Do You Still Deduct Health Insurance to Calculate Gross Pay?
An employee's gross pay is not the amount of money the worker will take home to pay bills and buy the necessities of life. Calculating gross pay requires an employer to add together all the compensation an employee receives. Deducting the cost of worker benefits, including health insurance, results in a figure different from gross pay.
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Gross Pay Definition
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Gross pay is the total amount of employee compensation for a given period of time, including allowances, regular hourly pay, overtime wages, pay from commission sales and bonuses before any applicable deductions. The resulting number after deducting from employee wages to pay for federal taxes, state taxes, Social Security, Medicare and any available benefits -- including health insurance -- is net pay. This is the amount of money an employee actually gets to take home.
Health Insurance Premiums
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No federal or state law requires an employer to pay any portion of employee health-care premiums when creating a group plan or individual health-care plans for workers. Many employers choose to pay at least a portion of health-care premiums to allow employees to preserve more gross pay through the deduction process. Group health-care premiums are also more attractive to employers because they provide larger discounts on rates and don't place as many restrictions on covering employees with pre-existing health conditions.
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Health Reimbursement Arrangements
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Health Reimbursement Arrangements (HRAs) are accounts employers may use to reimburse employees for the costs of individual health insurance plans according to Clarifying Health's website. Employers may use these accounts as a form of tax-free reimbursement for employees who do not have access to group health insurance plans. This allows workers to recoup lost gross pay from having to pay the higher costs of individual health insurance plan premiums. Employers may also contribute to group health insurance premiums to obtain the same tax-free benefit.
Value of Health Insurance
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The value of health insurance may not show directly in an employee's paycheck and may outwardly seem more like a cost than a benefit. However, the cost of obtaining employer-based health benefits allows an employee to keep more gross pay in the long run, especially when dealing with a serious injury or illness. Health insurance coverage can also allow an employee to be more proactive in seeking preventative care, including physicals and medical screenings. Preventative care can catch illnesses and diseases in early, treatable stages that carry much lower treatment costs than health problems found in advanced stages.
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