Section 125 plan (cafeteria plan)
A Section 125 cafeteria plan lets employees pay their share of benefit premiums with pre-tax dollars, and one must exist for pre-tax deductions to be legal.
Pre-tax premium deductions require a written plan document under Internal Revenue Code section 125. A PEO may maintain a cafeteria plan covering eligible worksite employees, so confirm the plan document, adopting entity, eligibility, and effective date.
Section 125 plans also bring election-change rules (employees generally cannot change elections mid-year without a qualifying event) and nondiscrimination testing. Ask the PEO who performs the testing and what happens if highly compensated employees fail it, and at exit, remember you will need your own plan document on day one to keep deductions pre-tax.