Can I Manage a Dependent Care FSA internally
I own a small business with approximately 10 employees, including my wife who runs the office. If I setup an FSA through my business, do I have to offer it to every employee? I think my wife would be the only one interested, and if so, can I manage the FSA myself without using a 3rd party?
You should be able to set up an FSA right in your existing bookkeeping / payroll system with no need of using a third party as long as you keep funds separate from other business accounts and abide by IRS rules.
However, you can not offer it to one employee and not offer to others. All eligible employees must be allowed to choose it, otherwise, you could face discrimination charges by employees. (They may or may not enroll.)
For example, if you offer the FSA to employees who work an average 30 hours a week or more, and who have been with the company for at least one year — it has to be offered to all who fit that criteria. Whatever criteria you use should be the same for all employees. You can’t set it up for your wife alone.
If you’re not already using a payroll provider, you might consider choosing one like Gusto that can manage FSA accounts for you, as well as other benefits you may want to offer employees (and yourself) in the future. (There’s no requirement for you — the business owner — to contribute to employee FSA accounts, so really no risk in offering it to all employees.) Here are articles that may help.
p.s. I encourage you to chat with your tax accountant to see what tax benefits you may get by offering or contributing to employee FSA accounts. (Keep in mind these are employer-owned accounts that employees can not take with them if they leave the company, so they may help with employee retention as well.)
Laura, HR Staff Writer, SPHR, MAEd