What’s a cafeteria plan?

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A cafeteria plan allows employees to choose from a list of benefits, such as health insurance and retirement account payments, to build their ideal benefits package. It reduces taxes and encourages personalized benefits, increasing employee loyalty. Employees should carefully check their options and ask for assistance.

A cafeteria plan is an employee benefit plan that allows employees to choose from a list of options, much like they can choose from a cafeteria menu. There are some distinct advantages to cafeteria plans for both employees and employers, especially for small businesses. If you work for a company that offers a cafeteria plan, check your options carefully and don’t be afraid to ask for assistance to ensure you choose the benefits you need.

Some common additions to a cafeteria plan’s menu are: cash, health insurance, child care, life insurance, retirement account payments, adoption assistance, paid leave, and assistance for injured or disabled family members. Depending on an employee’s personal needs, he or she can choose from these options to build the ideal benefits package. For example, a young woman planning to have children in the near future might choose to pay payments for paid maternity leave, health insurance, and child care.

A company funds its cafeteria plan by establishing reimbursement accounts into which employees pay to receive benefits. Employees can decide how much they want to pay; this amount is usually limited by annual income and employer restrictions. Money paid into a refund account is pre-tax income, which means that employees and employers are not taxed the same way they are taxed on wages. This can increase employees’ take-home pay, reducing income tax, and help employers reduce payroll taxes.

Because a cafeteria plan reduces the amount of taxes that must be paid, some people call it a “tax advantage plan”. There are other tax benefit plans that companies can use to help their employees, although a cafeteria plan is a great place to start. From an employers’ perspective, it allows a company to offer more benefits because it encourages personalized benefits, and employees appreciate the flexibility of their benefits, which in turn encourages them to remain loyal to the parent company.

Whenever you start a new job, you should check the benefits plan, if any. Employee benefits can get extremely complex, and most companies retain several employees who are familiar with the ins and outs of benefit options. These employees can help you use your benefits wisely and, in the case of a cafeteria plan, they can help you select the best option for your needs.

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