Flexible Spending Accounts
A Health Savings Account (HSA) is a pre-tax benefit account that allows employees to pay for certain out-of-pocket health care costs, tax-free.
A Dependent Care Flexible Spending Account (DCFSA) or dependent care reimbursement account, is a pretax benefit account used to pay for eligible dependent care services, such as child care, preschool, and before or after school programs.
A Dependent Care Expense Accounts (DCEA) is similar to a Dependent Care FSA; however, a DCEA covers child care and other expenses for dependents, such as care of elderly or disabled relatives.
Employers can contribute money to all three of these accounts for their employees in addition to having the accounts available for employees to contribute to directly.
Benefits to EmployersFootnote # 1
- Increases productivity
- Reduces payroll taxes
- Improves recruitment
- Increases retention, reducing turnover costs
- Eases administration Improves morale
Benefits to ChildrenFootnote # 2
- Improves health, through increased access to health care, including primary care, dental care, needed healthcare services, mental health care, prescriptions, preventive care, treatment for chronic conditions, prenatal care (for mothers)
- Improves education and cognitive development by making child care more affordable
Benefits to Parents/FamiliesFootnote # 3
- Improves health, through increased access to health care, including greater access to primary care, preventive screenings, ambulatory care, prescription medications, and chronic disease care; greater medication adherence; and higher rates of diagnosis
- Reduces stress
- Improves work/life balance
- Reduces depression
- Improves self-reported health
- Improves family economic security
Research or Recommendations from National Organizations
Employers who want to set up a health flexible spending account should:Footnote # 4,Footnote # 5
- Understand the benefits and the risks. Tax savings and the ability to write off some administrative costs as normal business expenses make FSAs attractive to employers. However, employers should understand rules around reimbursing expenses, which can bring some risk.
- Get help. Employers should use a third- party administrator to establish and manage accounts. Record-keeping requirements can be extensive, and third- party administrators are relatively low cost. Plus, having an external administrator protects potentially sensitive employee health information by keeping that information away from coworkers.
There are four options to help you set up FSAs for employees:
- Use an online software that also offers FSA benefits. This is best if you’re currently only doing payroll and want to add benefits with little additional expense.
- Contract with a professional employer organization, which allows you to give your employees benefits similar to those of a large company.
- Work with a private insurance broker that offers FSAs along with health insurance.
This is best if you’re already working with a broker and don’t mind doing administrative work. Brokers likely won’t manage enrollment paperwork and payroll deductions. - Use a large insurance carrier, who also can help manage FSAs. This works best if you use a large healthcare company to provide your health insurance. You can ask your carrier to add on an FSA option.
Often, employees who do not sign up for a flexible spending account or dependent care account do not participate because they are confused about the benefit or unaware of it. Below are some guidelines to help educate employees on the benefits of each account.
For FSAs:
For dependent care accounts:
Range of Practices in the United States
- According to the Bureau of Labor Statistics, 43 percent of all workers had access to a dependent care reimbursement account in 2021, and 47 percent of all workers had access to a health care savings account. Footnote # 6
- But only 12 percent of workers in the lowest income bracket have access to a dependent care account, and only 13 percent of workers in the lowest income bracket have access to a health savings account.Footnote # 7
- Employers can contribute to their employees’ dependent care accounts, but there are maximum total contribution limits. Typically, those limits are $5,000 for single taxpayers and married couples filing jointly or $2,500 for married people filing separately.
- Employers can also contribute to health savings accounts, but there are limits to total contribution there, too. In 2022, the annual inflation-adjusted limit on HSA contributions will be $3,650 for solo coverage and $7,300 for family coverage.
- Typically, employees pay for care out-of-pocket and then are reimbursed through their flexible spending accounts. This can be challenging for employees who cannot afford the cost of care out-of-pocket, so employers should consider offering additional support in conjunction, such as vouchers or subsidies, for dependent care needs.
Case Study
Location: Wilmington • Year Founded: 2004 • Number of Employees: 262
When N2 Publishing (N2) began searching for new office space in Wilmington, they took an unusual approach: they first polled their local team members to find out where everyone lived. They then looked for a location that was within one mile of the median of everyone’s address. Although that placed the company in a more expensive area, team members had voiced the opinion that having a short commute was important to them, so Duane Hixon and Earl Seals, the company’s founders, listened.
