Cafeteria & Premium Only Plans
A properly documented section 125 plan in California turns employee premium contributions into pre-tax dollars, lowering payroll taxes for your business and raising take-home pay for your team.
The math, in plain numbers
Below is a simplified illustration for a twelve-employee California business where each employee contributes $400 per month toward premium. Actual results depend on wages, contribution levels, and plan design.
Almost every employer we set up recovers the document cost in the first payroll cycle.
Annual employee premium share
12 employees x $400/mo
Employer FICA savings at 7.65%
Across a 12-person group
Typical employee take-home gain
Per paycheck, per employee
Annual plan document cost
One-time setup plus updates
Illustration only. Rice Insurance Benefits does not provide tax advice; confirm figures with your CPA.
Three ways to structure it
Premium Only Plan (POP)
The simplest section 125 premium only plan in California. Employees pay their share of medical, dental, and vision premiums before taxes. Nothing else runs through the plan.
Employers who only need pre-tax premium deductions
Full Cafeteria Plan
A section 125 cafeteria plan in California that adds health FSAs and dependent care accounts on top of pre-tax premiums, giving employees a menu of pre-tax choices.
Employers wanting FSA and dependent care options
Simple Cafeteria Plan
Available to employers under 100 employees. Safe-harbor contributions satisfy nondiscrimination testing automatically, which removes a yearly headache.
Small employers who want testing relief
What compliance actually requires
- Written plan document naming the plan year and eligibility
- Summary Plan Description distributed to employees
- Signed employer adoption agreement or corporate resolution
- Annual salary reduction elections on file
- Nondiscrimination testing unless a safe harbor applies
We bundle this with payroll and compliance support so the documents and the deductions always match.
Section 125 FAQs
What is a section 125 plan in California?
A section 125 plan is an IRS-approved arrangement that lets employees pay for certain benefits with pre-tax dollars. In California it also reduces state income tax withholding, so the take-home benefit is larger than in many other states.
Is a cafeteria plan in California required if employees contribute to premiums?
If you want those employee contributions taken pre-tax, yes. Without a written section 125 cafeteria plan document, deductions must be taken after tax, which quietly costs both the employee and the employer money.
What is the difference between a section 125 premium only plan and a full cafeteria plan?
A premium only plan covers pre-tax insurance premiums and nothing more. A full cafeteria plan adds elections such as a health FSA and dependent care assistance, which requires more administration.
How much does a POP document cost to set up?
Most California small employers pay a modest one-time document fee plus periodic restatement when the IRS updates the rules. We handle the drafting and the annual maintenance as part of our service.
Can owners participate in a section 125 cafeteria plan?
It depends on entity type. Partners, more-than-2% S corporation shareholders, and sole proprietors are generally excluded, while C corporation owner-employees may participate. We review your structure before you adopt the plan.
How often must plan documents be updated?
Documents should be restated when regulations change, typically every few years, and reviewed any time you change carriers, plan years, or eligibility rules.
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Free consultation. Honest answers. Custom plans for groups of 2–50+ employees.