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Wellness In The Workplace: Understanding Taxable Fringe Benefits Like Health Club Memberships

As autumn sets in, many employers are contemplating potential modifications to their fringe benefits for the coming year. If you’re considering changes, one option to consider is to offer health club memberships to employees.

These memberships can typically be provided as a taxable fringe benefit, meaning the membership’s value would be considered part of each recipient’s gross income. It’s worth noting that tax rules vary for an on-site gym or athletic facility, where the value provided to employees generally doesn’t count toward their gross income.

However, you might also wonder whether any other rules might apply to such a benefit — like, say, provisions of the Employee Retirement Income Security Act (ERISA).

Health Club Memberships

Usually Not

Typically, paying for employees’ health club memberships won’t constitute an ERISA plan. For an employer-provided benefit program to be subject to ERISA rules, it must (among other things) provide at least one of the benefits listed in the act’s definition. Examples include medical, “sickness” and disability benefits.

Although health clubs promote well-being, memberships are normally offered without regard to sickness or disability. And health clubs obviously don’t diagnose or treat specific medical conditions. Thus, they don’t provide medical care, services in the event of sickness, or any other ERISA benefits. Therefore, a policy or program of paying for health club memberships usually wouldn’t qualify as establishing an ERISA plan.

But Sometimes

In relatively rare situations, however, an employer may offer a health club membership to employees as part of a disease-management program or other arrangement that includes diagnostic, therapeutic, or preventive care, or “coaching” for specific health conditions or risks.

Under such programs or arrangements, a health club membership may be considered to provide a medical benefit, potentially making it subject to ERISA and applicable group health plan rules either on its own or as an element of a larger plan, depending on how the arrangement is structured.

Determining whether and how ERISA applies to these types of situations is complex and fact-specific, so be sure to consult a qualified attorney if necessary.

Not A Bad Idea

Offering your organization’s employees health club memberships could be a great way to help them improve their wellness. However, there are tax rules and other compliance matters to consider. Contact us for help.

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