Hired Guns
January 30, 2018

Hired Guns

While claims payments make up the majority of the cost of a benefits plan, there are also fees built in for administering the plan.  It's not unusual for small business owners to ask why they can't just pay for employees' medical expenses directly through the business to save on fees.  The answer is there are costs and risks to the DIY approach, and like most financial decisions it can be to your advantage to have access to professional experience and advice.  Here are four important reasons why you should call in the pros to manage your benefits plan.

Verifying Eligible Expenses

One of the greatest advantages of a benefits plan is that claim payments are tax-free to employees.  To keep this tax-free status, expenses must meet the correct definitions set out in the Canada Revenue Agency (CRA) guidelines.  Do you know whether a backrest support should be reimbursed?  What about over-the-counter pain medication?  What if the pain medication was prescribed by a doctor?  The professionals will know.  A do-it-yourself plan runs the risk of expenses being disallowed.  Employees would then be on the hook for the taxes owing on what should have been a tax-free benefit under a correctly managed plan.

Privacy Considerations

A single business owner managing expenses just for their family may have no privacy concerns.  But once the business expands to include employees, the privacy of each person's claims must be maintained.  In addition to the requirements under the Personal Information Protection and Electronic Documents Act (PIPEDA), no one wants to hand in their prescription receipts to their boss for reimbursement!  By outsourcing your benefits plan to a third party, employees can submit their claims with the confidence that their private information is protected.

Time and Cost of DIY

If you're spending time reviewing and reimbursing employees' medical expenses, you're giving up time that can probably be better spent running your business.  Businesses routinely rely on external professional providers for their expertise, like accounting and legal advice, web development, and marketing to name a few.  Putting your benefits plan management into the hands of a professional provider will save time as well as protect you from potentially costly mistakes.  When evaluating the expense of a benefits plan it's important to remember that the full cost of a properly managed plan is deductible to the business, including the admin fees and taxes.

Corporate Tax Requirements

Processing your company's benefits expenses internally also means correctly calculating and remitting all applicable taxes.  PHSPs in Ontario are subject to provincial insurance tax, premium tax, and potentially HST if it's a self-funded plan.  What percentages are charged on what parts of a benefits plan?  If you get it wrong, incorrect taxation can result in back-charges and penalties at the provincial or federal level. Insurers and professional third party administrators will make sure the applicable taxes are calculated and paid correctly for all benefits included in your plan.

Although it may be tempting to try and avoid administration fees by running benefits expenses through your business, the time it takes away from your core operations and the high cost of potential errors can quickly add up to more than it's worth. Protect your business, your employees, and your time by calling in the professionals to do the job right.  Talk to Beagle Benefits about finding the best provider for your benefits plan.