What Are Voluntary Benefits? How They Work for Employers
Written by Montiae Couse · Last reviewed
Short answer
Voluntary benefits are optional benefits employees can choose through the workplace. They are often employee-paid through payroll deduction, but employers may pay some or all of the cost depending on how the benefit is structured. Examples can include accident, critical illness, hospital indemnity, disability and life insurance, as well as certain dental or vision benefits. The specific policy and employer arrangement determine how each benefit works.
What you need to know
- Employees decide whether to enroll in a voluntary benefit.
- Voluntary benefits are often paid by employees through payroll deduction, but employers can choose to contribute.
- Even when employees pay the full premium, the employer usually still has a role, such as facilitating enrollment and payroll deductions.
- The same type of coverage can be employer-paid at one company and voluntary at another.
- Accident, critical illness and hospital indemnity coverage are supplemental. They are not a replacement for major medical insurance.
- Tax treatment and federal plan rules depend on how the benefit is set up.
How do voluntary benefits work?
In a typical arrangement, the employer makes one or more coverages available through the workplace, usually from an insurance carrier. Employees review the options and decide whether to enroll, often during an enrollment period. Employees who enroll may pay their premium through payroll deduction, and the employer passes those premiums to the carrier.
The insurance policy sets what is covered, eligibility, benefit amounts, exclusions and how claims work. The employer’s arrangement sets who is eligible to enroll, when enrollment happens and whether the employer pays any part of the cost. Arrangements vary, so two employers offering the same type of coverage may set it up very differently.
Who pays for voluntary benefits?
Voluntary benefits can be fully employee-paid, which may mean the employer does not pay the insurance premium. Employers may still have administrative responsibilities, such as facilitating enrollment or payroll deductions.
An employer may also choose to contribute toward some voluntary benefits, paying part of the premium or all of it. Whether a benefit is employee-paid, employer-paid or shared depends on the arrangement the employer chooses and the terms of the plan, so it is worth confirming how each coverage is structured rather than assuming.
Voluntary benefits vs. employer-paid benefits
- Employee choice
- Voluntary benefits (as commonly structured)Employees decide whether to enroll
- Employer-paid benefits (as commonly structured)Eligible employees may be enrolled automatically or may still elect coverage, depending on the plan
- Who may pay the premium
- Voluntary benefits (as commonly structured)Often the employee; the employer may choose to contribute
- Employer-paid benefits (as commonly structured)Often the employer; some plans ask employees to share the cost
- Enrollment
- Voluntary benefits (as commonly structured)Employees elect coverage, often during an enrollment period
- Employer-paid benefits (as commonly structured)Set by the plan; may involve automatic or elected enrollment
- Payroll deduction
- Voluntary benefits (as commonly structured)Commonly used to collect employee premiums
- Employer-paid benefits (as commonly structured)Used if employees pay a share
- Employer involvement
- Voluntary benefits (as commonly structured)Typically makes options available, facilitates enrollment and payroll deductions, and communicates with employees
- Employer-paid benefits (as commonly structured)Typically selects the plan, pays its share and administers the plan
- Role in the benefits package
- Voluntary benefits (as commonly structured)Adds optional coverage alongside core benefits
- Employer-paid benefits (as commonly structured)Often forms the core of the benefits package
This is not a strict either-or. Many benefits are shared-cost, and the same coverage can be voluntary at one employer and employer-paid at another.
Examples of voluntary benefits
- Accident insurance
- What it is generally designed to help withPaying set benefits after a covered accidental injury, as defined by the policy
- How it may appear in a workplace benefits packageMay be offered as a voluntary benefit
- Critical illness insurance
- What it is generally designed to help withPaying a benefit after diagnosis of a condition the policy covers
- How it may appear in a workplace benefits packageMay be offered as a voluntary benefit
- Hospital indemnity insurance
- What it is generally designed to help withPaying fixed benefits for covered hospital-related events or services, as defined by the policy
- How it may appear in a workplace benefits packageMay be offered as a voluntary benefit
- Disability insurance
- What it is generally designed to help withReplacing part of income when a covered illness or injury keeps someone from working
- How it may appear in a workplace benefits packageMay be employer-paid, shared or offered as a voluntary benefit
- Life insurance
- What it is generally designed to help withPaying a benefit to beneficiaries when the insured person dies
- How it may appear in a workplace benefits packageBasic coverage is sometimes employer-paid; additional coverage may be offered as a voluntary benefit
- Dental benefits
- What it is generally designed to help withHelping with the cost of dental care
- How it may appear in a workplace benefits packageMay be employer-paid, shared or offered as a voluntary benefit
- Vision benefits
- What it is generally designed to help withHelping with the cost of eye care and eyewear
- How it may appear in a workplace benefits packageMay be employer-paid, shared or offered as a voluntary benefit
These are general descriptions only. Each policy defines what it covers, eligibility, benefit amounts and exclusions.
