In concluding our talk about how a business owner handles the disability of any employee, we first introduced the concept that you can pay any employee a salary if out of work and not covered by any government program such as Worker’s Compensation. This led to a description of installing a Qualified Sick Pay Plan. If this is not done, the IRS comes in and fines you back taxes and penalties! Is that all the business needs to do? Yes. However, instead of self-insuring (paying the disabled worker out of company profits) there is another alternative. Purchase a short and/or long term disability policy.
Why would a business owner do such a thing? It’s very simple. It goes to the heart of what Insurance is, shifting the responsibility from the business to an insurance company. In other words, rather than paying dollar-for-dollar, you now are covering this liability for only pennies on the dollar. Of course it depends on the age and occupation of the worker but it can usually be done for 3 to 5 cents on the dollar. In addition, unlike Life Insurance, you can deduct the premium payments you make to a company. Just keep in mind if this is done, all income is fully taxable. If the business owner does not deduct the premiums, all income is tax-free.
Our company can do a free, non-obligatory analysis for you. In addition, we can provide you with all the documents you need to have a safe, protected Qualified Sick Pay Plan.
Next up is back to building an investment portfolio to buy out a partner in the event of retirement