Voluntary Benefits for Washington Employers: 2027 Guide

By Brandon Hoobler | 06/03/2026

Last reviewed: October 16, 2026. Written by Brandon Hoobler, licensed Washington insurance broker.

Voluntary benefits let your employees buy accident, hospital, critical illness, disability and other coverage through payroll deduction, at little or no premium cost to your business. For most Washington employers, they are worth offering once your medical plan is stable and you have a way to explain them. The big decisions are pre-tax versus after-tax, how ERISA applies, and how you will get people to enroll.

Key takeaways

Voluntary benefits are policies employees choose and usually pay for through payroll deduction. Your business can pay nothing, part or all of the premium.
Paying premiums pre-tax through a Section 125 cafeteria plan lowers taxes now. It can also make some cash benefits taxable when an employee files a claim.
Washington does not currently have an individual income tax, so pre-tax savings for most employees come from federal income tax and FICA.
A program stays outside ERISA only if it meets all four parts of a Department of Labor safe harbor. Two of them: no employer money and no endorsement.
A Washington Paid Leave “voluntary plan” is a different thing: an employer-run alternative to the state paid leave program, not supplemental insurance.
Enrollment depends far more on timing and education than on the product list.
Accident, hospital, disability, dental and vision coverage can sit alongside an HSA-qualified plan, but confirm each product with the carrier first.

What voluntary benefits are

Voluntary benefits are group or worksite insurance policies offered through your business. Each employee decides what to buy, and premiums usually come out of their paycheck.

They sit next to your medical plan. They do not replace it. Washington’s Office of the Insurance Commissioner says several of these policy types are not considered health plans. Its list includes accident-only, critical illness, dental-only, vision-only, disability income and fixed-payment indemnity coverage.

Most of these policies pay cash or cover one specific need. They do not pay doctor and hospital bills the way medical insurance does. For a quick look at the products we offer and how funding works, see our voluntary and supplemental benefits page. This guide covers the decisions behind them.

Common types and who tends to value them

Every carrier designs these products a little differently. Here is what each type generally does, in plain terms.

Accident insurance: pays set cash amounts after covered injuries, such as a fracture or an emergency room visit. Families with active kids and people with active hobbies tend to value it.
Hospital indemnity: pays a fixed cash amount per hospital admission or per day in the hospital. Employees on high-deductible plans who worry about a large hospital bill tend to value it.
Critical illness: pays a lump sum after a diagnosis of a covered serious illness. The list of covered conditions varies by policy. People with a family history of serious illness or little emergency savings tend to value it.
Cancer insurance: pays benefits after a cancer diagnosis, and some policies also pay during treatment. Employees with a family history of cancer tend to value it.
Short-term disability: replaces part of an employee’s pay for a limited time when a covered illness or injury keeps them from working. Hourly workers and anyone without much savings tend to value it. Washington Paid Leave already pays benefits for qualifying medical leave, so ask how a policy works alongside it.
Voluntary life: extra life insurance employees buy for themselves and often a spouse or children. People with dependents or a mortgage who want more than a basic employer policy tend to value it. See our group life and disability page for employer-paid options.
Voluntary dental and vision: employee-paid group dental or vision plans. Families with kids and people who wear glasses or contacts tend to value them. Our group dental page explains how plan levels differ.
Legal plan: access to attorneys for personal legal matters such as wills, family law questions or traffic tickets. Employees with estate planning needs or a pending life change tend to value it.
Identity protection: monitoring plus help restoring an identity after theft. Employees who have been through a data breach, or who do most of their banking online, tend to value it.

Watch the name: a Washington Paid Leave “voluntary plan” is a different thing. In Washington’s Paid Family and Medical Leave program, a voluntary plan is an employer-run paid leave plan used instead of the state plan. It has nothing to do with the accident, hospital or other voluntary benefits in this guide.

