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Are Your Employees Aware of the FSA Grace Period?

Employee Benefits

If you've included a health flexible spending account (FSA) in your company's employee benefit plan, you’ve also made the choice between using a grace period or a carryover option. If you’ve elected for the grace period, this means that employees can use their unused account balances to pay for medical costs incurred during the first 2.5 months of the next plan year (up to March 15 for calendar year plans) before they must forfeit the money.

HR and employee benefits professionals may be familiar with these important details about FSA plans, but many employees may not be as familiar. Here are some tips HR teams can use to empower employees to use their FSA to its maximum advantage throughout the calendar year and into the grace period.

Educate your employees. "There can be a negative connotation with 'use it or lose it' and people may not understand how an FSA works," says Janelle Rodriguez, Paychex HR consultant. She recommends employers develop a year-round strategy focused on FSA education. At minimum, you may want to send FSA reminders semi-annually or quarterly, and include information about the FSA grace period that applies to the calendar-year plan.

FSA grace period misconceptions

Avoid jargon. As mentioned above, an FSA grace period is often referred to as the "2.5 month grace period." This may make perfect sense to HR professionals, but your staff may be confused by such types of industry jargon. "When explaining the details of the FSA and how it works, use layman's and/or simplified terms," says Rodriguez. When you communicate the details of the FSA grace period to employees, for example, describe it using dates and deadlines. Be specific about which actions are required and when, such as: "Your 2017 FSA grace period requires that you use existing 2017 FSA funds before March 15, 2018. Otherwise, you will forfeit remaining 2017 contributions made to the account."

Provide helpful tools. Rodriguez suggests resources like the Paychex FSA enrollment material, which offers a list of expenses-at-a-glance for enrollees to review. "Paychex partners with the FSA Store, which also provides an expansive list of items that are FSA-eligible, while also offering a means for employees to use their funds." She says a quick reference tool (like a one-pager, email list, or web page) listing common items employees can use their FSA funds to pay for is also helpful. "Some of those items can include: office visit co-pays, deductibles, co-insurance, prescription medications, X-ray fees, blood pressure monitors, eye exams/prescribed eyeglasses, and insulin – to name a few," says Rodriguez.

Communicate the benefits of FSAs. Employees may be hesitant to reduce the size of their paycheck by committing to an FSA, even though it can reduce their out-of-pocket medical expenses and provide potential tax benefits. Encourage them to overcome their hesitancy with a combination of empathy, outreach, education, and consistent communication. "Employees love to hear about the FSA tax savings, but they don't want to lose their hard-earned money. Explain how to claim the money, and offer web-based tools and alternatives to reimbursement (such as direct deposit or an FSA debit card)," says Rodriguez. "Employees may shy away from such a great benefit if they don't feel they have enough information to make the leap to participate."

FSA grace period and employees

Make FSA education personal. To ensure employees understand what an FSA can offer, consider what information you would want to know if it were your money on the line. "Checking the employee balances throughout the year is also key to ensuring the employees maximize the use of the benefit," says Rodriguez.

An FSA grace period can mean the difference between lost or wasted funds an employee has put toward an FSA — or an attractive benefit that can reduce medical costs and improve your staff's collective health and wellness. Consider the FSA grace period communication in your ongoing internal HR communications to ensure all employees understand how to use this money-saving benefit for maximum advantage.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.