In today’s economy, the value of your key employees is becoming one of the most important questions on small business owners’ minds—and businesses need to come up with the answer to this question sooner rather than later, or their business survival could be in jeopardy.
“Take away all my factories and my equipment. Take away my wealth. But leave me with my key people and in a short time I’ll have it all back again.” – Attributed to Andrew Carnegie
Business owners should take stock of who their key employees are and ask themselves how (or whether) their business could recover from the loss of these employees.
Many business owners define “key” people based on:
- Decision-making power – Key employees are sometimes part owners or other high-ranking individuals who contribute to important strategic decisions.
- Frequent direct client contact – Employees who have frequent contact with important clients are often integral to maintaining those client relationships. These people are often considered key employees.
- Crucial position – Some positions are so essential to the success of a business that even a temporary vacancy could be disastrous.
- Special talents – Some employees have special talents that cannot be easily replaced. For example, a top salesperson or specialized technician might be considered a key employee for this reason.
- High Salary – Key employees are usually highly-paid because they contribute a great deal of value to the company.
Employees who offer unique contributions desire unique rewards. But the truth is that bonus checks are expected, and once they’ve been issued they are quickly spent and forgotten. Individual benefits offer more value to high-performing key employees because they can last a lifetime.
These benefits can be arranged by using strategies that are not directly regulated by the federal government and fall outside the auspices of ERISA. Unlike IRAs or 401k programs, these strategies don’t limit the level of funding.
Disability Benefit Plan
This type of plan allows the small business owner to pay a tax-deductible bonus to an employee that can be used to fund valuable insurance coverage for them and their family.
There are a few distinct advantages to using a disability plan to pay benefits to key employees:
- Your key employee receives much-needed disability insurance coverage at little or no cost.
- You can pick and choose to whom this benefit would be offered and at what level
- There are no administrative or government reporting costs.
Under a disability benefit plan, the employer pays a bonus to the employee that can then be used to fund insurance coverage. The bonus is deductible to the employer and taxable to the employee. The employee maintains all the rights associated with owning a disability benefit.
What happens if a partner becomes disabled?
Today, there are cost effective ways to protect a business from unanticipated events that could threaten their long-term profitability. A disability benefit plan can offer peace of mind.
What happens if one of the small business owners becomes disabled?
If a business owner was unable to fulfill their management responsibilities, their family, partners, or shareholders would arrive at a serious crossroads in the life of the business. It’s best to prepare in advance for this kind of decision by investing in disability benefits.
What is the next step?
You will need to acquire some additional details to begin designing a custom plan that does the best job of solving the unique needs of your small business. Securing key employee coverage could be necessary in order for your business to survive the loss of a key employee. Talk to your trusted advisor today so you can protect tomorrow’s business.
