Posts Tagged ‘Employee Benefits’

Protection, Benefits & Accountability: Smart Planning for Start Ups and Small Business

Monday, August 6th, 2012


Protection, Benefits & Accountability may not be at the forefront of new and small business owners’ minds, but they should be.

 

Often ignored and/or glossed over by startups, these components are an essential part of basic business planning and can make the difference between success growth and failure.

 

You know the old adage: No one plans to fail, they just fail to plan. Use this overview to kick start your protection, benefit and accountability planning:

 

Equity Protection

 

New businesses often start with no consideration for the “What Ifs”.  What if my partner wants/needs to quit the business unexpectedly? What if my partner becomes incapacitated? What if my partner suddenly dies? A lack of planning for unforeseen circumstances such as these can literally ruin a business overnight.

 

In the case of unexpected death, when one partner passes away within a 50/50 ownership agreement, the deceased partner’s heirs would then become entitled to the deceased’s 50% share. Would this be an acceptable arrangement to you as a surviving partner? Typically, this would not be an acceptable arrangement. The last thing a start up business should have to bear is paying out to someone who is not contributing to the business, in this case, heir(s).

 

This is why smart planning also includes Buy Sell Agreements. Buy/Sells are like prenups for business – legal documents which site a buyout price for remaining partner(s) in the event of a departure/disability/death of another partner. They are typically funded by purchasing life and/or disability insurance to cover the predetermined agreed to buyout amounts.

 

►Examine all potential exit reasons thoroughly and be prepared for them.

 

Property and Liability Protection

 

Equally important to insuring buildings, equipment, and product lines, new businesses should make sure they properly protect themselves from lawsuits. People generally embrace adequate property protection but they rarely lend the same credence to liability protection – this goes for individuals too.

 

Unfortunately, in our litigious society, liability protection is something that must not be ignored because situations like these can arise quickly without warning and ultimately have a tremendous impact on your business.

 

A simple example of this type of situation could happen if an employee gets into an accident during working hours. Your company could be found liable – though the accident is no fault of your company – simply because of the employee’s affiliation with your company.

 

Industry statistics provide that businesses will bear the most financial burdens from liability issues versus the costs of property replacement.

 

►Seek the right amount of liability protection needed to fully protect your business.

 

Retirement Planning

 

Most people have heard of the terms: 401(k), IRA, SIMPLE, SEP, and Profit Sharing. For new business start ups, the real question is which one is best for your business?

 

Many plans are specifically designed to appeal to certain demographics. A SIMPLE Plan, for example, is by design targeted to small businesses interested in offering a plan but without the IRS compliance headaches of a 401(k).

 

Depending on the wants and needs of the owners and employees, each plan has a specific list of attributes and drawbacks. It is also tough to think about retirement when you’re just starting a business, but that is exactly when retirement planning should be done.

 

Engage in retirement planning at the onset of your journey.

 

Health Coverage

 

As a new business owner, you now have health insurance considerations to keep in mind. Some new businesses opt to not provide coverage for the employees. However, highly qualified employees often require this benefit in order to consider working for an employer – do not overlook the possibility.

 

Cash Options – Employers can opt to give a cash stipend to employees in lieu of health insurance to be used as they see fit. While this is often a great option for young and healthy employees, it can prove problematic for a potential employee who may not be able to qualify for individually underwritten plans.

 

Group Health Plans – Starting a group health insurance program is the other alternative: group health plans guarantee coverage for all in the group regardless of underlying health conditions. However, it is equally important to understand that insurers can rate the entire group above the standard cost range depending on the underlying conditions of members within the group. Group coverage also requires a certain percentage of eligible employees participate in order for the group to be issued and operated.

 

If you choose to go the group health plan route, the different types of coverage should then be explored: HMO, PPO, Point of Service, Indemnity. Considerations for, optional dental, long-term disability, short-term disability and long-term care should also be made.

 

Select a health plan which best serves your company objectives first.

 

Books, Banking, Tax & Law

 

Technology makes accounting, banking and tax transactions easier to record, budget and track today. Knowing what to look out for and ask about on the other hand, can easily remain under the radar.

