Definition of benefit allocation

What is an assignment of benefits?

An allowance is money that a business or government agency provides to an employee for a specific purpose, such as transportation, health care costs, or a flexible spending account. Benefit allocations administered to employees can be distributed through regular payroll.

How benefit allocation works

Employers can use an allowance of benefits to give employees flexibility in creating a benefits package that best suits their needs. Instead of imposing a particular health plan on all employees, for example, the employer could offer a basic plan plus an allowance of benefits.

Employers can establish a benefit allocation that also includes coverage for wellness programs, such as gym memberships, that contribute to the employee’s overall health. The employee could use the benefit assignment to obtain supplemental benefits, such as dental insurance or dependent coverage.

Key takeaways

  • An employer may provide an assignment of benefits to its workers for a specific use, such as childcare, transportation, life insurance, or medical benefits.
  • The profit allocations are distributed through the regular payroll of a company.
  • Employers often use a benefit allocation to allow employees to create a useful benefits package rather than a one-size-fits-all plan.
  • Employers can also offer a tax-free reimbursement plan to provide an allowance of benefits to their employees.

Employers may also allow their employees to place a benefit assignment for life insurance, disability insurance, vision care, or any other type of benefits. In this way, employees receive personalized benefits and employers can offer a competitive benefits package that will help them recruit and retain the best talent.

Ways in which benefit allocations are structured

Small businesses that may not have the resources to offer health insurance and other benefit plans to their employees can use an allowance of benefits as an option to create access to coverage for their workers.

Benefit assignments can be offered in a variety of ways. Employers can create taxable stipends by awarding taxable increases to employees. This gives the employee a fixed stipend for the purchase of health insurance. The employee will receive the money regardless of whether he uses it to purchase health insurance. Typically, the employee will receive a form detailing the amount of the stipend that must be reported as income with their tax return.

Benefit assignments help employers create customized and competitive benefit packages that can help them retain their best employees.

Businesses may also offer a tax-free refund plan to provide an allocation of benefits. Under this option, the employee receives a fixed amount to be used for health insurance; however, the funds are only disbursed if the insurance is purchased. To receive the allowance, the employee must present proof that they have purchased a health insurance policy for themselves. They are then granted tax-free refunds.

Special Considerations

Along with the assignment of benefits, an employer could designate a party to act as a health insurance broker to help employees choose a plan.

Some employers in the past may have paid health insurance benefit allocations to employees without a formal plan in place, but such practices were not in line with the reforms inherent in the Affordable Care Act..

READ ALSO:  When it can be negative
About the author

Mark Holland

Leave a comment: