Fee Differences Between Supplemental Unemployment Benefit (SUB) Plans

Are The Fees of All Prevailing Wage Supplemental Unemployment Benefit Plans The Same?

 

Simply put, the answer is no.

I have been asked this question by contractors and I want to share with you what the similarities and differences are between bona fide SUB plans.

The front end payroll tax reduction and insurance premium reduction for the employer and the tax reduction for the field employees are the same between SUB plans.  It is the annual employer fee, deposit fees and cash distribution methods to the employees which differ a lot.

First the benefits:  The employer eliminates all payroll taxes and workers comp premium and possibly GL premium based on the amount of fringe dollars the employer chooses to transfer to a SUB plan.  I italicize the word employer because it is solely the employer who makes the decision to use SUB plans and how much in fringe dollars to transfer to them.  Employees also permanently avoid their share of payroll taxes based on the amount of fringe dollars transferred to a SUB plan.  These are the key reasons why an employer would choose to utilize a SUB plan.  And, by the way, these are the same front end benefits when using a pension and/or medical plan for fringe dollars too.

As you may know, the employees get back the dollars that were transferred into a SUB plan over the subsequent months based on the number of hours the employees were “underworked”.  Any month a field worker works less than 173 hours, a withdrawal is made from the SUB plan to make up for the difference.  And, SUB plan withdrawals do not reduce State Unemployment Insurance payments.  It is this fast release of funds which has appeal to field workers.

Now to the fee structures:  The employer fee is generally an annual fee and generally does not hinge upon the size of your company or number of field employees you have.  The employer fee is the smaller of the two main fees and I find it not the deciding factor in comparing SUB plans.  Most plans have an annual fee in the mid hundred dollar range.  It’s the deposit fee where the real action is.

Remember, employees also permanently avoid their share of payroll taxes for every fringe dollar transferred to a SUB plan.  But the deposit fee is taken from every dollar going in.  So, the effective differential between their tax savings and deposit fee is their true cost.  The range in deposit fees vary widely.  So, be sure to compare these closely.  Some plans, such as ours, have declining fee structures based on aggregate deposits.  Others just have a flat fee structure.  For example, our nearest competitor, who has a flat fee structure, begins 18% higher than our first tier fee and finishes 80% higher when our contractor clients hit the full break point!  This has a huge impact to field workers since they are the ones paying the fee.  Our declining fee structure ensures that the field worker will take home more money when using our SUB plan than if their contractor employer had paid the entire fringe on the paycheck!

The final major component, that mostly affects field workers, is the methodology and calculation of how funds are released back to the field workers.  Simply:  The more dollars that come out of a SUB plan in the fastest time, the better it is for them.  The method of calculating a withdrawal is the key here.  Basically, to calculate a withdrawal amount, an hourly dollar amount is multiplied by the underworked hours of the previous month.  Some plans take the number of underworked hours and multiply that number with the highest total combined wage (fringes plus base rate) of the particular field worker involved.  Instead, we take the number of underworked hours and multiply that number with the highest total combined wage of your highest paid field worker.  For example, let’s say you have a laborer with a total combined prevailing wage rate of $15 per hour and an operating engineer with a total combined prevailing wage rate of $55 per hour.  And, your laborer had underworked hours last month of 20 hours.  Many plans take the 20 hours times $15 to calculate the withdrawal amount.  We take the 20 hours times $55 to get the withdrawal amount.  What does this mean?  1. Higher withdrawal amounts and faster release of funds to your lower paid workers such as laborers.  2. Reduced potential difficulty of getting SUB plan balances out for those employees who have limited underworked hours.

Additionally, some plans will only allow a once a month request for funds.  Others will allow withdrawals anytime.  Some offer direct deposit of withdrawals to field workers bank accounts.  Others only offer checks via mail.  You guessed it; we allow withdrawals anytime and send it via direct deposit or check.

 

2 thoughts on “Fee Differences Between Supplemental Unemployment Benefit (SUB) Plans

  • Do we have to use a third party company to execute a sub plan such as the sub unemployment plan or is this something that we can do in house and save on any fees?

    • Yes, you do have to use a Third Party Trust that is approved by the DOL and the IRS to operate as a Bona Fide Fringe Benefit Plan. The plan is a multiple employer trust and is audited and files annual 5500’s.

      Let’s look further into the fees. To the contractor, there is one fee and it’s the annual $400 to be part of the multiple employer trust. It doesn’t matter whether you have two employees or two thousand, it’s still $400.

      Then, there is the deposit fee on the fringe dollars going into the trust. These dollars come from the employee. So, only the employee pays the deposit fee. The net cost to the employee is a “wash” because the fee was set up to equal the payroll tax the employee also avoids on these dollars. And, as the contractor continues with the SUB Plan, the fee decreases (a unique feature to our plan). Therefore, the employee will make more money using a SUB Plan than getting all the fringes paid on the paycheck!

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