Many business owners are surprised to learn that wages paid to a disabled employee, when such payments are not authorized by a written formal plan, are not tax-deductible business expenses. Say WHAT? Business owners may unknowingly expose themselves to claims of discrimination (i.e., age, gender, sexual orientation) by such “ad hoc” payments.
A Qualified Sick Pay Plan (QSPP) funded with disability income insurance, however, enables a business to pay wages to a disabled employee in a tax-efficient manner and identifies employees entitled to disability compensation by objective criteria.
A QSPP is an agreement that determines company policy before a disability occurs by establishing who will be included, how much salary they will be paid, when payments start and how long they last. The written plan must be in place prior to a covered employee becoming disabled, and that employee must be aware of the terms of the plan.
A QSPP funded with disability insurance is a valuable employee benefit and business protection tool—a plan that promotes employee loyalty, protects a disabled employee’s (and your business’) financial well-being, and can provide your business with a tax deduction. Sounds complicated, but it truly isn’t.
An unexpected disability can create a serious dilemma for most small- to medium-size companies (small- and medium-size companies are the unsung heroes in America today–employing over 40 million people in the country). Fortunately, the solution is really very simple—a QSPP funded with disability income insurance.
It is important to ask yourself these questions:
- What would happen to the business if you or your key employee were sick or hurt and unable to work? Did you know that if you, the business owner, became disabled, that paying yourself a wage during a disability is prohibited by law?
- Could the business sustain the potential loss of revenue, profit and productivity in the event a key employee was disabled?
- Could the business afford to continue paying the disabled person’s salary and pay a replacement without the benefit of a tax deduction?
Asking these questions can protect your company’s financial well-being. For more information on this topic, contact Skoda Minotti’s Financial Services group, or call Deborah M. Marino at 440-449-6800.