FAQs About Getting Started With Company FSAs

A flexible spending account (FSA) allows eligible employees to set aside pre-tax money via payroll deductions into a tax-free account and use this money to pay for eligible health care expenses. Zenefits offers two types of FSAs:

  • Health Care FSAs pay for out-of-pocket health care expenses (e.g., doctor copays, prescriptions, deductible expenses, and other FSA Eligible Expenses) not covered by insurance.
  • Child & Elderly Care FSAs pay for the care of a dependent child or adult so that employees can work or look for work (Learn More).

Employees can enroll in one or both types simultaneously in Zenefits. See this page for a comparison of the primary differences between Health Care and Child & Elderly Care FSAs. The only eligibility requirement for FSA is that the employee is offered benefits. They do not have to enroll in benefits, but the company just needs to offer medical benefits to the employee. 

Zenefits does not support varying maximum FSA contribution limits for different workers. Everyone who enrolls in an FSA in Zenefits can contribute up to the IRS limits for Medical (see limits) or Dependent Care (see limits) FSAs.

Outside of Zenefits, employers may set a limit lower than the statutory limits. However, setting a different limit for different classifications of workers can be an issue. Reasonable classifications may be permissible, including, but not limited to:

After your first monthly payment (which is based on the number of employees who actually enroll at the plan's start), your subsequent monthly payments are based on the maximum number of employees enrolled on the plan at any time in the year.

If additional employees enroll later in the year, the number of seats increases, and Zenefits charges for each additional seat.

  • The total number of seats will either increase or stay the same, but never decrease.
  • For each employee who leaves, a seat is vacated. This seat can be filled by another employee who enrolls later.

Let's assume that a company starts the plan year on Jan 1st with 7 seats. On March 1st, 3 more employees start, and one employee leaves the company (and cancels for March 1st). the number of additional seat is (3-1) = 2, so:

  • On an Annual Contract, the cost of the additional seats is ($4 x 2 x 10 months) = $80, which is charged on March 1st to prepay the additional monthly costs for remaining months in the year.
  • On a Month-to-Month Contract, the payment is ($5 x (7+2)) + $15 = $45 for March.

Choose the two and a half month extension option to give employees the option to keep using their FSA for new expenses up to two and half months (the grace period) after their FSA plan year ends. The grace period and runout period happen at the same time, so employees can submit claims and use FSA funds for both old and new expenses.

Choose the Rollover option during plan setup to allow your employees to roll over some of their Medical funds that remain after the runout period when they renew their plan. You can choose this amount, up to a limit of $500. Carryover amounts don't count toward the next year's annual contribution limit.

This option does not apply to Dependent Care FSAs.

How much you choose to contribute to your employees' FSAs is up to you, but here are some things to consider when you're making the decision.

  • The amounts you set for each type are the annual amounts you'll contribute to each employee who enrolls in that type, so consider the possibility that all eligible employees enroll when determining how much you're willing to spend.
  • You can't change your contributions after the plan starts until the end of the plan year, during renewal.
  • Employees will be able to see the amounts you've chosen to contribute for both Medical and Dependent Care FSAs when they enroll.

If you use Zenefits Pay Connect with your payroll, do the following before your FSA plan starts:

  1. Create FSA deduction descriptions (also called "codes") in your payroll account. If you're not sure how to do this within your payroll provider's system, reach out to them for further assistance. If you already have codes with prior FSA deduction amounts, make sure to zero these amounts out.
  2. Use the Deduction Mapping Tool to map your FSA deduction codes to Zenefits. Learn more about mapping deduction codes.

If you have Payroll Reports or Zenefits Payroll, you're all set!

Unlike Medical FSAs, your contributions to Dependent Care FSAs count towards employees' annual limit. The annual limits in 2019 allow you to contribute:

  • $0 to $ 5000 to employees who are single or married, filing jointly, and
  • $0 to $ 2500 for employees who are married filing seperately.

Unlike your Medical FSA contributions, employees will receive the full amount of your Dependent Care contribution, regardless of how much they contribute. When employees enroll in their own Dependent Care FSA, they'll be able to choose whether to contribute an additional amount up to the limit. Learn more. Dependent Care FSAs are funded as the contributions are placed into the account. They are not frontloaded like the Medical Care FSA.

