Employees are the key to any organisation’s success and growth. Their hard work and expertise enable the organization to achieve its targets on time and support expansion. To gain a competitive edge in the dynamic working environment, it is important for employers to retain their employees in the long run. For that, employers can offer perks and benefits to the employee apart from their gross pay.
Where every employer prefers Section 125 cafeteria plan benefits for their employees, to stay ahead of the competition, you can offer the Lumara Health plan. It’s a Section 125 plan but with SIMERP and additional healthcare benefits extended to family members. Let’s see in detail what a Section 125 cafeteria plan is, why more employers prefer it in 2025, and how you can gain a competitive edge by offering an advanced Section 125 plan: the Lumara Health.
What is Section 125 Cafeteria Plan?
A Section 125 cafeteria plan is a tax-advantaged benefits program that allows employees to choose from a variety of pre-tax benefit options. These may include health insurance premiums, flexible spending accounts (FSAs), dependent care assistance, and other qualified benefits. By deducting contributions from employees’ gross pay before taxes, both employees and employers can reduce their tax liabilities.
Employees benefit by increasing their take-home pay, while employers save on payroll taxes. Named after Section 125 of the Internal Revenue Code, this plan offers flexibility and cost savings, making it an attractive option for companies aiming to enhance their benefits packages.
Benefits of Section 125 Cafeteria Plan
A Section 125 cafeteria plan offers multiple advantages for both employers and employees, making it a popular choice for businesses aiming to provide flexible, tax-saving benefit options. Key benefits include:
- Pre-Tax Savings: Employees can pay for benefits like health insurance and FSAs with pre-tax dollars, lowering their taxable income.
- Increased Take-Home Pay: By reducing taxable income, employees take home more of their earnings without reducing their gross salary.
- Employer Tax Savings: Employers save money by paying less in payroll taxes such as FICA, FUTA, and Medicare contributions.
- Customizable Benefits: Employees can select the benefits that best meet their personal and family needs from a menu of options.
- Boosts Employee Satisfaction: Offering flexible, tax-saving benefits improves morale, job satisfaction, and employee retention.
Why Employers Mostly Prefer Section 125 Cafeteria Plan in 2025?
In 2025, employers increasingly prefer section 125 cafeteria plans because they offer significant tax savings and boost employee satisfaction. These plans reduce employer payroll tax liabilities while allowing employees to pay for benefits like health insurance and FSAs with pre-tax dollars. The flexibility to customize benefit offerings enhances recruitment and retention, making companies more competitive in a tight labor market. Additionally, section 125 plans support compliance with healthcare regulations, offering a cost-effective and efficient benefits solution for modern workplaces.
Where Innovation Meets Compliance: Lumara Health Section 125 Plan
The Lumara Health Plan is a self-compliance, pre-tax deduction system built on a Section 125 framework that allows employers to administer health-related payroll deductions in a fully automated and compliant manner. It combines a self-insured medical reimbursement plan with structured payroll processing, ensuring that eligible deductions are handled pre-tax without manual tracking.
The plan includes automated onboarding, documentation, and IRS-required compliance checks. Its infrastructure integrates directly with payroll systems, minimizing administrative burden while maintaining up-to-date legal alignment and ensuring consistent, rules-based operation across all employee tiers.
Key Employer and Employee Benefits of Lumara Health
The Lumara Plan is a modern pre-tax benefits solution that offers significant financial and wellness advantages for both employers and employees. By integrating IRS-compliant payroll deductions with healthcare and wellness programs, it creates a streamlined system that reduces costs for employers while enhancing the overall compensation and support employees receive.
Employer benefits of the Lumara Plan include:
- $600 savings per W-2 employee
- 5–10% lower healthcare expenses
- IRS-compliant Section 125 plan
- No upfront or hidden costs
- Automated payroll and plan integration
- Improved employee satisfaction and retention
Employee benefits of the Lumara Plan include:
- $100/month higher take-home pay
- 24/7 virtual care and telehealth
- Coverage for spouse and dependents
- Mental health and EAP support
- Mayo Clinic and wellness programs
- $0 copays and health scan tool
The Bottom Line – Take Control of Your Healthcare Budget
In 2025, a Section 125 cafeteria plan remains a smart strategy for employers aiming to reduce payroll taxes while offering valuable pre-tax benefits to employees. It enhances compensation packages, boosts employee satisfaction, and ensures compliance with IRS guidelines. Choosing a solution like Lumara Health simplifies implementation through automated compliance, integrated payroll systems, and modern wellness features. With no upfront costs and measurable savings, Lumara makes it easier than ever for employers to unlock the full potential of Section 125 plans.
Connect with Experts to Explore Your Options
Book a 10-minute consultation today to explore how Lumara Health can transform your employee benefits with a fully compliant, automated Section 125 plan.
