A Section 125 Premium Only Plan (POP) is one of the most effective and often overlooked ways employers can enhance their employee benefits program while reducing payroll taxes for both the employer and employees.
Many employers in Pennsylvania, New Jersey, Delaware, and across the country use POP plans to give employees a more robust benefits offering, increase take-home pay, and reduce overall tax liability.
With a Premium Only Plan, employees can pay for certain insurance premiums using pre-tax dollars. This can result in employees saving approximately 20–40% on their benefit deductions, while employers can reduce payroll taxes by around 7.65% on those same deductions. These tax savings can be significant for both employers and employees, making POP plans a simple but powerful benefits strategy.
Employers evaluating their overall employee benefits solutions should consider how tax-advantaged benefit strategies can complement their broader benefits program.
What Benefits Can Be Included in a Section 125 POP Plan?
As long as the POP plan is structured to be ACA compliant and integrated with a qualified group health insurance plan, many employee benefits can be paid for on a pre-tax basis, including:
- Medical insurance premiums
- Prescription drug coverage
- Dental insurance
- Vision insurance
- Disability insurance
- Group term life insurance
- Cancer insurance
- Medicare supplement plans
- Hospital indemnity plans
- Accident insurance
By allowing employees to pay for these benefits with pre-tax dollars, a Section 125 plan helps reduce taxable income, which increases net take-home pay and can make benefits more affordable.
Because Section 125 plans involve specific compliance and plan-document requirements, employers should make sure their benefits program is properly structured and administered.
How POP Plans Help Employers With Employee Retention
As healthcare costs, insurance premiums, and out-of-pocket expenses continue to rise in 2026, employers are looking for ways to offer better benefits without significantly increasing costs.
A Section 125 Premium Only Plan can help employers enhance their benefits package while also supporting employee satisfaction and retention.
Employees who have access to better benefits and lower out-of-pocket costs may feel more financially secure and supported by their employer. This can contribute to a stronger overall employee experience.
A comprehensive employee benefits strategy can help employers evaluate healthcare, tax-advantaged benefits, employee costs, and other components of the overall benefits package together rather than treating each benefit separately.
Considering the cost of recruiting and training new employees, offering tax-advantaged benefits through a POP plan can also be one component of a broader employee retention strategy.
A Simple Way to Improve Benefits and Reduce Taxes
Section 125 POP plans are not complicated to implement, but they can provide substantial tax savings and financial benefits for both employers and employees.
In many cases, the tax savings alone can offset the cost of administering the plan.
Employers should also consider how a POP plan fits with their broader payroll and HR processes. For organizations that need additional support coordinating benefits and HR functions, fractional HR services can provide additional HR expertise.
For employers reviewing their benefits program, it is also important to consider the employee experience. Benefits that are difficult to understand or administer may not deliver their full potential value. Clear employee education and effective benefits administration can help employees better understand how their benefits work.
Why Employers Should Review Their Benefits Strategy
A Section 125 Premium Only Plan is one piece of a larger employee benefits strategy.
Employers should regularly evaluate whether their benefits program is helping them manage costs while providing meaningful value to employees. This can include reviewing health insurance, dental and vision benefits, voluntary benefits, payroll processes, compliance requirements, and employee communication.
Working with an experienced employee benefits consultant can help employers evaluate these areas and identify opportunities to improve the overall program.
Request a Consultation
If you are interested in implementing a Section 125 Premium Only Plan, improving your employee benefits program, or reducing payroll taxes, JS Benefits Group can help.
We work with employers throughout Pennsylvania, New Jersey, Delaware, Maryland, and across the Mid-Atlantic region to design cost-effective employee benefits programs and compliance strategies.
Request a Consultation to speak with an employee benefits consultant and learn how a POP plan could fit into your organization’s benefits strategy.
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