Ready for a Win-Win? How to Drive Organizational and Employee Savings
by Caroline Boyland November 9, 2022
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Businesses, they’re just like us
Inflation is everywhere, and it’s no longer just employees that are feeling the hole in their wallets. Just like their employees, businesses are struggling to manage inflated costs, and are looking for ways to save wherever they can (see: the deluge of major tech layoffs over the past month).
While us employees are holding out for Black Friday deals to lower costs on cold-weather clothing and holiday gifts, businesses are simultaneously hunting for innovative ways that they too can lower costs going into the new year.
With open enrollment season in full swing, eyes are on HR teams to drive cost-savings through their benefits programs this year. Easier said than done. Many HR leaders know that cost-savings can be achieved through a stellar approach to benefits, but the how is the real question.
So, what’s one way HR teams can drive savings through their approach to benefits? By increasing employee contributions to pre-tax savings accounts like 401Ks, HSAs, and FSAs. The best part? This will also benefit (no pun intended) your employees.
Read on to learn how increased contributions can drive savings at both the organizational and employee level, and how HR teams can drive up contributions this year.
Payroll tax savings
To put it simply, employers are subject to payroll taxes on the total compensation that they pay their employees. If you are able to increase the overall participation and allocation of your employee’s salaries into tax advantage programs (think: 401K, HSA, FSA, etc.), you’ll then lower the total compensation that is subject to payroll taxation.
For example, if an employee is making a salary of $100,000, and they are contributing 3% to their 401K and 2% to their HSA, then your company is subject to payroll taxes on the total salary minus the 5% that the employee is contributing, so $95,000. If you’re able to increase those contributions, and the employee is now contributing 6% to their 401K and 4% to their HSA, you’re now only subject to payroll taxes on $90,000.
By increasing the amount that employees are contributing to their pretax savings accounts, employers save on the total payroll tax they have to pay that year.
The unfortunate thing about employers needing to cut costs is that typically, their approach negatively impacts employees — think: mass layoffs, lower bonuses, lessening perks and benefits that cost too much, etc. That’s the best part about this strategy, it only helps employees in the long run.
By educating employees on the benefits of their different pre-tax savings accounts and driving up enrollment in those accounts, employees can experience both short and long term winnings.
In the long term, employees who increase contributions to their 401K now will see exponential growth and larger savings accounts when they choose to retire. And in the short term, HSA and FSA accounts will help employees combat unexpected healthcare costs like prescription charges, provider copays, and more.
Not to mention, by increasing contributions to their pretax savings accounts, employees are also saving on taxes. If that same employee is being taxed on their $100,000 salary, but now they’re contributing 10% to their 401K and HSA, they’re now only going to be taxed on $90,000.
Sounds easy enough…
Increasing employee contributions sounds like a win-win, so why isn’t this approach talked about more?
Unfortunately, there’s an education gap that exists within most organizations. Employees may not realize how truly beneficial these savings accounts can be.
This is especially true for the newer members of the workforce — Millennials and Gen Z employees who are fresh off their parents’ insurance might not understand the benefit of having an HSA for example, and might just see it as less money in their paycheck each month. What they don’t realize is that they’re still making that money, but it won’t be taxed and it’ll be put in a unique account that they’ll be able to use for unforeseen expenses, like hospital visits, expensive prescriptions, copays, and more.
We need to shift the narrative from "that's less money in my bank account each month" to "that's my ever-growing savings account that I don't even need to think about but will be there for me in case of emergencies."
To drive contributions to these savings accounts, employers and HR teams will need to focus on bridging the education gap and giving employees the confidence to elect the right benefits and make the right contributions for themselves and their families. HR teams can educate employees on not only what the savings accounts are, but also provide real-life scenarios that depict how employees can use and benefit them.
However, building and disseminating this education can be increasingly difficult for employers who have thousands of employees that may be geographically distributed, work around the clock, and have different health, financial, and family structures. This is where a decision support tool for benefits can come into play.
What is decision support?
In short: decision support tools help people make better decisions. So benefits decision support tools help employees choose the right benefits during enrollment.
Benefits decision support technology can help alleviate HR burden and save organizations time and costs associated with benefits enrollment. A decision support tool can provide employees with unique education about the benefits that are being offered to them, and help arm them with the tools and confidence to make the best decisions for themselves and their families during enrollment.
Nayya, for example, takes employees through a short questionnaire to understand their needs and goals. From there, it educates employees on the right benefits for their unique situation. If the employee would best benefit from an HDHP, Nayya will explain to them why an HSA goes hand in hand, and why they should consider contributing to an HSA. Nayya also offers real-life scenario planning to help employees understand how contributions will accumulate and how they can use the HSA down the line.
By introducing a decision support tool during enrollment, employers can demonstrate the value of pre-tax savings accounts to their employees, and ultimately drive up participation and contributions to these accounts.
Nayya has saved organizations over $17 million in payroll taxes to date. In a world where saving the company money very seldom benefits the employees, and an economy where inflation is running rampant, driving up contributions to these types of accounts is one of the few win-win options.
If you’re ready to learn more about how Nayya can help educate employees, create benefits confidence, and drive up participation and engagement during enrollment, learn more here.
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