Employer guide
Section 125 plans: preventive-care benefits without adding cost
If you employ 20 or more W-2 people, a Section 125 plan is the mechanism that makes it possible to add preventive-care employee benefits while keeping your margins intact. Here is the plain-language version of how it works and what your business has to do.
The short version
+Employee contributions run pre-tax through a Section 125 cafeteria plan, lowering payroll tax exposure on that portion of wages.
+Those savings generally offset the employer's cost of the preventive-care program — the reason it is described as no net cost to the business.
+It sits alongside major medical, or serves as a first real benefit if you offer none today.
How the payroll mechanics work
- 1. Plan documents are established. The provider drafts the Section 125 plan document and required notices. Nothing changes in your existing health plan, if you have one.
- 2. Employees enroll. Enrollment is voluntary and handled by the provider's team, not by your HR staff.
- 3. Payroll adds a pre-tax deduction line. Your payroll company sets up the pre-tax contribution code once. After that it runs like any other recurring deduction.
- 4. Payroll tax exposure drops. Because those dollars are pre-tax, the wage base used for FICA on that portion is reduced for both sides.
- 5. Ongoing administration is handled for you. Compliance, employee support, and reporting stay with the provider.
Is your business a fit?
| Employees | 20 or more W-2 employees on payroll |
|---|---|
| Payroll | Runs through a payroll provider or bookkeeper |
| Major medical | Not required — works with it or without it |
| Employer cost | Structured to be no net cost to the business |
| Employer lift | One payroll setup plus an enrollment window |
Common questions
+What is a Section 125 plan?
A Section 125 plan — also called a cafeteria plan — is an IRS-recognized arrangement that lets employees pay for certain qualified benefits with pre-tax dollars. Because those contributions come out before federal income tax and FICA are calculated, both the employee and the employer see lower payroll tax exposure on that portion of wages.
+How does a preventive-care program use Section 125?
Employee contributions toward the preventive-care program are run through the Section 125 plan on a pre-tax basis. The payroll tax savings created by those pre-tax contributions typically offset the employer's cost of administering the program, which is why it is usually described as no net cost to the business.
+Which employers are eligible?
Our programs are built for employers with 20 or more W-2 employees on payroll. Part-time and 1099 contractors generally do not count toward eligibility. The program can run stand-alone or alongside an existing major medical plan.
+Does this replace major medical coverage?
No. Preventive-care benefits are designed to sit next to major medical, not replace it. Employers with no current major medical plan often use it as a first meaningful benefit; employers who already offer major medical use it to add value without raising premiums.
+What do employees actually get?
Coverage centers on preventive and wellness services — screenings, telehealth access, counseling, and care-navigation support — delivered through the provider's network. Specific included services depend on the program selected during your review.
+How long does implementation take?
Most groups move from first conversation to enrollment in a few weeks. The employer's lift is payroll setup and an enrollment window; the provider handles plan documents, employee communication, and ongoing administration.
Next step
See the numbers for your headcount
A benefits review is a straight 15-minute conversation — no obligation and no cost. We will walk your payroll math and tell you plainly whether this fits.
Request a benefits reviewPrefer email? keptmargins@outlook.com
This page is general information for employers, not tax or legal advice. Confirm treatment of pre-tax contributions with your CPA or payroll provider before implementing a plan.