N2 creates more than 900 customized monthly magazines for communities around the country. The popularity of their publications is soaring; the company has experienced 220 percent growth in the last three years and added nearly 100 team members in the last two years.
Seals and Hixon founded N2 with the firm belief that a company can and should support the physical, financial, family, and personal/ professional well-being of its team members. This belief in supporting the whole person is what drives the company’s culture and benefits.
“It’s hard to speak about culture and benefits separately—they work in tandem to create the team that we have. We are a people-first company,” says Suzanne Baker, a benefits specialist.
Many of N2’s newest team members are starting their own families, and the company has embraced this shift in their demographic in several different ways.
One of the most significant ways is through a partnership with Dockside Pediatrics—a membership-based direct primary care medical clinic in Wilmington that focuses on providing personalized pediatric care. N2 pays Dockside’s monthly enrollment fee for each team member with children. The fee covers all well-child visits, unlimited sick visits, in-home newborn visits for the first two months, and unlimited access to a physician until a child turns 18. There are no copays for routine care.
For John Freshwater, a member of the Talent Acquisition team, and his wife, who had their second child on January 25, 2018, enrollment in Dockside Pediatrics has been incredibly valuable.
“For our first child, I remember going to a doctor’s office for the newborn visits,” says Freshwater. “It was worrisome to pack up a newborn and head into an office with other sick children. With our second child, a physician from Dockside came to our house.”
Physicians from Dockside come to N2 for Lunch and Learns and are available to answer questions or concerns 24 hours a day, seven days a week. “My wife texts the physicians as often as she needs to and having that outlet has been very beneficial,” says Freshwater.
Freshwater also takes advantage of another relatively new benefit, the Parent Support Group. “I can bring up any topic that might be stressing me out as a parent,” says Freshwater. “It’s a concerted effort on behalf of a bunch of people who have this feeling that maybe we don’t really have it all together, so we try to give and receive as much information and encouragement from one another as we can.”
Helen Walsh, product manager on the Technology team, started the Parent Support Group soon after having her second child. N2 was a younger company at the time and there weren’t many other parents. She had helped the HR team create a guide for leadership on how to support team members coming off of parental leave, and through the process she realized she herself needed more support.
“It’s hard to speak about culture and benefits separately—they work in tandem to create the team we have. We are a people-first company.”
“When I came back to work, the group didn’t exist,” explains Walsh. “My team leader was fantastic, but it was still a difficult time. I was exhausted, worried, and parenting was all-consuming. I didn’t have enough of an outlet to share those concerns, and if you’re struggling in your personal life, it impacts everything.”
Soon after there was an explosion of new moms and dads and everyone started talking, sharing, and commiserating. “We were having all these side conversations and it was apparent that it would be fantastic if we could all just get together,” says Walsh.
And as for the cost to the company, it is minimal. The group meets once a month before work or during lunch hours.
Topics range from temper tantrums to making baby food to the holy grail for all new parents: sleep. The group is comprised of roughly equal numbers of men and women. And team members who are expecting a child or planning to have a child in the future are also welcome to join.
“Once I could discuss the worries of being a new parent, I could put that anxiety aside and focus on my job. It helped me a lot,” says Walsh.
Through the group, Walsh has met people in the company that she didn’t know before and she continues to receive positive feedback from attendees.
Adds Freshwater, “I’m a parent and a professional, and at N2 I can be both.”
Sample Benefits at N2 Publishing
- Medical insurance; Health Savings Account; access to voluntary dental, vision, accident, disability, and life and AD&D insurance; Dockside Pediatrics Care Program; nutrition counseling and health coaching; daily fitness classes and access to one-on-one fitness consultations
- 401K retirement plan; free financial planning services; first-time homebuyer program to supplement a down payment
- Annual marriage stipend to support counseling or marriage enrichment seminars
- Parent Support Group
- Two weeks of paid paternity leave and six weeks of paid maternity leave
- Dependent Care Reimbursement Account
- Paid time off commensurate with length of employment ranging from one to three weeks; eight paid holidays per year; two weeks off in December
- Leadership and professional training courses through N2 Academy
- N2 Volunteer Group
- Bimonthly Lunch and Learns