Helping Employees Budget for Health Costs Without Raising Salaries

When times are tight, one of the first things business leaders start thinking about is how to keep their teams happy and motivated without putting strain on payroll. Raises aren’t always feasible—especially for small businesses, nonprofits, or startups running lean—but that doesn’t mean you’re out of options when it comes to increasing the real value of what you offer your employees.

In fact, some of the most impactful forms of compensation don’t come in the form of a bigger paycheck. For many workers today, how far their money goes—especially when it comes to healthcare—matters just as much as how much they’re making. That’s where tools like Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) come into play (click here to learn more about these options).

These benefits might not be flashy, but they can significantly reduce employees’ out-of-pocket costs and give them a greater sense of financial control. Better yet? They do it in a way that doesn’t involve increasing taxable income, which keeps things efficient for both employer and employee.

Why Health Costs Are a Growing Concern

It’s no secret that medical expenses are one of the biggest financial stressors for working Americans. Even with insurance, things like copays, deductibles, prescription costs, and dental or vision expenses can quickly add up. And when employees are worried about money—especially unexpected medical bills—it affects more than just their bank account. It impacts their focus, productivity, and long-term loyalty.

Offering employees some relief from those stressors—without necessarily increasing their salary—can go a long way toward showing that you care about their well-being.

The Power of Pre-Tax Dollars: Enter FSAs

A Flexible Spending Account (FSA) allows employees to set aside money from their paycheck before taxes to pay for qualified medical expenses. That might not sound like a big deal at first glance, but it can really add up.

Let’s say an employee contributes $2,000 to their FSA for the year. That’s $2,000 they won’t pay income taxes on—potentially saving hundreds of dollars depending on their tax bracket. They can then use that money to pay for everything from copays and prescription medications to bandages, contact lenses, or even chiropractic visits.

From the employer’s side, offering an FSA is relatively low-cost. You can choose to contribute to your employees’ accounts (a great value-add), or you can simply offer the structure for employees to contribute their own funds. Either way, the tax advantages mean everyone saves money—without you having to raise salaries.

Health Reimbursement Arrangements: More Control for Employers

If you want to go a step further, a Health Reimbursement Arrangement (HRA) gives employers even more flexibility. With an HRA, you allocate a certain amount of money each year to reimburse employees for their healthcare expenses.

The beauty of HRAs is that they’re entirely employer-funded, and you get to define the terms. You decide how much to offer, what types of expenses can be reimbursed, and even whether unused funds roll over from year to year.

There are also different types of HRAs to suit different team structures:

• Qualified Small Employer HRAs (QSEHRAs) are perfect for small businesses that don’t offer group health insurance.
  
• Individual Coverage HRAs (ICHRAs) allow employees to shop for their own health plans on the marketplace, while you reimburse them for premiums and other medical costs.
  
• Integrated HRAs work alongside traditional group plans to offset out-of-pocket costs.
  

No matter which type you choose, an HRA gives you a way to directly support your employees’ healthcare needs—while staying in control of your costs.

Real Compensation, Without Real Raises

At the end of the day, FSAs and HRAs can both help stretch your team’s dollar in a way that a $1,000 salary increase might not. Because these are pre-tax benefits, the money employees save on their medical expenses isn’t just helpful—it’s powerful.

Plus, these benefits demonstrate a level of thoughtfulness that many workers appreciate. Even if you can’t give a raise this year, letting employees know that you’re investing in their health and well-being can go a long way toward building trust.

The ROI of Smart Benefits

If you’re a leader or HR decision-maker, you’ve likely heard the phrase “total compensation package.” It’s not just a buzzword—it’s how today’s employees evaluate job offers, promotions, and long-term loyalty. In fact, many workers are now more interested in benefits like healthcare support, mental health services, and financial wellness than they are in just seeing a slightly higher number on their paycheck.

Offering FSAs or HRAs sends a clear message: “We’re doing what we can to help you afford the care you need.”

And from a budgeting standpoint, these programs are often more cost-effective than raises. Salary increases typically increase your costs permanently—and they raise your payroll taxes, too. In contrast, FSAs and HRAs offer you tax savings, more flexibility, and the option to scale benefits based on the company’s financial situation.

Making the Case Internally

If you need to make the case to leadership, frame FSAs and HRAs as a way to give without overspending. Focus on:

• The tax advantages (for both sides)
  
• The boost to employee satisfaction and retention
  
• The growing demand for health-related support in the workplace
  

You can also pair these offerings with wellness programs, educational sessions on health budgeting, or access to price comparison tools for medical services to create a well-rounded support system.

Final Thoughts

Raises are great—when you can afford them. But if you’re in a season where that’s just not realistic, FSAs and HRAs can help you continue to provide meaningful, tangible support to your employees.

They won’t just save your team money—they’ll help your business retain talent, build goodwill, and prove that compensation is about more than just the number on a paycheck.

And in today’s economic landscape, that kind of thoughtful, flexible approach to benefits might be exactly what your team needs.