A Paid Leave voluntary plan needs state approval and must offer benefits that meet or exceed the state plan. Approved plans file quarterly reports. Applications carry a $250 fee, except for mandated renewals. Details are at paidleave.wa.gov, and our Washington Paid Leave guide for employers covers your duties either way.

What voluntary benefits cost your business

A fully employee-paid program has no premium cost to you. Your real cost is time: setting up payroll deductions, sending premiums to the carrier, and handling changes when people join or leave.

You can also pay part or all of a premium. That makes a benefit more attractive, but it changes the ERISA picture covered below.

Working with a broker does not add a fee. Brokers are paid by the insurance carrier, so you pay nothing extra for our help setting up, enrolling and servicing the program. We also run enrollment on Employee Navigator at no added cost, as described on our benefits enrollment page.

Pre-tax or after-tax: how premiums are paid

Most voluntary premiums come out of paychecks. The main choice is whether they come out before or after taxes.

Pre-tax through a Section 125 cafeteria plan

A cafeteria plan is a written plan that lets employees choose between cash and certain qualified benefits on a pre-tax basis. The IRS says salary reductions under these plans are not wages for federal income tax and generally are not subject to FICA or FUTA.

The IRS list of qualified benefits includes accident and health benefits and group-term life insurance. Legal plans and identity protection are not on that list, so expect them to be after-tax deductions.

Washington does not currently have an individual income tax. For most of your employees, then, pre-tax savings come from federal income tax and FICA. Your business saves its share of FICA: 6.2% for Social Security and 1.45% for Medicare. Social Security tax applies to wages up to $184,500 in 2026.

Illustration only, using round numbers: say 20 employees each have $40 a month in voluntary premiums taken pre-tax. That is $9,600 a year in pre-tax deductions. At the 7.65% employer FICA rate, your business would save about $734 a year, and each employee would also save on their own taxes. Your numbers will differ.

Pre-tax comes with rules. A cafeteria plan needs a written plan document. Elections generally stay in place for the plan year unless the employee has a qualifying change, such as marriage or a new dependent. Our HRA, HSA and pre-tax plans page explains setup, and our guide to qualifying life events covers mid-year changes.

After-tax payroll deduction

After-tax deductions are simpler. There is no cafeteria plan election to manage, so Section 125 election rules do not apply. The carrier may still set its own enrollment windows.

The trade-off is that employees pay the premium with taxed dollars. In exchange, many benefits keep their full value at claim time, as the next section explains.

The tax effect when an employee files a claim

This is the part many employers miss. How a premium was paid can change whether the benefit check is taxable.

Disability: The IRS says disability premiums paid through a cafeteria plan are treated as paid by the employer. That makes the disability benefits fully taxable. If the employee paid the entire premium after tax, the benefits are not taxable.
Accident, hospital, cancer and critical illness: The IRS says benefits are not taxable when the employee paid the premiums on an accident or health policy. When premiums are paid pre-tax, the IRS treats them as employer contributions, and cash benefits can be taxable unless they reimburse medical expenses. A 2023 IRS memo applied this rule to wellness payments under a fixed indemnity policy. The memo cannot be cited as precedent, but it shows the IRS’s view.
Dental and vision: These plans pay toward care itself, and the IRS counts dental and eye care as medical expenses. Payments that reimburse medical care are generally excluded from income, so they do not raise the same claim-time question.
Group-term life: Death benefits paid to a beneficiary are generally not taxable income. Coverage above $50,000 can create taxable imputed income for the employee in some setups, depending on who pays and how rates are set.

Put simply, pre-tax saves a little every paycheck, while after-tax can protect the full value of a claim. For disability, think about when the money matters most: a tax-free benefit arrives when the employee’s pay has stopped. Tax results depend on your plan’s details, so confirm your setup with your CPA before you decide.

ERISA and the voluntary plan safe harbor

ERISA is the federal law that governs most private employer benefit plans. An ERISA plan comes with duties, such as a written plan, a Summary Plan Description and, in some cases, an annual Form 5500.

