A Different Way to Give Your Guards a Raise – Without Raising Payroll
Bruce Monteith, ProVision Health, CALSAGA Associate Member
For most California security companies, labor is the business.
Your officers are your largest expense, your most important asset, and increasingly, one of your biggest operating challenges. Wages continue to rise. Recruiting is difficult. Turnover is expensive. At the same time, many security companies operate on margins that make simply increasing wages by another $1 or $2 per hour difficult to absorb.
So what if there were another way?
A properly structured Section 125 wellness program can potentially increase an employee’s take-home pay, provide meaningful healthcare benefits to employees and their families, and reduce an employer’s payroll-tax expense – without requiring the security company to increase its payroll budget.
That sounds almost too good to be true. Which is exactly why it deserves a closer look.
What Is a Section 125 Wellness Program?
Section 125 of the Internal Revenue Code allows employers to provide certain qualified benefits on a pre-tax basis.
When a program is designed and administered correctly, participating employees can reduce the amount of compensation subject to certain payroll taxes while receiving qualified benefits.
The employee benefit is fairly easy to understand: more money can remain in the employee’s paycheck.
In a typical program we see, the increase in take-home pay can average approximately $200 per month for a participating employee.
For a security officer working full time, the economic effect can be similar to receiving roughly a $1.75-per-hour increase in gross wages, depending on the employee’s individual tax situation.
Think about that for a moment.
A security company may be able to give a substantial portion of its guard force the financial equivalent of a meaningful raise – without actually increasing the company’s hourly wage scale.
In an industry fighting every day to recruit and retain good officers, that deserves attention.
The Employer Can Benefit Too
The economics do not stop with the employee.
Because properly structured pre-tax benefits can reduce taxable payroll, the employer may also reduce certain payroll-tax expenses.
Using a simple example, assume a security company has 100 eligible guards and approximately 60% participate.
At roughly $900 in annual employer savings per participating employee, that could produce approximately:
$54,000 per year in employer payroll-tax savings.
At the same time, those 60 participating guards could collectively receive approximately:
$144,000 in additional annual take-home pay.
That is an unusual combination: improving employee compensation while also improving the employer’s bottom line.
And the benefits do not stop there.
Meaningful Benefits for Employees and Their Families
A well-designed program should provide real benefits people can actually use – not simply a tax mechanism with a benefits label attached to it.
In the PH125 structure, the participating employee receives an insured hospital indemnity benefit. In addition, participating employees and their families receive access to a broader package of healthcare services that can include:
- Virtual primary care
- Virtual urgent care
- Behavioral health and counseling
- Approximately 1,000 covered prescriptions
- Approximately 80 covered laboratory tests
- Care navigation and other healthcare support That family component matters.
For many hourly workers, the real value of a benefit is not simply whether they personally can use it. It is whether their spouse or children can access care when they need it without another large out-of-pocket expense.
At a 60% participation level, a company with 100 eligible guards could potentially provide these supplemental healthcare resources to approximately 60 participating employees and their families.
That makes this more than a paycheck strategy.
It becomes part of the company’s overall compensation, benefits and retention strategy.
But Not All Section 125 Programs Are Created Equal
This may be the most important point in this article.
If someone describes a Section 125 program as “free money,” be skeptical. Your skepticism is doing its job.
These programs involve tax law, benefit-plan rules, payroll administration and documentation. They need to be structured correctly.
Before implementing any program, a security company should ask some basic questions:
Has the structure been independently reviewed by qualified tax and legal professionals?
Are the underlying benefits legitimate qualified benefits?
Are the plan documents, payroll procedures and employee communications properly structured?
Who is responsible for administration and ongoing compliance?
What financial protection exists if the tax treatment is later challenged?
That last question is particularly important.
Some providers simply offer an opinion that their structure complies with the Internal Revenue Code. More robust programs go further.
For example, the PH125 program we work with includes independent legal and tax review and also incorporates tax-indemnity insurance designed to cover specified tax liabilities, penalties, interest and defense costs, subject to the terms, conditions and limits of the policy.
That does not eliminate the need for proper compliance. It adds another layer of financial protection behind it.
For an employer considering any Section 125 strategy, that distinction matters.
Why Security Companies Should Pay Attention
Private security may be one of the industries best suited for this type of strategy.
Security companies employ large numbers of hourly workers. Margins are tight. Wage competition is intense. Benefits are difficult to provide economically. And employee turnover remains one of the industry’s most persistent problems.
That creates a difficult equation:
Employees need more. Employers cannot simply keep spending more.
A well-designed Section 125 wellness strategy can change that equation.
Imagine being able to tell your workforce that participating employees can increase their take-home pay, receive an insured hospital indemnity benefit, and give their families access to meaningful healthcare services – while the company itself may reduce payroll-tax expense.
That is not the same as simply adding another benefit. It is a different way of looking at compensation.
It will not solve every workforce problem. It will not replace good management, competitive wages or a strong culture.
But if a security company can increase employee take-home pay, provide useful benefits to employees and their families, and improve its own bottom line at the same time, it is at least worth understanding.
For many companies, the biggest mistake may not be deciding against one.
It may be never running the numbers in the first place.
To learn more or request a confidential financial impact analysis for your company, contact Bruce Monteith at [email protected] or 609-977-7925.