Running a small business in Canada feels like a constant juggle, doesn’t it? You’re battling rising employee expectations and tight cash flow, all while trying to offer competitive health benefits without getting swallowed by sky-high insurance premiums. It often feels like you’re forced to choose the “less painful loss” when it comes to employee coverage.
But what if there was a better, smarter way to offer your team comprehensive health benefits, save your business thousands, and even boost your own financial well-being as an incorporated owner?
The secret? Health Spending Accounts (HSAs).
New Canadian businesses are actively ditching traditional insurance plans for the flexibility and savings an HSA offers. And once you see how they work, you’ll understand why.
Ready to save thousands, offer full healthcare flexibility, and turn medical costs into tax deductions? Let’s dive into three practical HSA tips that will change how you think about employee benefits.
Tip 1: Only Pay for What Actually Gets Used (Imagine the Savings!)
This is where the real magic of HSAs begins. Traditional insurance plans often force you to prepay for reimbursement that your employees might never even use. Think about it: monthly premiums for unused services, deductibles that discourage claims, and dollars disappearing while appointments are left unclaimed. It’s money out the door, regardless of whether your team utilizes the benefits.
With an HSA, this dynamic completely flips. You only fund what gets claimed.
Here’s the breakdown:
- You allocate a set amount to an HSA fund (monthly, quarterly, semi-annually, or annually).
- Employees pay for their medical expenses upfront and then get reimbursed – completely tax-free.
- You’re only charged per claim, plus a small 10% admin fee and tax.
The best part? No claim? No cost!
Let’s put it into perspective: If you allocate $2,500 per employee per year , but they only use $1,000, you keep or roll over that remaining $1,500. Compare that to a traditional plan where the insurer pockets everything, regardless of usage.
And here’s another huge win: 100% of these costs are tax-deductible for your business. The value flows directly to your team, not into insurance company overhead.
The result? A tighter budget, fewer financial surprises, and employees who genuinely feel valued and cared for.
Tip 2: Customize Benefits with Employee Tiers (Smart Spending, Happier Team)
One size rarely fits all, especially when it comes to employee benefits. Giving everyone the same benefit often means you’re overspending on some team members and underserving others.
Smart employers match health spending to an employee’s role and responsibility. This isn’t about unequal treatment; it’s about strategic allocation of resources.
For example, you could set up tiers like this:
- Executives: $10,000 per year
- Managers: $5,000 per year
- Staff: $2,500 per year
This tiered HSA model provides greater benefits to your key team members, offering them more comprehensive coverage, while still preserving your overall budget. It’s about more flexibility, more fairness, and ultimately, more results for your business.
Implementing this is straightforward: map your organizational chart by role, set fair annual claim limits for each class, and clearly communicate the new structure during onboarding and renewals. Need support? Many HSA platforms can handle the setup, manage claims, and provide real-time dashboards for full transparency.
Tip 3: Incorporated? Use Your HSA for Personal Medical Bills (Tax-Free!)
This is perhaps the most overlooked, yet incredibly powerful, benefit of an HSA, especially for solo incorporated owners in British Columbia.
If you’re currently paying out-of-pocket for your dentist visits, prescriptions, or therapy, you’re missing out on significant tax savings.
Without an HSA, you’d typically have to withdraw money from your corporation, pay personal income tax on it, and then use the remaining amount for your medical bills.
Let’s break down the real cost:
- Imagine a $3,000 root canal.
- To pay for that from your corporation, you’d need to withdraw approximately $4,700 (assuming a 36% tax rate in B.C.).
- That’s roughly $1,700 lost to personal income tax!
With an HSA, it’s a game-changer:
- Submit your $3,000 dental claim.
- Get reimbursed from your corporation – completely tax-free.
Instead of losing that $1,700 to income tax, you convert the full amount into a legitimate business deduction. It’s legal, it’s CRA-approved, and it directly cuts your tax bill.
If you’re incorporated and not leveraging an HSA for your personal medical expenses, you are literally leaving money on the table.
The Takeaway: It’s Time to Rethink Your Health Benefits
Stop overpaying and start gaining control. Switching to an HSA means you:
- Only pay when an employee submits a claim.
- Can customize benefits by employee category.
- Can transform your personal medical bills into deductible business expenses (if incorporated).
This approach isn’t just smart; it directly aligns with your bottom line, keeps your employees happy, and puts you in control of your benefits spending.
Do the math. An HSA isn’t just a trendy option – it’s an essential strategy for any forward-thinking Canadian small business.
Ready to set up a Health Spending Account for your incorporated business? We can help you for free.
Our process is entirely online. Reach out to us directly via email at arvin@arvinjimenez.com or call us at 1-604-626-8447.