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    401-K plans range from the simple to the complex in terms of investment
    options. Most smaller companies with a 401-K plan limit the investment
    options to, say, a bank money-market account and a few mutual
    funds. Other larger businesses offer a myriad of investment options.
    If you don’t currently have a 401-K plan in place and you’re looking
    to add one as a benefit, it’s best to start simple.

    So why don’t all shops offer 401-K plans, considering their many
    benefits? Anderson says it’s because of the cost. In addition
    to the cost brought about by the employer match, the business
    must absorb several other expenses including:

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    • Administrative costs;
    • Accounting fees;
    • IRS reporting expenses; and
    • Costs per participant.

    Says Anderson: "A small business can farm out some or all
    of these responsibilities, but it still has to pay the costs.
    The smaller the group, the more difficult it is to justify 401-K."

    The other major type of qualified retirement options is the pension
    plan, which is generally seen only in larger body shops. A pension
    plan is designed to provide all eligible employees with a monthly
    income at retirement, with the employer making all the contributions.
    Different variations are available for vesting, eligibility and
    other key factors.

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    You may not choose to take on the expense of offering a pension
    plan unless the competition forces you to, but for Jandura, a
    profit-sharing pension plan has proven to be a very effective
    way to keep good employees and to promote a more efficient operation.

    "Every employee at Crebassas participates in our profit-sharing
    plan," he says. "Our employees are beginning to realize
    that if they can contribute to the bottom line and help our operation
    become more efficient then our shop will be more profitable, which
    means more profit-sharing money for them."

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    Anderson says that many smaller body shops (those employing fewer
    than 50 people) have found Simplified Employee Pension (SEP) and
    Salary Reduction Simplified Employee Pension (SARSEP) plans to
    be more feasible than offering a 401-K or a full-blown pension
    plan. Why? Because a SEP or SARSEP is generally much less expensive
    to put in place since there’s no plan documentation and far less
    third-party administration involved. Since they’re qualified benefits,
    though, these plans must be offered to all employees with the
    same percentage (of income) of benefits offered to everyone.

    According to Anderson, the SEP family of qualified retirement
    benefits is very user friendly. These plans are 100 percent vested
    from day one, so balances are easy to track. With a basic SEP
    plan, the employer simply puts in a specified percentage of each
    employee’s pay into the account. With a SARSEP, the employee can
    also add savings dollars to the employer’s SEP portion through
    payroll deduction.

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    If you want to offer some type of retirement benefit to your employees
    but can’t quite justify the cost of a 401-K or pension plan, a
    SEP or SARSEP might be just the ticket. Says Anderson: "I
    find just as many people using SEP-type plans as 401-K plans in
    small businesses."

    Nonqualified Retirement Plans

    Nonqualified retirement plans are often referred to as executive
    compensation plans because they’re usually offered only to the
    owner or the senior management team. Says Anderson: "With
    a nonqualified plan, you pick and choose the benefits and who
    will have something special done for them."

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    There are a number of different plans that can be undertaken for
    nonqualified retirement plans – although only three plans, according
    to Anderson, are typical for small businesses: executive bonus,
    collateral assignment split dollar and voluntary deferred compensation.
    An insurance agent can explain them to you in detail.

    It’s Enough to Make Your Head Spin

    With the lack of qualified technicians in this industry, shop
    owners are thrilled when – more like if – they locate and hire
    the right person. But how long before that "right" person
    gets wooed by the competition down the street? And what will stop
    that "right" person from accepting the competition’s
    offer?

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    Employee benefits can help.

    Granted, establishing an effective employee benefit package for
    your shop can be rather cumbersome and confusing, but it’s vital
    – if you want to attract and retain good employees.

    "We’re a team and try to promote a team atmosphere here,"
    says Jandura. "We want everybody working toward a common
    goal, and a good benefit package helps promote an atmosphere in
    which everyone works together. [Benefits are a way for] the owner
    to show his employees that he’s interested in their well-being,
    too."

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    J. Tol Broome Jr. is a contributing editor to BodyShop Business.

    Top 10 Questions About Employee Benefits

    1. Which employee benefits can be tax exempt, and how can I
    set up these benefits to be tax exempt?

    Section 125 of the IRS tax code allows small businesses to offer
    their employees the opportunity to pay group medical insurance
    premiums on a pretax basis. Under Section 125, medical spending
    accounts that allow employees to pay uncovered medical expenses
    and day-care costs on a pretax basis also can be set up.

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    The process to offer Section 125 eligible benefits on a tax-exempt
    basis is relatively simple with minimal cost involved, and your
    benefits provider should be able to assist you in implementing
    Section 125 eligible benefits into your business.

    While 401-K retirement plans are not tax exempt, they do allow
    the employee to save money on a tax-deferred basis.

    2. What is a cafeteria plan, and should I offer one?

    The term "cafeteria plan" refers to employee benefit
    plans that offer choices of benefits to employees. Another term
    for this type of plan is "flexible benefits" plan.