What does the employer actually do?
Depending on the arrangement, the employer’s role may include:
- Deciding which coverages to make available and eligibility rules where applicable
- Coordinating with the carrier or benefits advisor
- Facilitating enrollment and employee communication
- Administering payroll deductions where applicable
- Handling applicable employee-status changes
- Deciding whether the employer will contribute
How do voluntary benefits fit with an existing benefits package?
Voluntary benefits are designed to add options alongside core benefits, not to replace them. Accident, critical illness and hospital indemnity coverage are supplemental in nature and should not be viewed as a replacement for major medical coverage. Washington’s Office of the Insurance Commissioner notes that fixed-payment coverage, such as a plan that pays a set amount per day in the hospital, is not comprehensive health insurance and may pay less than the cost of care.
Voluntary disability coverage can sit alongside other sources of income protection, such as Washington Paid Leave, depending on the policy terms and program rules.
Are voluntary benefits pre-tax?
There is no single answer. Tax treatment depends on the type of benefit, how the plan is structured, how premiums are paid and the applicable tax rules. For example, IRS Publication 15-B lists accident and health benefits and group-term life insurance among the benefits that can be offered through a cafeteria plan, and it describes special rules for group-term life coverage over $50,000. Employers should confirm the tax treatment of a specific benefit with a qualified tax professional. This is not tax advice.
Do federal benefit-plan rules apply?
Federal benefit-plan rules can depend on how involved the employer is in the arrangement. A U.S. Department of Labor regulation describes conditions under which certain group insurance programs offered to employees fall outside the definition of an employee benefit plan under ERISA. Those conditions involve no employer contributions, completely voluntary participation, limited employer involvement such as collecting premiums through payroll deduction and passing them to the insurer, and the employer receiving nothing beyond reasonable compensation for those administrative services.
Employers with questions about ERISA or plan compliance should review the applicable rules and seek qualified guidance for their specific plan.
What should employers consider before offering voluntary benefits?
- What employees already have through core benefits, state programs and any union or trust plans
- Which gaps employees are most concerned about
- Whether coverage will be fully employee-paid, shared or partly employer-paid
- What the employer’s administrative role will be, including payroll deductions
- How the options will be explained to employees during enrollment
- How the arrangement affects tax treatment and federal plan rules
Want to start with what you already offer? The Benefits Checkup gives a quick picture of your current benefits.
Common questions
What are voluntary benefits?
Optional benefits employees can choose through the workplace. They are often employee-paid through payroll deduction, but employers may pay some or all of the cost depending on how the benefit is structured.
What is an example of a voluntary benefit?
Accident, critical illness and hospital indemnity insurance are common examples. Disability, life, dental and vision benefits may also be offered as voluntary benefits, though they are often employer-paid or shared.
Are voluntary benefits free for employers?
Not necessarily. Voluntary benefits can be fully employee-paid, which may mean the employer does not pay the insurance premium. Employers may still have administrative responsibilities, such as facilitating enrollment or payroll deductions, and some choose to contribute.
Are voluntary benefits pre-tax?
It depends on the type of benefit, how the plan is structured, how premiums are paid and the applicable tax rules. Confirm the treatment of a specific benefit with a qualified tax professional.
Do voluntary benefits replace health insurance?
No. Coverage such as accident, critical illness and hospital indemnity insurance is supplemental and is not comprehensive medical insurance.
Are employers required to offer voluntary benefits?
Whether an employer is required to offer a particular benefit depends on applicable law and the employer’s circumstances. The term ‘voluntary benefits’ generally refers to benefits employees can choose whether to enroll in.
Sources
- U.S. Department of Labor regulation — 29 CFR 2510.3-1(j), certain group or group-type insurance programs (eCFR)
- IRS Publication 15-B — Employer’s Tax Guide to Fringe Benefits
- Washington Office of the Insurance Commissioner — Fixed-payment benefit plans annual report (May 2025)
- Washington Office of the Insurance Commissioner — ACA vs. non-ACA health coverage options
- Washington Office of the Insurance Commissioner — Consumer insurance glossary ("Disability income insurance")
Coverage depends on eligibility, policy terms, applicable programs and individual circumstances.
Educational information only, not legal or tax advice. Check official sources for current program rules.
Written by Montiae Couse
Licensed Washington Insurance Producer · Life & Disability · WAOIC #1382988 · Verify license
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