Every CFO who hears about a wellness program that adds money to the P&L asks the same thing, and it is the right thing to ask: show me the actual numbers.
This page is the answer. No adjectives, no projected claims savings that may or may not show up in three years. Just the line-by-line arithmetic of how wellness program payroll tax savings work, where the more-than-$750-per-enrolled-employee-per-year figure comes from, and what has to be true for the math to hold. Every input below is one you can check against your own payroll file.
The four numbers that matter
Per enrolled employee, per year, in the current illustration:
| Line item | Amount |
|---|---|
| Employee Section 125 pre-tax election | $1,355/month ($16,260/year) |
| Employer FICA match no longer owed on that amount (7.65%) | $1,243.89/year |
| Employer platform contribution | −$36/month (−$432.00/year) |
| Net payroll-tax efficiency, single-employee illustration | $811.89/year |
| Capital outlay | $0 |
That is the whole model. The employee elects into the documented medical-care benefit pre-tax, the employer’s matching FICA is no longer owed on the elected amount, and after the platform contribution the illustration nets $811.89 per enrolled employee per year.
We plan at more than $750 per enrolled employee per year, deliberately below the single-employee illustration. For any enrolled employee earning above the Social Security wage base, only the 1.45% Medicare portion applies, which pulls the blended figure down. The number is sized against your actual census before you commit to it. Modeled honestly, not promised in the abstract.
Run it across a workforce at the conservative $750 planning figure and it gets interesting fast. At 100 enrolled employees, roughly $75,000 a year. At 200, $150,000. At 1,000, $750,000. From the benefits line. Which normally only knows how to spend.
Where the payroll tax savings come from
The engine is Section 125 of the Internal Revenue Code, the same cafeteria-plan framework that already carries your health premiums, FSAs, and HSA contributions.
Inside a compliant Section 125 plan, paired with a Self-Insured Medical Reimbursement Plan (SIMRP) and a Preventive Care Management Program (PCMP), employees make pre-tax elections toward qualified medical care under IRC Section 213(d). Pre-tax elections lower taxable wages, and lower taxable wages mean lower FICA on both sides. The employee pays less payroll tax, and the employer’s matching FICA is no longer owed on the elected amount.
Two things matter about how that efficiency arises. First, it is not an estimate of future claims avoided; it shows up in payroll in the first cycle after enrollment. Second, it is a by-product of two independently operating plan functions run properly: the Section 125 election is a contribution mechanism, and the Section 105 reimbursement separately covers eligible, substantiated, unreimbursed 213(d) care, capped at the documented value (currently $1,198 per month, a ceiling set in the plan document, not a guaranteed payout). The full mechanism is covered in our Section 125 wellness program explainer, and the plan structure behind it in What is a SIMRP?.
What the employee sees
This is not the employer keeping money the employee should have had. In the worked example of an employee earning $39,000 a year, the pre-tax election lowers taxable wages, total taxes drop from $634.73 to $370.10 a month, and after the plan reimbursement the employee’s take-home pay goes up by about $108 a month, roughly $1,292 over the year, in that illustration. On top of that they receive the wellness benefit itself: the Alively platform, their choice of wearable experience, and one small daily action built for people who never touch traditional wellness.
What the $36 buys
The platform contribution is not a license fee bolted onto a tax trick. It funds the benefit stack: the Alively platform for every enrolled employee, the engagement layer built to activate the 80% who never engage with traditional wellness, and the compliance architecture run by our compliance partner, with a decade of experience doing this at scale: plan documents, substantiation of Section 213(d) expenses, payroll integration, nondiscrimination testing, ongoing administration, and audit indemnification for the employer.
And the commercial term matches the math: no implementation fee, no capital outlay, and the first invoice only follows once cumulative net savings clear the fee. You and Finance agree the metric and the baseline before anything is signed.
The math holds only if the structure does
Here is the part a good CFO should push on. The savings are real because the plan is real.
Every reimbursement in a compliant plan is tied to a substantiated Section 213(d) medical expense. There is no automatic return of funds, no circular flow of wages, no fixed-indemnity cash-back scheme. Those are the failure modes the IRS has challenged, and a properly built plan is designed to avoid every one of them. The structure behind these numbers travels with a legal opinion letter, an independent CPA opinion, and a peer-reviewed CPA Journal article, all available for your counsel’s review.
One more condition, and we say it upfront because it is the catch: employees have to participate. They opt in and actively onboard. No participation, no benefit, no tax savings. The figure is per enrolled employee, not per employee on the org chart.
Why this beats the traditional wellness ROI story
Traditional wellness ROI asks you to spend money now and trust that healthier employees will cost less later. Sometimes true, always slow, never on your P&L this quarter. The federal government’s own prevention thesis is that $1 invested in prevention avoids roughly $30 in downstream sick spend, but that return shows up in years, mostly in someone else’s budget.
This math is different in kind. The payroll-tax efficiency is immediate and mechanical, so the program is net positive before a single health outcome moves. Then the health outcomes become upside on top of a benefit that already paid for itself. That inversion, funding prevention out of found money instead of budget, is the entire point.
The wellness line item stops being something you defend at renewal. It becomes one of the few line items in the company that pays you.
Frequently asked questions
How much do employers actually save with a Section 125 wellness program?
In the current illustration, the employer’s FICA match no longer owed comes to $1,243.89 per enrolled employee per year, and net of the $36 per month platform contribution that is $811.89. The planning figure is more than $750 per enrolled employee per year, blended for a normal mix of wage levels and modeled against your actual census.
How do wellness program payroll tax savings work?
Pre-tax employee elections toward qualified Section 213(d) medical care lower taxable wages. Lower taxable wages reduce FICA for both the employee and the employer. The employer’s FICA match no longer owed on the elected amount is the efficiency that funds the program.
Is the $750 per employee guaranteed?
No, and be wary of anyone who guarantees a tax outcome. It is a modeled planning figure, per enrolled employee, that depends on eligibility, participation, elections, wage levels, and proper administration. The single-employee arithmetic is mechanical once someone is enrolled; the blended total is sized against your census before you commit.
Does this reduce employee healthcare costs too?
The payroll-tax efficiency is immediate and independent of claims. Any longer-term healthcare-cost impact comes from finally engaging the 80% of employees who never use traditional wellness, which is what the Alively platform and the wearable are there to do.
This page is educational and is not tax or legal advice. The figures shown are illustrative; actual results vary by eligibility, participation, elections, wage levels, and administration. The plan structure and covered care behind the program are administered by Alively’s compliance partner; the Alively app is wellness software, not medical care. Employers should have the plan documents, the legal opinion letter, the independent CPA opinion, and the CPA Journal article reviewed by their own tax counsel before launch.