Being competitive in the business world today is not just about giving your employees great perks but also a strategic requirement. Another great tool that is not used as much, but also very effective, is a Section 125 plan, commonly referred to as a cafeteria plan. The internal revenue code section 125 allows this plan, whereby employees can pay for their eligible benefits using pre tax dollars, and thus have a lot of tax saving in terms of both employees and employers.
From our experience at Renaissance Advisory, we’ve noticed how a Section 125 plan can benefit a company in the form of increased financial effectiveness, an improved benefit package, and employee satisfaction. In today’s article, we will discuss why using a Section 125 plan makes a lot of sense in regards to investment for the business owners of any size.
Understanding Section 125 Plans
A Section 125 plan enables employees to allocate a portion of their salary pre-tax to cover qualified benefits. These plans are structured to meet the IRS’s strict compliance requirements, but when implemented correctly, they offer many benefits.
Standard pre-tax options under a Section 125 plan include:
- Health insurance premiums (including medical, dental, and vision)
- Flexible Spending Accounts (FSAs) for medical or dependent care expenses
- Dependent care assistance programs
- Group-term life insurance premiums (up to $50,000 in coverage)
- Health Savings Account (HSA) contributions, if paired with a high-deductible health plan
Lower taxable income means that employees now have more take home pay and the employer saves huge taxes on the payroll. These plans appeal to companies seeking cheap ways of improving benefits without raising gross wages.
The Employer Advantage: Tangible Tax Savings
The apparent financial upside is the primary motivator for most employers to implement a Section 125 plan. The pre-tax contributions made by employees reduce the company’s obligation to pay:
- Social Security tax
- Medicare tax
- Federal and state unemployment taxes
This typically equates to an average employer savings of 7.65% on every dollar of pre-tax contributions made through the plan.
Realistic Example:
An additional $100K of pre-tax contributions if 50 employees contribute $2,000 each annually to benefits through a Section 125 plan. With 7.65% payroll tax rate the employer saves a dollar 7,650 per year without altering salaries of employees or health cover.
For businesses with a larger number of employees or contributions, these savings accrue rapidly. Companies with more than 100 employees can save $60,000-$80,000 in payroll taxes every year, a high impact cost-cutting measure with a long term advantage.
Enhancing Employee Satisfaction and Retention
Tax savings aren’t the only advantage. A well-structured Section 125 plan also increases the value of your benefit offerings without increasing your costs. When employees can keep more of their paycheck and reduce out-of-pocket healthcare expenses, they’re more likely to view their benefits as generous and supportive.
This directly affects:
- Retention rates – Employees stay longer when they feel their employer supports their financial and health needs.
- Recruitment appeal – Prospective hires often weigh benefit packages heavily when choosing between job offers.
- Workplace morale – Less financial stress can improve focus, result in fewer missed days, and result in higher productivity.
For small and mid-sized businesses competing with larger companies for talent, implementing a Section 125 plan can be the differentiator that makes your offer more compelling.
100% IRS Compliance and Minimal Disruption
A common misconception among business owners is that implementing a cafeteria plan requires overhauling their current benefits system. That’s not the case, especially with guidance from Renaissance Advisory.
Our process ensures:
- No disruption to existing employee health insurance or benefit structures
- 100% IRS-compliant documentation and procedures
- Minimal internal workload thanks to our fully managed implementation process
You don’t need to be a tax expert or HR specialist to set up a Section 125 plan. Renaissance Advisory handles the compliance, calculations, and communication with your team, making it a smooth and efficient process from start to finish.
Why Renaissance Advisory?
Renaissance Advisory is not your average consultancy. We specialize in helping businesses access overlooked savings through proven strategies like Section 125 plans, all with a 100% contingency-based model. That means:
- No upfront fees
- No cost unless savings are delivered
- Clear, measurable ROI for every engagement
We serve as a true partner, focusing on maximizing your tax efficiency without adding unnecessary administrative burdens. We tailor our service to your existing infrastructure from initial analysis to implementation and support.
Our advisors have worked with businesses across industries, helping them unlock savings while enhancing employee benefit strategies. Most importantly, we believe in transparency, compliance, and results, not gimmicks or generic advice.
The Bottom Line: A Low-Risk, High-Reward Strategy
Implementing a Section 125 plan is one of the most effective—and underutilized—ways employers can increase financial efficiency without cutting benefits or increasing wages. Backed by Internal Revenue Code Section 125, these plans are legitimate, IRS-recognized vehicles for reducing payroll tax burdens.
Here’s what you gain with a Section 125 plan:
- Immediate payroll tax savings
- Higher employee take-home pay
- Improved retention and morale
- No disruption to current plans
- Full IRS compliance
- Expert management and setup support from Renaissance Advisory
If you’re a business owner looking to add long-term value to your company while improving your bottom line, now is the time to act.
Ready to See What You Could Save?
Book your 10-minute consultation today to discover how much your business could save through a compliant, custom-designed Section 125 plan. Renaissance Advisory will guide you every step of the way.
Talk to an advisor today or visit our website at https://renaissance-advisory.com.