Flexible Benefits With Section 125 Plans
Section 125 Plans, or Cafeteria Plans, let employees use pre-tax dollars for eligible expenses like health insurance, dental, vision, and dependent care. Employees save on taxes, and employers reduce payroll costs — everyone wins!
Understanding Section 125
Section 125 Plans let employees pay for benefits with pre-tax dollars, reducing taxable income and saving money for both employees and employers.
Qualifying benefits include:
- Health Savings Account (HSA) contributions
- Flexible Spending Account (FSA) contributions
- Premium Only Plans (POP)
- Group health
- Some retirement plan contributions (401(k) deferrals)
- Life insurance
- Short and long-term disability insurance
- Dependent care assistance
Understanding Premium Only Plans (POP)
A premium only plan (POP) is a section 125 plan that lets employees pay health insurance premiums with pre-tax dollars, reducing their taxable income. Our benefits experts will help you determine which FSA or section 125 plan works best for your business needs.
What's Included in Your FSA Plan
Get everything you need for seamless FSA administration, from initial setup to ongoing support.
Setup and Administration
FSA setup, daily claims processing, expert support line, and dedicated account management
Flexible Plan Options
Carryover or grace period options, customizable plan designs, and multiple FSA types available
Convenient Access for Employees
Easy access via mobile app, online portal, and responsive support line
Ready To Offer Pre-Tax Benefits? Here's How
Many of our HR and payroll packages already include Section 125 Plans — and if not, they’re easy to add. Whether included or optional, it’s an easy and flexible way to offer pre-tax benefits that align with your business needs.
Seamlessly Integrate Section 125 With Your Payroll
Manage employee benefits effortlessly with Paychex Flex® payroll integration. Automate premium deductions, streamline data transfers, and minimize errors — all within a single employee record.
How To Get Started With FSA/Section 125
Customized Plans and Pricing Just for You
We’ll create a tailored solution that meets your unique needs and budget, ensuring the perfect fit for your organization.
Pay Your Employees & Set Up Their Benefits
Easily manage employee payments and benefits with our seamless setup process, designed to save you time and effort.
Maximize Your Business Potential With Paychex Solutions
Empower your business with seamless, integrated services — all on a single, user-friendly platform.
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Frequently Asked Questions
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What Is Section 125?
What Is Section 125?
Section 125 refers to a section of the U.S. Internal Revenue Code that allows employers to offer employees a cafeteria plan. These plans enable employees to choose between different types of benefits, such as health insurance or retirement contributions, on a pre-tax basis.
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What Does A Section 125 Plan Do?
What Does A Section 125 Plan Do?
A Section 125 plan provides employees with the option to pay for certain benefits, like health insurance premiums, out-of-pocket medical expenses, and dependent care, using pre-tax dollars. This reduces taxable income, which can lower both the employee's and employer's tax liabilities.
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What Is A 125 Compensation Plan?
What Is A 125 Compensation Plan?
A 125 compensation plan, known as a cafeteria plan, lets employees customize their benefits package by choosing from a menu of pre-tax benefit options. These often include health insurance, dental and vision coverage, dependent care, or flexible spending accounts.
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What Plans and Benefits Are Included in Section 125 Plans?
What Plans and Benefits Are Included in Section 125 Plans?
Section 125 plans allow reimbursement for qualified expenses, including medical, dental, vision coverage, and dependent care. Options like a Premium Only Plan (POP) help make healthcare more affordable for employees.
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Do I Need a Section 125 Plan?
Do I Need a Section 125 Plan?
Determining whether a Section 125 plan is right for your business and employees requires careful consideration. Consulting a benefits specialist or HR professional can help assess your specific situation.
- Employee tax savings
- Reduced employer payroll and tax liabilities
Additionally, an HR professional can guide you on POP (Premium Only Plan) options, which allow pretax deductions for health insurance premiums. This can help you decide if this type of plan aligns with your company’s needs.
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Who Is Ineligible to Participate in a Section 125 Plan?
Who Is Ineligible to Participate in a Section 125 Plan?
The following individuals are generally ineligible for Section 125 plan participation:
- Non-employees
- Self-employed individuals
- Partners in a partnership
- LLC members
- Shareholders owning more than 2% in an S corporation (2% owners are treated as partners in a partnership)
For further details on Section 125 eligibility, consult your HR professional or benefits administrator.
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How Do You Set Up a Section 125 Plan?
How Do You Set Up a Section 125 Plan?
Paychex streamlines the process by providing legal documentation, compliance testing, and status reports to ensure smooth administration of your POP and FSA plans.
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How Much Does It Cost To Set Up A Section 125 Plan?
How Much Does It Cost To Set Up A Section 125 Plan?
The cost of setting up a Section 125 plan can vary depending on the size of the company and the complexity of the plan. Typically, 2025 setup fees range from $500 to $2,000, with additional ongoing administrative costs. Some providers may charge per employee or as part of a benefits package.
