What Is a Payroll Savings Plan and How Can it Help My Employees?
As an employer, you want the best for your employees, including the means to achieve financial stability. Employee savings plans (ESPs), or payroll savings plans (PSPs), are simple ways to help them accomplish their savings goals.
The State of Savings
Americans recognize that saving for retirement or an emergency is essential. However, most don’t have nearly enough money put away. Reasons include inflation, cost of living, and lack of proper planning.
Consider the following:
- Almost 40% of Americans say covering a $400 unplanned expense would be difficult.
- About 78% of Americans have $50,000 or less saved for retirement.
- Nearly 37% haven’t even started saving for retirement!
Those who don’t save enough for retirement must rely more heavily on social security. If they don’t put funds away for a rainy day, they could wind up in a precarious situation, especially if there are unexpected medical expenses or home or auto repairs.
What Is a Payroll Savings Plan?
PSPs or ESPs allow employees to set aside a portion of their pre-tax wages for retirement savings or other long-term goals, such as college tuition or a down payment on a home. Some types include:
- Defined contribution plans – Defined contribution plans, including 401Ks, 403Bs, and 457Bs, are retirement plans in which the employer, employee, or both contribute regularly. If they leave your company, they can either roll that money into identical plans with their new employee or move it into an IRA.
- Health savings accounts (HSAs) – HSAs allow employees to set aside money through a pre-tax payroll deduction to use for eligible health expenses.
- Profit-sharing plans – Profit-sharing plans are a savings vehicle in which you give your employees a percentage of your company’s profits based on quarterly or annual earnings. Profit-sharing plans give your employees a sense of ownership of your company.
Why You Should Offer Your Employees PSPs
PSPs have many benefits for your employees. The money they put in any type of payroll savings plan will continue to grow over many years. They are also flexible and convenient because your employees decide how much they want to contribute, and you take automatic deductions straight from their paychecks. Contributions to defined contribution plans are tax deductible, which allows your employees to reduce their taxable income.
Your employees can save even more money if you offer a match. Fifty-one percent of employers who have 401K plans offer a match, according to a Bureau of Labor Statistics report.
Roth IRAs also offer tax-free growth and tax-free withdrawals in retirement, but your employees can contribute more to ESPs. IRAs allow up to $6,500 vs. $25,000 for ESPs. If you’re 50 years or older, IRAs and ESPs offer catch-up contributions, but your employees can add an extra $7,500 to ESPs and only an additional $1,000 to an IRA.
ESPs help you as well, including potential tax write-offs. And like vacation time and personal days, providing a tax-advantaged 401K plan is an excellent way to attract top candidates and encourage them to stay with your company.
Lastly, when your employees are financially secure, they are less distracted and more productive, which benefits your bottom line.
Helping Your Employees Become Financially Secure
Contact Epic Placements to learn more about payroll savings plans and how they can benefit your employees. We’re here to help you with all things recruiting and human resources. And if you’re looking for the perfect job to start saving for retirement, we’re ready to help you find the best fit!