Benefits consultant outlines payroll-tax-funded supplemental benefits for Daly City small businesses

Will Schaub, a benefits consultant, told the Daly City Small Business Commission on Feb. 13 that a self‑insured medical expense reimbursement plan (an ACA-authorized payroll-tax architecture) can let small employers offer supplemental benefits such as vision, dental, disability and lump-sum cancer or accident payments with no health underwriting.

Schub said the program uses tax deductions that normally flow through payroll to redirect pre‑tax dollars into employee benefits while keeping existing health plans and brokers in place. “You can take taxes that normally run through payroll, carve out some of those taxes, and then redirect or re‑pivot those towards very valuable benefits,” Schaub said.

The program, Schaub said, relies on IRS, HIPAA and ERISA compliance and runs through payroll; employers would remain responsible for required ERISA documentation but the presenter said his firm provides that work. He described two employer savings channels: lower FICA payroll taxes for participating employees and a reduced workers’ compensation exposure because payroll subject to work‑comp calculations is lowered when part of wages are treated as pre‑tax benefits. “They save money, so it actually is employer centric,” Schaub said.

Schub gave numerical examples to illustrate scale: for a hypothetical 10‑employee firm, he said the program could free roughly $6,300 a year in payroll tax savings that otherwise would be paid for employees who opt in, and he estimated average employee tax savings of about $100 per month that could be applied to supplemental products. He added the approach can be used across states for companies with W‑2 employees who work the required hours (generally 30 hours, with some exceptions noted below).

Commissioners asked questions about coverage scope, eligibility and portability. Schaub said the plan is supplemental and does not replace primary health insurance. He said virtual primary‑care and mental‑health navigation services are commonly included in the product set he described and that the supplemental cash benefits are portable if employees leave an employer. On eligibility, Schaub said employees may not be enrolled if they are on Medicaid/Medi‑Cal or on an ACA plan receiving a subsidy; Medicare beneficiaries may participate. He also said employers must enroll W‑2 employees (owners of sole proprietorships without W‑2 payroll generally cannot participate).

Schaub emphasized that enrollment is typically annual because the program uses pre‑tax Section 125 mechanics. “Once you're in, you're in for a year,” he said, noting employees can change only with qualifying events (for example, birth, death or termination). The presenter also said the program is voluntary for employees and that carriers used for supplemental benefits are chosen on a “best‑of‑breed” basis rather than using a single vendor.

Commissioners expressed interest and follow‑up questions about administrative details; Schaub offered no formal resolution or motion. The commission did not take formal action on the presentation.

Why it matters: The proposal, if adopted by local employers, could shift how small employers in Daly City structure benefits and payroll costs, potentially affecting employee take‑home pay and employer expenses. The commission received the presentation for information and asked clarifying questions about eligibility, compliance and implementation.

What’s next: Schaub offered to run no‑cost, no‑obligation payroll analyses for interested businesses, and commissioners invited him to supply more detailed compliance documentation for review.