 

If you opt for using accounting and payroll services, consistent examination of your records is still a necessity. Regardless of who does your books; your business will bear the liability of errors in reporting, depletion of funds, penalties, etc.

 

Choosing an accommodating bank is imperative: Will they process credit cards for you? Provide a line of credit when you need it? Are they fee crazy? Are they the type of bank known for working with new and small businesses?

 

Pending the legal structure and nature of your business, all potential tax liabilities should be examined at the state, local, and federal levels before you open your doors.

 

Always be aware of how your company records are being booked and tracked.

 

New business owners that can check off these considerations in confidence are heading in the right direction. For those who cannot, do not back burner them – timing can be the difference between success and failure. Seek the professional help you need and build a solid foundation.

 

Additional Reading:

 

Start Up 101 Article Index Inc.com

 

Get a Buy Sell Agreement! Forbes.com

 

5 Tips for Buying Business Insurance Small Business Administration

 

Small Business Healthcare Tax Credit  IRS Newsroom

 

Basic Business Structures Entrepreneur.com

 

Small Business Accounting Library Business Week

 

2012 Business Software Reviews Top Ten Reviews.com

 

Kurt Rusch CLU, ChFC

Questions always welcome!

 

 

 

Health Insurance: Group Vs. Health

Tuesday, January 10th, 2012

 

A client had the opportunity to participate in a group plan through their employer but was somewhat distressed (shocked, actually) at the cost. I asked if they had ever sought out comparative rates in the individual market. Their immediate response was the assumption that group health insurance was less expensive.

 

This was not the first person that I have spoken to that had that impression. In reality, individual and group insurance are two completely different contracts, subject to different rules and are therefore priced differently.

 

Past Trends

Group insurance obtained through an employer is often thought to be the most economical way to obtain health insurance. Unfortunately, this is not always the case.

 

When employers paid for all or most of their employee’s health premiums, group coverage was the way to go in most cases. That was before the explosion of health care costs and economic downturn.

 

Today, while many companies struggle to keep their doors open, the necessity for cost sharing is a must. Employees are being asked to pay a larger share, if not all, of their health insurance premiums.

 

Bearing this in mind, it is beneficial to understand the moving parts and reasons why it may be beneficial to explore the option of obtaining individual insurance rather than group health insurance.

 

Group Pricing

One of the main benefits of obtaining insurance through the group market is that the insurance is guaranteed issue. This means that you can get covered through the plan regardless of any pre-existing health issues. While this is a tremendous positive for someone who has a pre-existing condition, it can be an extra burden for those without:

 

Insurance companies may assess a rating factor that is equally allocated among the participants of a particular group to actuarially account for the acceptance of individuals who may otherwise be excluded from coverage.

 

Translation: If a group is rated up 40% because someone has a preexisting condition, each and every person who obtains their insurance through that group contract will bear a premium increase by that amount. Herein lays one of the reasons why group insurance may not be as economical as one would think.

 

Typically, insurance companies will also have one set rate for single employees, one for employee and spouse and one for families. A 20 year old will therefore be paying the same individual rate as a sixty year old.  Similarly, if you opt for family coverage, your rate is the same whether you have one child covered in the plan or a brood of 10.

 

Individual Pricing

The main drawback on individual contracts is they have to be underwritten. Insurance companies review medical records and coordinate their findings to a list of standard criteria before individual coverage is offered. The upside to the underwriting process is that the cost of claims tends to be lower and therefore can be reflected in lower premiums to younger, healthy people.

 

One of the most attractive benefits of the individual market is the freedom to tailor a plan to suit your personal needs and budget. More affordable premiums can be had by omitting the types of bells and whistles which are sometimes standard to employer paid and subsidized plans.

 

Individual coverage also provides portability. You can take an individual plan forward with you if you leave your current employer by choice, through downsizing, retirement or any other event. Conversely, group insurance will restrict you to 1 year if your company falls under the jurisdiction of Illinois Continuation or 18 months under COBRA.

 

Wrap Up

Common assumptions are often erroneous regarding today’s health insurance costs.

There is no right or wrong choice between individual and group health insurance.

Current trends now dictate the need for thorough examinations of all market options.

 

Kurt Rusch CLU, ChFC