The Department of Labor has a safe harbor at 29 CFR 2510.3-1(j). A group insurance program offered by an insurer is not an ERISA plan if all four of these are true:

No employer contributions. Your business pays nothing toward the premium.
Participation is completely voluntary. Each employee decides whether to enroll.
Your role stays narrow. Without endorsing the program, you may let the insurer publicize it, collect premiums through payroll deduction and send them to the insurer.
You are not paid for it. You receive nothing from the program except reasonable pay, with no profit, for the payroll work you actually do.

Endorsement is the hardest condition to judge. In a 1994 advisory opinion, the DOL said endorsement includes expressing “any positive, normative judgment regarding the program.” Urging people to enroll also counts. So does acting in a way that would lead people to reasonably conclude the program is part of your own benefit plan. That opinion involved a union, but the same safe harbor test applies to employers.

In practice, a program meant to stay outside ERISA should look like the insurer’s offering, not yours. Recommending it, calling it “company-sponsored,” or presenting it as part of your benefits package can point toward endorsement.

Pre-tax payment is a gray area. The safe harbor rule does not mention cafeteria plans, but the IRS treats pre-tax salary reductions as employer contributions for tax purposes. Some benefits advisors read that as putting the safe harbor at risk, so ask your benefits attorney before you count on both.

Falling under ERISA is manageable. You can choose to treat voluntary benefits as part of your ERISA welfare plan and meet those duties. Participants must receive a Summary Plan Description within 90 days of becoming covered. Many small plans can skip Form 5500. The exemption covers fully insured or unfunded welfare plans with fewer than 100 participants at the start of the plan year that meet the DOL’s conditions.

Public employers start from a different place. ERISA generally does not cover plans set up by governmental entities or churches. If you run a Washington city, county, special district or other public agency, see our page for government and public sector employers. Check any state or local rules with your counsel.

How to get real participation

A voluntary program only helps the people who enroll. A flyer in the break room and a short enrollment window rarely get you there.

Pick the right timing

One option is to enroll voluntary benefits during medical open enrollment, when employees are already thinking about coverage. If your plan year starts January 1, 2027, that window is close, so start planning now.

Another option is a separate enrollment at a different time of year, so voluntary benefits get full attention. Either way, give employees enough time to ask questions and talk with family. Build the same choices into your new hire benefits onboarding so people who join mid-year are not left out.

Educate before you enroll

Employees buy what they understand. Show real examples using the carrier’s actual benefit amounts, like what a policy pays for a broken arm or a three-day hospital stay.

Our employee education service includes on-site group meetings, virtual sessions and one-on-one meetings. One-on-one meetings matter most for voluntary benefits, because the right choice depends on each person’s household, savings and medical plan.

Want a quick primer to share with employees? Our short video, How Voluntary Insurance Works, explains how these plans pay out in plain language.

Keep the safe harbor in mind here. If you want a program to stay outside ERISA, let the insurer’s representatives present it, and keep your own messages factual rather than promotional.

Make enrollment easy

We set up voluntary benefits next to your medical, dental and vision plans in Employee Navigator. Employees see every option in one place and make elections online, and elections can flow to connected carriers and payroll systems.

Washington law allows wage deductions that an employee has authorized in writing in advance, for a lawful purpose that benefits the employee (RCW 49.52.060). Keep each signed election on file before the first deduction.

Communicate more than once

One email is not a communication plan. Send a short notice before enrollment, a reminder during it and a confirmation after. Our open enrollment communication plan lays out a simple schedule you can reuse.

What participation carriers may require

Carriers often set minimum group sizes or participation levels for voluntary products. These vary by carrier, product and group size, and we did not find a published industry standard we could cite. We confirm the requirements for your group before you set an enrollment date.

