Because different employers have different needs and objectives, and because some may be more willing and able than others to foot the bill, you should be aware of the funding methods that are used with salary continuation plans. These include:

• Employee Pay-All Plan: Employees pay the entire premium with after-tax dollars. The annual premium is not deductible as a personal expense. Benefits are not taxable to the employee. The employer does not participate in the cost, but by using payroll deduction, the policyholder may benefit from a discount.
• Section 162 Employee Bonus Plan: The employer pays the employee a bonus equivalent to the premium and deducts it as a business expense. The employer then reports the payment on Form W-2. The cost to the employee is the added income tax on the bonus. Claim payments are not taxable to the employee when received. It looks like this:

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Businesses should consult with their tax and legal advisors when establishing a formal plan.