Either the employer or the employee may pay the administrative fee associated with an HSA. The question is which one. There is no right answer, but here are some thoughts.
Employer payment of the administrative fee will certainly encourage employees to contribute to an HSA.
When employees make contributions to an HSA through a Section 125 Plan, the employer does not match FICA, Medicare, or pay Worker’s Comp premiums (in Ohio) on those contributions. This saves the employer approximately 8% on amounts contributed to the HSA. It is quite probable that the employer will save more in payroll tax savings than the total amount of fees paid on behalf of HSA participants.
Many administrators electronically withdraw monthly administrative fees directly from the HSA owners’ HSA account. Unfortunately, this method decreases the amount that can be used to pay expenses by the amount of the fee. There may not be an additional deposit to cover the amount of the fee. This is not viewed positively as participants want the maximum possible amount to go into the account.
A Better Way
Regardless of whether the employee or employer pays the fee, the FlexBank HSA method of fee collection allows for the greatest amount of flexibility. Each month FlexBank electronically draws administrative fees from the employer ….. not from the HSA owner’s account balance. It is the employer’s choice as to who actually pays the fee. If the fee is to be paid by the employer, then nothing further needs to be decided.
If the fee is to be paid by the employee, the employer merely withholds the monthly fee on a per pay period basis. Fees may be paid by the employee on a pre-tax basis through a Section 125 plan sponsored by the employer.
The FlexBank HSA Advantage
|The fee may be withheld in one of two ways.|
|a) The fee may be withheld in addition to the amount of the elected contribution. This permits the maximum deposit into the HSA (please note, if the withholdings are being made on a pre-tax basis, the amount reported on the employee’s W-2 should not include the amount paid for fees … you should create an additional withholding field for fees pre-tax or lump the fee amount in with premium); or|
|b) the fee may be included in the total withholding and subtracted from the amount that is deposited into the HSA; or|
|c) the fee may be included in the amount charged for the health insurance premium.|
The decision as to who pays and how is up to you.