Why the ESPA outperforms a pay raise as a retention strategy.
Raising wages is the default move when employers think about retention. It is also the most expensive one. For every $1 added to an employee’s gross wages, the employer typically pays $1.15 to $1.20 after payroll taxes and benefit matching.
The employee keeps about 70 cents of that dollar after federal, state, and FICA withholding. The Employer Sponsored Preventive Access (ESPA) is a different way to put real value into the employee’s pocket without those losses on either side.
The math behind a pay raise
A 3% raise for an employee earning $50,000 is $1,500 in gross wages. Here is what each side actually sees:
WHAT IT COSTS THE EMPLOYER
- $1,500 in additional gross wages
- ~$115 in additional employer FICA (7.65%)
- Higher workers' compensation and unemployment insurance base
- Higher 401(k) match if the plan matches a percentage of wages
- Approximate total employer cost: $1,700 to $1,800
WHAT THE EMPLOYEE ACTUALLY RECEIVES
- $1,500 in additional gross wages
- Minus federal income tax (10 to 22 percent range for most W-2 earners)
- Minus state income tax (varies by state)
- Minus employee FICA (7.65%)
- Approximate take-home: $1,000 to $1,100 of the original $1,500
Net result: the employer spends roughly $1,800 to deliver about $1,050 of take-home value to the employee.
What the ESPA delivers instead
The ESPA puts real, usable value into the employee’s hands without going through the payroll-tax penalty on either side. For every enrolled employee:
24/7 virtual care access
for the employee, the spouse, and the dependents. A family that uses telemedicine instead of urgent care or the ER for routine issues can save hundreds of dollars in a single month.
An annual comprehensive lab panel
delivered as a preventive health benefit under the ESPA. Catches health issues early, when they are cheaper and easier to manage.
An average of $150 a month
in supplemental insurance benefits (Critical Illness, Life, Accident). This is real coverage that pays out when something happens.
Prescription access and discounts
on more than 1,000 medications, including online vision care and Rx renewal.
Mental health support
for the employee and the family, available without insurance billing.
The employer side
The same Section 125 plus SIMRP structure that delivers the access to the employee also recovers payroll tax savings for the employer. The payroll tax savings the employer recovers typically exceed the cost of plan administration. The net position averages around $505.20 per employee per year.
Compared to a pay raise: the ESPA delivers measurable value to the employee, the employer recovers more than the plan costs to administer, and take-home pay does not change.
Why retention research keeps pointing to benefits, not wages
Pay raises matter at the bottom of the wage scale, where every dollar counts. Above that, benefits, schedule, and respect drive retention more than wage adjustments. The ESPA gives employees something they can use every day, for themselves and their families, without losing a third of the value to payroll taxes.
When a pay raise still makes sense
The ESPA is not a replacement for fair wages. If the underlying issue is that wages are below market, raise wages. The ESPA is built for the much more common situation where wages are fair but employees still want more, and the employer cannot afford the gross-cost stack that a wage increase carries.
Frequently asked questions
No. The ESPA is a benefits plan, not a wage-setting tool. It is built for employers who have already set fair wages and want to give employees more value without the cost of a raise. In addition, with the savings provided to the employer, the savings can be invested back into the company for new hires or raises.
Yes. Most employers do. The ESPA is structured to coexist with regular annual wage reviews.
The Section 125 Cafeteria Plan converts a portion of an employee’s taxable wages into qualified medical expense reimbursement under the SIMRP. The employer’s FICA tax base shrinks by the converted amount. The payroll tax savings the employer recovers typically exceed the cost of plan administration.
This is one of the technical questions to walk through with your CPA during setup. Most employer-sponsored 401(k) plans use gross wages before Section 125 deductions as the match base, but specific plan documents vary. We coordinate the answer with your CPA before the plan is in place.
Note: Tax benefits stem from the structure of the Self-Insured Medical Reimbursement Plan, which uses pre-tax funding. Employers benefit from reduced FICA taxes, while employees only realize tax advantages if they actively participate in the plan and earn the reimbursement after-tax. Without participation, any reimbursement becomes taxable, negating the financial benefit.
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