In this episode of the Painting Business Finance Podcast, host Daniel Honan introduces the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) as a cost‑effective employee health benefit for small painting businesses. He explains that, unlike traditional payroll where the employer pays additional taxes and insurance costs, a QSEHRA lets employees purchase their own health coverage and then be reimbursed tax‑free by the employer, effectively reducing the employer’s expense compared to a wage increase. Honan walks through the four‑step implementation process (set reimbursement allowance, employee purchases coverage, employee submits proof, employer reimburses), highlights the plan’s flexibility (choice of premiums vs. medical expenses, eligibility criteria), and outlines key compliance rules: fewer than 50 full‑time employees, no existing group health plan, annual reimbursement caps ($5,550 individual, $10,250 family for 2018), and restrictions for S‑corp owners. He notes additional eligibility nuances for employees (90‑day waiting period, age, part‑time status) and the requirement that coverage meet minimum essential health care standards. The episode also promotes Take Command Health as a low‑cost platform that handles paperwork and receipt processing. Honan concludes that a QSEHRA can be a recruiting tool, offering predictable, affordable benefits that save time and money for painting business owners.
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Welcome to the Painting Business Finance Podcast, where it's my mission to provide you with the strategies, tactics, and tools to making your painting business more profitable while creating more wealth for you and your family. This is your host Daniel Honan, and today we're gonna talk about an employee health benefit that benefits you, the business owner. So when we think about employee benefits, a lot of folks think that they're expensive, hard to implement. Well, there is a newer employee benefit called the Qualified Small Employer Health Reimbursement Arrangement That is quite advantageous to take a look at. Now what if I were to tell you, if you were to implement this program, it's actually cheaper than paying wages to an employee. Now you might be thinking, what does that mean? How could using this benefit be cheaper than paying wages? Well, if you think about it, if you pay your painter a dollar through payroll, you're actually paying them out of your pocket, the business owner's pocket. It's actually $1.20 when you add in Social Security, Medicare, workers' comp, unemployment. So the cost of paying someone through payroll is 10-20% more than what the employee actually receives. So a way around that is to do this Qualified Small Employer Health Reimbursement Arrangement because it's a direct exchange of value, meaning that this program allows employees to— they would pay their own healthcare costs, their own premiums, but then they go to you, the business owner, to get reimbursed for those costs. And then you can reimburse them dollar for dollar, and there's no additional fee on your end or taxes to pay. So employees pay for their own health expenses, you reimburse them tax-free. That is the bottom line. And it's surprisingly simple to actually implement this. QSEHRA is what it's called. It's an acronym, acronym as I described before, Q-S-E-H-R-A, QSEHRA. It's very simple. Basically, employees pay for their own healthcare costs and you reimburse them. So you first, first off, as the employer, you put together a plan and you set reimbursement allowances. So you set an amount per month that an employee can get reimbursed for. So you kind of lock in your cost per month. So you know how much you're going to pay reimburse for each employee. And then the step 2 is the employee goes out and pays for their own health insurance, their own medical bills. Then step 3, the employee comes and provides that proof of their expenses in the form of receipts or invoice. And then, um, step 4 is that the employer reimburses that employee up to the set limit that the employer had established in the first step. So the primary advantages of the, of this QSEHRA program is that it's flexible. The, this health reimbursement arrangement can be customized to meet the company's needs. You can choose to reimburse premiums only, um, or premiums and medical expenses as well. And you can choose who to offer the reimbursement arrangement to as long as everyone is treated the same under the criteria. For example, um, if they're part-time versus full-time, you can say only full-time employees get this benefit. And then for employees, they can choose a plan that works best for their family and their needs. It's also very affordable to do this program. There are programs like Take Command Health have very affordable options on implementing this, so they take care of the, the compliance paperwork and they give you a report to reimburse your employees. So it makes it— it's very cheap. They have an online platform that helps you implement this program. The other benefit is that it's predictable. Your monthly costs are fixed based on the amount that you, the business owner, established, and this, this will hold steady. And then lastly, it saves time. You don't have to deal with a lot of administrative tasks or man-hours setting this this plan up. It's basically used to— you initiate the plan document and then you start doing the program, your employees start submitting receipts. So it's very easy to implement, quick on time. Now of course there are things to keep in mind, rules to remember. You have to stay compliant to stay out of trouble, as, as usual for these types of things. So first of all, for the employer, you have to have 50 full-time employees or less. Actually, let me say that differently. You must have fewer than 50 full-time employees, so fewer than 50. And if you're an S corporation, as the owner of the S corporation, you would not be able to participate. You or your spouse would not be able to participate. In the Health Reimbursement Arrangement program. However, if you're taxed as a partnership or sole proprietor, your wife, if your wife was an employee, could take, take part in the program. If you're a C corporation, if you're the owner, you can take part in this program, meaning that you can submit receipts and get reimbursed through the program. Now, S corporations, as I mentioned, can't participate in the Health Reimbursement Arrangement, but they an S corp officer does have the ability to deduct health expenses for taxes. So you're kind of already covered there, so it doesn't really affect you too much. The other thing to keep in mind is that you can't already have a group health plan offered. This is— this has to be a standalone reimbursement program. Another thing to keep in mind as a business owner is that there's a maximum amount that you can reimburse. You can only reimburse up to $5,050 for 2018 for an individual, or if you have an employee with a family, you can reimburse up to $10,250. So you don't have to reimburse that much. You set the amount, but the limit is those two amounts: $5,550 for individual $10,250 for a family. So for employees, the thing to keep in mind is, you know, full-time staff are eligible, and the small business can also exclude employees who have not completed at least 90 days of work or who are under 25 years of age or that are part-time or seasonal. So as a business owner, you can kind of decide on, on how— if you want to exclude those people that just started working for 90 days, or if they're younger, you can exclude them from the program, and that's within the law. And as an employee participating in your program, your health reimbursement permit program, they would have to provide proof of coverage of their health insurance plan that meets the standard minimum essential health care coverage for Obamacare. So that would be another thing that the employee would have to show, and they, they would have to meet that minimum essential coverage in order to receive those reimbursements tax-free. So they have to have that minimum coverage. And if an employee receives a premium tax credit for insurance purposes, the, the HRA benefit will reduce their premium tax credit. So that's something else that the employee would have to keep in mind. So overall, this Qualified Small Employer Health Reimbursement Arrangement, QSEHRA, This program is excellent for the small business owner, for painting businesses. If you're looking to attract employees in this labor market, which is pretty difficult these days, this is a great thing to add to your package. You could, you could have it set up so that all your full-time painters, after the first 90 days, they are eligible to participate in the— your HRA system. And you could cap it off, maybe say, I will reimburse up to $200 per month of your medical costs or premiums per employee. And that little benefit, you know, that $200, if you had just paid them $200 through payroll, that would have cost you, you know, $220, $240. But in this case, that $200 is a direct exchange of value directly to the employee. So you win, and then the employee wins because they have that— they know that they can get their health costs reimbursed. So if you haven't heard of this program, I highly recommend that you take a look at it. Specifically, I would recommend going to Take Command Health. I'll provide a link below this podcast so you can go to their website and check it out. They have a nice online platform that makes it really easy for employees to submit receipts, and then those receipts get turned into a report that's sent to the owner to reimburse the funds on a monthly basis. So I hope this was useful to you. I'll talk to you next time.