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    A simple cafeteria plan might include group medical insurance
    for every employee with group dental and medical spending accounts
    offered for those employees who choose to take advantage of them.
    A more complex plan might also include group life insurance, supplemental
    group life insurance, dependent life, group short-term disability
    insurance and group long-term disability insurance, among other
    benefits.

    A simple cafeteria plan might be an excellent way to enhance your
    benefits package if you employ fewer than 50 people. And if you
    employ more than 50, it might be cost feasible to offer a broader
    "menu" of choices.

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    3. What are employee-paid benefits?

    Employee-paid benefits are those benefits that are offered within
    a group plan but are paid for in full or in part by the employee.
    Dependent health insurance, dental insurance, group term life
    insurance and group disability insurance are just some of the
    benefits that can be offered on an employee-paid basis. While
    the employee must cover the cost of the benefit because it’s purchased
    within a group plan, it’s generally significantly less expensive
    than if the employee had to purchase it on his own.

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    4. How can I save money on employee benefits?

    Offering employee-paid benefits is one way to save money. Another
    way to save money is to join an HMO, trade group or other group
    that might be able to save your company money because of the benefits
    of pooling. Your agent should be able to tell you if your company
    is eligible for an HMO, or check with your favorite industry trade
    association to see if it offers any group medical

    discounts.

    Another way to control costs on benefits is to delay the offering
    of certain benefits to new employees. This can be done with probating
    periods and waiting periods for certain benefits (usually not
    health insurance).

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    5. How do I find a good agent to help me with my benefits package?

    This is the most important step in the entire process. You need
    to find an agent who will give you personal attention no matter
    how small your shop is and one who either represents a national,
    prominent insurance company or is well-connected with several
    good companies as an independent agent. In short, you need an
    agent who will help you design an employee benefits package, not
    just someone who can sell you some group products.

    "Small-business owners are wise to work with a broker who
    is experienced in the benefits area," says Matznick. "Insurance
    agents specialize in different areas. … A good agent will be
    a valuable resource in setting up the right plan and in answering
    questions as the company grows."

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    If you don’t know any agents, ask other shop owners or your banker,
    CPA or attorney for referrals.

    6. Is it OK to shop around?

    Certainly. If you think you’re paying too much in premiums or
    for administrative services for your employee benefits, you’re
    well within your rights to shop around. In fact, it’s a good idea
    to put your plan out for bids every year or so to ensure your
    costs are in line. Your existing agent might be able to do this
    for you if he’s independent.

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    One major word of caution when it comes to shopping around: It’s
    imperative that you’re comparing apples to apples. Your employees
    won’t be too happy if you’ve saved $15 per month in health insurance
    premiums but have had their deductibles raised from $500 to $1,000
    and have "accidentally" done away with their prescription
    drug cards!

    7. How do I decide which benefits to offer?

    First, you need to determine how much per employee you can afford
    to spend. Second, ask your employees for their input. You may
    be surprised to learn that the benefits important to them don’t
    in any way match your wish list. You might also be surprised to
    find that your employees would like for you to offer an employer/employee-shared
    cost benefit or even an employee-paid benefit that would cost
    you very little but would be very well-received by them.

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    Along the same lines, don’t be bound by the past. "Well,
    we’ve always had our benefits set up this way" is not a very
    good method of employee benefits plan management.

    8. How do I maintain good communications with my employees
    regarding our employee benefits package?

    The best way to communicate your benefits is to have a manual
    that can be kept up to date and provided to your employees. This
    might be as simple as a one-page summary of each benefit offered
    – supplemented by more detailed material provided by your insurance
    agent/company; or, if you own a larger body shop, you might want
    to develop a more thorough manual that covers all benefits offered
    in great detail.

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    Even if you have little in written material to offer your employees,
    you can still keep them well informed. If changes are made in
    the benefits package, tell your employees about them. And when
    you hire a new employee, make sure he’s well-informed regarding
    the benefits you offer.

    9. What happens if we have a lot of health insurance claims
    in one year?

    Ten years ago, the answer to this question often was "too
    bad." Many small businesses were shocked to see their health
    insurance premiums double from one year to the next because of
    excessive claims. In a small body shop, if one out of 10 employees
    gets really sick one year, it can run up the claims substantially
    – especially in this day and age of astronomical health-care costs.

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    Matznick says that most states now have insurance laws that limit
    the level that premiums can be raised by insurance companies on
    a per-employee basis for a company with a high claims level one
    year (in North Carolina, it’s about 20 percent).

    10. What benefits should be offered to part-time employees?

    The answer to this question probably depends upon your definition
    of part time. Employees hired from a temporary agency or on a
    temporary basis (i.e., college students hired to work for the
    summer) don’t have to be offered any benefits. The same holds
    true in most states for permanent part-time employees who work
    fewer than 30 hours per week. In most states, however, you must
    offer your full benefit package (under the same terms, restrictions,
    etc., that it’s offered to full-time employees) on a pro-rata
    basis to all permanent part-time employees who work 30 hours or
    more.

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