Who should wait on voluntary benefits

Voluntary benefits are not the right first step for every business. Consider waiting if any of these fit:

Your medical plan is unstable. If you face a big renewal increase, a carrier change or a funding decision, settle that first. Our guide on what to do about a renewal increase is a good starting point.
Employees are stretched by medical premiums. If people are already dropping medical coverage over cost, more deductions may not help. Work on affordability first.
No one can own the deductions. Someone has to add and stop deductions, reconcile carrier bills and handle changes when people leave.
You cannot make time for education. A program offered without explanation tends to bring low enrollment and confused employees at claim time.

The reverse can also be true. If you cannot fund medical coverage yet, an employee-paid program can be a reasonable first step, as long as employees understand it is not health insurance. Our article on whether a small business can afford employee benefits walks through options by budget.

Pairing voluntary benefits with high-deductible plans and HSAs

High deductibles are where voluntary cash benefits make the most sense. For 2027, the IRS set the minimum deductible for an HSA-qualified plan at $1,750 for self-only coverage and $3,500 for family coverage. Out-of-pocket limits can be as high as $8,700 for self-only and $17,400 for family coverage. The 2027 HSA contribution limits are $4,500 and $9,000.

High deductibles are common outside HSA plans too. Nationally, KFF’s 2025 survey found that 53% of covered workers at firms with 10 to 199 workers had a deductible of $2,000 or more for single coverage.

Savings are thin for many households. In the Federal Reserve’s 2025 survey, 63% of adults said they would cover a $400 emergency expense completely with cash or its equivalent. The rest would need another way to pay, at least in part.

An employee with an HSA can still have other coverage, but only certain kinds. IRS Publication 969 allows coverage for accidents, disability, dental care, vision care and long-term care. It also allows insurance for a specific disease or illness, or a fixed amount per day of hospitalization. Coverage that pays toward routine medical care before the deductible is not on that list, so ask the carrier to confirm a product is HSA-compatible.

The two work well together. The HSA builds savings over time, and a hospital or accident policy pays cash if something happens before those savings have built up. Our HSA, FSA and HRA guide explains how each account works.

Getting started

We will look at your current plans, your payroll setup and your team, then show you which voluntary benefits fit and how to fund them. Call (206) 653-9636 or request a quote. Since the carrier pays our compensation, there is no added cost to you.

Frequently asked questions

Do we have to pay part of the premium?

No. Voluntary benefits can be fully employee-paid. You can choose to contribute, which may help enrollment. Any employer contribution takes the program out of the DOL’s voluntary plan safe harbor. Unless you are a public employer, plan to meet ERISA requirements for it.

How many employees do we need?

Carriers set their own minimum group size and participation rules, and they vary by product. We work with Washington employers of 5 to 500 employees and confirm the rules for your group before you plan an enrollment.

Should voluntary premiums be pre-tax or after-tax?

It depends on the product. Pre-tax lowers federal income tax and FICA now. After-tax generally keeps claim payments from accident, health and disability policies tax-free. The IRS says disability benefits are fully taxable when premiums were paid through a cafeteria plan. Confirm your setup with your CPA.

Is this the same as a Washington Paid Leave voluntary plan?

No. A Paid Leave voluntary plan is an employer-run paid family and medical leave plan used instead of the state plan, and it needs state approval. Voluntary benefits are separate insurance policies your employees choose to buy.

Can employees with an HSA buy voluntary benefits?

Yes, for certain types. The IRS allows coverage for accidents, disability, dental, vision and long-term care alongside an HSA-qualified plan. It also allows insurance for a specific disease or a fixed amount per hospital day. Have the carrier confirm each product first.

Can we add voluntary benefits without changing our medical plan?

Yes. Voluntary policies are separate from your medical plan, so you can add them at renewal or at another time of year. If premiums will run through your cafeteria plan, we will help line up the timing with your plan year.

About the author

Written by Brandon Hoobler, founder of Washington Insurance Brokers and a licensed Washington insurance broker (WA OIC #824207, verify a license). He has worked in insurance since 2009 and helps Washington employers with 5 to 500 employees compare group benefits. Questions about your plan? Call (206) 653-9636.

Sources

Posted in Employee Benefits