Most employers want to compensate their employees fairly, but sometimes, depending on how much a business profits, extra compensation just isn’t possible.
There are other ways to reward your employees with a job well done that can be better and more lasting than a few extra dollars on their paycheck. It’s with an executive bonus plan outlined with benefits under Section 162 of the tax code.
Section 162 – Write Offs
Section 162 states that businesses can deduct various expenses considered to be necessary for the operation of the business. This includes salaries and other types of bonus compensations for employees.
One wealth building bonus plan that falls under “executive bonus plan in Section 162” is a whole life insurance policy. In short, the employer pays for the employee’s policy premium. Using a whole life policy is an excellent way to not only bonus your employees, but it gives you fantastic advantages as an employer like simplicity, flexibility, and tax benefits.
Executive bonus plans based on life insurance policies are easy to set up and administer. These plans can be for managers in your company, or really any employee that you want to bonus. A great way to institute this type of bonus plan is to add the premium amount to your employee’s check, then they are responsible for getting their premium mailed to the insurance company.
The flexibility come with executive bonus plans being non-qualified. Non-qualified means the employer can pick and choose the person or persons who will benefit from the plan (like we mentioned above, it doesn’t have to be a manager). There is no need to report or conduct any tests to establish who can receive the bonus, making it an entirely subjective decision.
Flexibility also extends to the level of the bonus. There are no restrictions or formulas involved, so the employer can set the level of the payout and the conditions under which the bonus, or life insurance policy is received.
The first tax benefit is that life insurance premiums paid by the employer throughout the year are completely tax deductible. The second tax benefit is giving your employee, through cash value insurance, the opportunity to also receive many personal tax benefits. Whole Life Insurance, the way we build them at Paradigm Life, offers ample living benefits: like liquidity, steady rate of return, market safety and of course, tax advantages.
Using a whole life policy as an executive bonus plan is a great way for a business to attract new talent, improve morale and loyalty – which in a way, for any business can be more beneficial to their bottom line.
After all, what employee wouldn’t choose to work for a company that had an effective executive bonus plan in place over one that didn’t? And what employee wouldn’t feel more loyal to a company that rewarded them well for their hard work?
For more information on how whole life insurance can give your employees more benefits,
Read: The Whole Truth about Whole Life