If you offer employer-sponsored benefits to your employees, it’s important to know when to deduct employee benefit contributions. Do you do it on the actual premium due date, or should you take deductions earlier? The decision can impact your business’s cash flow, billing accuracy, and administrative efficiency.
It’s becoming more and more popular for employers to deduct employee benefit contributions one month in advance, giving employers some breathing room between contributions and when premiums are due. Here’s why it might be a good idea for your business.
Deducting Employee Benefit Contributions One Month in Advance
It might seem like more to keep track of, but deducting employee benefit contributions one month in advance has quickly become the standard because of its positive impact on cash flow and administrative tasks.
For example, if an employee enrolls in coverage effective August 1, the deductions should be taken in July, even though the premiums are typically due on the first day of the coverage month.
When you collect employee contributions before you (the employer) have to pay the premiums, it helps prevent you from having to front any benefit costs out of pocket if timing isn’t quite right — or something unexpected happens. This ensures consistent cashflow and reduces reimbursement issues down the road.
Risks of Deducting Contributions During Coverage Month
If you deduct employee benefit contributions during the coverage month, it could leave your business vulnerable to problems. For example, imagine an employee terminating employment on November 2nd, after coverage has already become active. You’ll have to recover the employee’s portion of the benefit costs after they’ve left the company. Not only can this be extremely difficult, but it can also be quite awkward…
You can also risk administrative complications caused by missed or partial payroll deductions. No matter what happens with the employee contributions, the employer is responsible for the premium payment, whether the employee contribution has gone through or not.
By collecting employee contributions during the coverage month, it leaves your business open to potential financial risk. That’s why it’s best to collect employee contributions one month in advance.
Maintain Timely Enrollment and Benefit Changes
It’s recommended that all benefit contributions, enrollments, and changes take place at least 30 days before the effective start date whenever possible. That gives you (the employer) more time to plan for payroll setup, carrier processing, and deduction accuracy. Plus, if an employee doesn’t or can’t make their contribution right away, the business doesn’t have to pay out of pocket right away.
While collecting employee benefit contributions a month in advance is great for planning and maintaining cash flow, it can cause some inconveniences when it comes to qualifying life events (QLEs). QLEs — such as marriage, divorce, birth of a child, or loss of other coverage — can occur unexpectedly and require last-minute changes. And if you’ve already collected the contribution, it could require reimbursements. That’s why it’s important that employers and administrators remain flexible while maintaining accurate records and timely submissions.
Simplify Employee Benefit Contributions with an Online Platform
Managing employee benefits can feel like juggling. Between the paperwork, multiple policies, and tracking contributions, it can take a lot of time and energy — not to mention the possibility of errors between each task. If you want to simplify employee benefit management and reduce errors, it’s best to go with an online benefits platform.
An online benefits platform like Employee Navigator can help employers manage employee benefit contributions and enrollment changes quickly and easily. It can track elections, effective dates, and contribution amounts in one centralized system that’s easy for HR teams, brokers, and plan administrators to monitor. Not only will this save your team time, but it can also reduce manual errors and missed deductions.
Proactive deduction timing mixed with modern benefits technology can really help employers avoid costly administrative and payroll issues when it comes to employee benefits contributions.
If you’d like to discuss employee benefits options for your business, contact us at Health Benefits Associates. Our team of local agents will walk you through the policies available and help you choose the one that best fits your business’s unique needs. Schedule an appointment by calling 775-828-1216 today.