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Reasons Why You Should Offer Your Employees a Flexible Spending Account

Lauren Hargrave · June 7, 2022 · 5 min read


Compiling a benefits package that’s both cost-effective and beneficial to your employees is one of the most important endeavors a business can take on. Yes, there’s a cost to offering your employees adequate and supportive benefits. But there’s also a cost to not offering said benefits. Both to your talent pool and to your bottom line.

By offering your employees a Healthcare, Dependent Care, and/or Limited Purpose Flexible Spending Account (FSA), you can help them pay for the rising costs of life so they’re more likely to show up for work and be happier while they’re there. This can help save your business money in terms of less time lost to productivity and employee absences, as well as lowering wage-related costs for employees who participate. Offering an FSA is a win-win for employers and employees alike.

What is an FSA?

An FSA is a savings account into which employees deposit tax-free money directly from their paycheck. They can then withdraw this money to pay for expenses related to their specific account. Deposits to Healthcare FSAs can be spent on health and medical-related expenses, deposits to Dependant Care FSAs can be spent on childcare and adult day care expenses for dependents that allow the employee to work, and deposits to commuter benefits accounts can be spent on commute-related expenses like bus fares.

Both employees and employers can contribute to FSAs up to the IRS annual limit. Any unused funds left over in the accounts are forfeited at the end of the year unless the employer chooses to allow employees to either roll over up to $550 to the following year, or a 2.5 month grace period in which to use the funds. Any rolled over amount will not affect the employees’ annual limit that following year.

What are the benefits for employers?

The benefits to employers for offering any of the above-mentioned FSAs are financial as well as cultural. By allowing employees to divert a portion of their taxable income to a tax-free account, employers save money directly on wage-related costs. They also have another recruiting tool at their disposal as well as a low-cost way to support current employees.

FICA tax savings

Since employees’ FSA contributions are deposited before taxes are assessed, employers save payroll taxes on that money. The average employee contribution to a Healthcare FSA is $1,350/year. If you apply the 7.65% payroll tax to that amount, employers save $103/participating employee/year in FICA taxes. The average cost of offering an FSA is $60/participating employee/year, so businesses net $43/participating employee/year. The net profit to employers that offer Dependent Care FSAs is even higher at $185/participating employee/year.

Employers also save money on other wage-related expenses like unemployment and worker’s compensation insurance.

Reduced costs due to lost productivity

The sicker your employees and less access they have to reliable (and affordable) childcare, the more it will cost you in terms of lost productivity. American businesses lose an estimated $12.7 billion a year because of employees’ child care challenges and in 2019 alone, sick days cost U.S. businesses $575 billion.

By providing employees with a tax-free way to pay for health and child care expenses, you help make that care more affordable. If the expenses are more affordable, employees are more likely to seek medical care when they need it, which helps prevent a mild illness from turning into something more serious, and they’re more likely to have child care that’s reliable. Both of which help ensure they reliably show up to work.

Attract top talent

As employees quit their jobs in record numbers, employers are competing to hire top talent, and benefits are a key consideration for perspective employees. According to Lively’s Wellness and Wealth report, 70% of job seekers consider benefits as the #1 consideration in taking a job along with a competitive salary. In addition, 76% of large businesses and 23% of small businesses already offer employees an FSA. And So if you’re not already offering an FSA to your current and prospective employees, you’re recruiting at a disadvantage.

Boost employee retention

Employees who feel supported are more likely to be happier at work and less likely to leave. But beyond general happiness, women especially are more likely to stay in the workforce if they have affordable access to childcare. Currently making up 46.6% of the U.S. workforce (which has fallen from 50.4% of the workforce just 3 years ago), women are more likely to take on unpaid child care duties that can restrict their ability to rise in their careers or even work at all (32% of working women are mothers to children under 5).

Providing families a more affordable way to pay for child care helps keep your female talent working and rising through the ranks at your company. This not only helps company culture but can also help foster growth, improve your products and more.

How do I choose an FSA provider that is best for my company?

The best FSA provider for your company is the one that can meet the needs of most of your employees at an affordable rate. If your employee demographic skews younger, you’ll want one that offers a modern approach. This includes: debit cards for POS purchases, an app for easy account management, and other high tech features. If your employee demographic skews older, you’ll want an FSA provider that offers comprehensive employee education and customer support. The ideal FSA provider offers all of the above.

Get started with Lively

To find out how Lively can help you compile a comprehensive benefits package that lowers your yearly employment costs and helps you recruit and retain talent, reach out today!

Lauren Hargrave

Lauren Hargrave

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session can cure almost any bad mood. She’s also been writing her first novel for so long, her mom doesn’t ask about it anymore.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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