You can match employee's Medical FSA contributions from $0 up to the maximum of $2750 ( 2020 annual limit) and $2700 (2019 annual limit). Since you can't predict ahead of time what employees elect, if any individual employee sets contribution amounts less than yours, Zenefits simply reduces your contribution to match theirs. 

If the FSA is a shortened plan year then the maximum contribution and matching amount will be prorated. So if the company is enrolled in the FSA effective 7/1 through 12 /31, the employee would only be able to contribute half of the maximum amount, which would be $1375 for 2020. This would then be the maximum that the employer is able to match.

Complete setup by the 15th of the month prior to your chosen start date. This lead time gives your employees a minimum of 10 days to decide whether to enroll.

If you complete setup after the 15th, the earliest your plan can start is the 1st of the month after next so that your employees still have at least 10 days to decide.

Once the company plan is set up, individual workers will need to complete enrollment by the 25th to start on the 1st of the next month. Anyone who misses the deadline will not be able to enroll until the next renewal, unless they have a qualifying life event.

Keep in mind that enrollees won't be able use the FSA funds until after their plans start, or get reimbursed for purchases made prior to the start of their plans.

As an employer, your monthly costs are based on the number of "seats", which is the maximum number of employees who were enrolled at any time.

  • When your plan starts, Zenefits uses the number of employees who enroll at the start of the plan to determine the initial number of seats and your first monthly payment's amount.
  • If other employees enroll later in the year, Zenefits will increase the number of seats, and charge for the additional ones. If employees who were enrolled leave your company (and cancel their FSAs), Zenefits won't refund you for those employees. However, for every seat vacated by an employee, another employee can enroll at no additional cost to you.

The start date you choose can also determine when the plan renews:

  • Choose a Full Plan Year End Date to have the FSA renew one year from the start date. If that date is the start of your insurance plans, workers will go through Open Enrollment for both FSA and insurance around the same time.
  • Choose a Calendar Plan Year End Date to have the FSA line up with the calendar year. 

If you choose the Calendar Plan Year option, your FSA plan year will be different from your contract's term, and you'll be charged the annual fee twice: once at the start of the Calendar Plan Year, and again when the plan renews in January.

The company will lose the unpaid funds by the employee. This also works the other way. Employees who leave a company prior to spending their FSA funds will have 90days to submit claims for any expenses incurred prior to leaving the company. After the 90 day period to submit claims any unused funds will stay with the company.

To start a new company FSA plan at the same time as your insurance, complete plan setup in Zenefits before the 15th of the month prior to your insurance plan's effective date, and choose that effective date as the FSA start date.

Otherwise, simply choose a 1st of the month start date as you like, and enroll by the 15th of the month prior to that date. If you're looking to roll over an existing FSA plan to Zenefits, see these instructions.

Here's how to choose the right FSA contract:

  • To save money, choose the Annual Contract and lock in lower monthly cost of $4 per employee and a minimum monthly cost of $20. You'll prepay the plan's annual and minimum monthly fees at the start of the plan year.
  • For more flexibility, choose the Month-to-Month Contract for pay-as-you go monthly billing, but a higher monthly cost of $5 per employee and a minimum monthly cost of $25.

If you offer health insurance to your employees, most of your full time employees are eligible for an FSA. Business owners usually are not eligible. Employees who have HSAs can also have a Dependent Care FSA, but not a Medical FSA.

All eligible employees can enroll in an Medical FSA, but those who'd like to set up a Dependent Care FSA must satisfy some additional requirements, especially if they plan to use the FSA to care for an aging parent or a new baby.

For more information on FSA eligibility, click here.

Employees fund their FSAs through payroll deductions, but pay no fees for the accounts themselves. As an employer, you pay annual and monthly fees for your employees' FSA accounts. You can also choose to make optional contributions to your employees' FSAs.

Offering FSAs can help your company and your employees in the following ways:

  • FSAs help employees make the most of their salaries while paying less in taxes.
  • FSAs can help you reduce your employment taxes.
  • FSAs can help attract top talent and drive retention when promoted as part of your company's benefits package.

Learn more about the tax savings of FSAs for employers and employees.

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