Employee Benefits: Reimbursement of Dental Costs- Policy Thoughts?

One of the implications I can think of is how it will be reported on the employee's W-2. It may cause the employee's taxable income to increase, being in California as your company is, that is federal and state tax implications.

Also, what will the company do, in its policy, if an employee has dental work done under their personal plan, then quits before your company reimburses the costs, will the company be responsible to pay for the policy since when the work was performed the individual was an employee? Or will the reimbursements stop the day an employee decides to leave?

Here is my question, rhetorical nonetheless, but if an employer is generous enough to pay for a policy why in the world would an employee not want to take advantage? It is essentially free money, with the expection of big dental items, even to that extent insurance policy pays quite a bit normally. If you were in Alabama I could understand the dental insurance issues...but that is a whole other joke, not appropriate for a professional discussion board.

You need to understand the taxation of these dental benefits before you make any changes. Depending on whether your company has a Section 125 Cafeteria Plan and how you're dental plan was set up, then the employer’s reimbursement of the current dental reimbursements and the proposed dental premiums might, or might not, be taxable to the employees. Under traditional insurance arrangements with a Section 125 Cafeteria Plan, employer paid insurance premiums are not taxable to the employees, and the employee’s portion of the premiums are paid with pretax dollars, which lowers their overall income tax bill. Depending on your current situation, and how you set up their premium reimbursement, you could change the taxation of the dental insurance for better or worse, and this could greatly affect the net economics to your employees. You need to get your HR and tax advisers to evaluate the current and proposed alternatives before making changes.

Agree with Mike on this. Your broker should be able to help you navigate these questions. May also want to consider what happens if you happen to hire outside the Republic of California as well. If it is in your near term plans, make sure the broker or tax advisers are thinking ahead for that as well. Good luck.