A "cafeteria" benefit plan is one in
which employees can choose
between cash compensation or a
number of nontaxable benefits. The
benefits can include such things as
health and accident plans, group
term life insurance, legal service
plans, paid vacation days, and certain
other qualified benefits. These
plans can provide tax savings to
both employees and employers.
The main advantage of these
plans is that they let you compensate
employees with something
other than salary. Money spent to
buy benefits is not subject to income
tax or FICA, as salary is. Both
employer and employee thus save
tax money.
These plans also let employees
tailor their benefit packages to their
particular needs. Not all employees
need a given type of benefit (such