Swapping benefits for pay: Is it legal? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Swapping benefits for pay: Is it legal?

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in Compensation and Benefits,Human Resources

Q. Is it acceptable for a company to negotiate with employees (on a case-by-case basis) to provide higher salary in exchange for the employee not taking certain benefits that the company pays 100% for (such as life insurance, AD&D, STD and LTD)? — Ed, Virginia

A. It’s not illegal, but there are good reasons for avoiding such a practice.

Employers typically want to compensate workers in a consistent way to avoid equal pay claims and other allegations of discriminatory pay practices. This be­­comes difficult to defend when everyone’s compensated ­differently.

The biggest reason to avoid negotiation over the ­provision of benefits, however, is that tax laws often require you to provide those benefits equally to your employees if you want to take advantage of preferential tax treatment of those plans. Allowing individuals to opt out could, in certain circumstances, jeopardize the tax status of those plans. Of course, in the case of insurance plans that you purchase through another entity, the cost of your insurance is based on assumptions of risk spread across your workforce. And your insurance provider is relying upon a certain number of people who are less likely to become ill to help fund the cost of insurance for others who are more likely to become ill. So you may have a contract problem with any insurance provider.

Finally, if you negotiate an arrangement “outside” of your health benefits programs because you believe those employees are poor health risks or because they have disabled family members, you may be charged with discrimination in violation of the ADA or the Genetic Information Nondiscrimination Act (GINA).

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