With the arrival of fall, many employers might be pondering whether they should change up their fringe benefits next year. If you’re thinking about doing so, one option to consider is offering health club memberships to employees.
Indeed, employers can generally offer such memberships as a taxable fringe benefit. That is, the value of the membership would be includable in each participant’s gross income. (Note: The tax rules for an on-site gym or athletic facility are different. The value of providing such a facility to employees generally isn’t includable in each participant’s 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).
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. And therefore, a policy or program of paying for health club memberships usually wouldn’t qualify as establishing an ERISA plan.
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.