A law firm’s benefits have two audiences, and the tax code treats them differently.
Partners and staff usually share one plan but not one set of rules. Getting the partner side right is where most firms leave money or compliance on the table, and getting the staff side right is how they keep good people.
The owner side runs on different rules.
These points apply to partners in firms taxed as partnerships and to more-than-2% shareholders of S corporations.
No Pre-Tax Premiums
Partners and more-than-2% S corporation shareholders cannot pay their premiums pre-tax through a cafeteria plan. They generally use the self-employed health insurance deduction on their personal return instead. The error we look for is partners enrolled in the firm’s cafeteria plan alongside staff, with premiums deducted pre-tax through payroll. It is fixable, but it should be corrected with your CPA before the next plan year rather than found in an audit.
S Corporation Premiums Hit the W-2
When the firm pays health premiums for a more-than-2% shareholder, the amount is included in that shareholder’s W-2 wages and then deducted personally. Payroll has to be set up for it before year-end. The shareholder’s personal deduction depends on the W-2 showing the premium correctly. We flag the more-than-2% shareholders on the census so your payroll provider and CPA have the list well before the last payroll of the year.
HSAs Work Differently
Partners can have a health savings account with a qualifying plan, but firm contributions for them are treated as distributions or guaranteed payments rather than tax-free employer contributions. The partner can still contribute personally and deduct it on their own return, within the same annual limit as everyone else. When the firm funds staff HSAs through payroll, partner money needs to be tracked separately so it is not reported as an employer contribution.
Disability for High Earners
Group long-term disability plans cap the monthly benefit, so attorneys with high incomes often replace far less of their pay than they assume. Supplemental individual coverage closes that gap. A group definition of earnings may also leave out bonuses or partner draws, which widens the gap further. We price the individual layer alongside the group renewal so attorneys see the whole replacement picture in one place.
Paralegals and legal assistants are the retention fight.
What Staff Notice
Dependent cost and the deductible, not the number of plan options. A contribution design that keeps family coverage affordable often matters more than a richer plan. When the firm contributes a set share of the employee-only premium, a paralegal adding a spouse and children can face most of the difference alone. We model contributions by tier so family coverage stays within reach for the people the firm most wants to keep.
Classes Done Properly
Firms can treat attorneys and staff differently when the classes are based on bona fide job categories, but carriers have rules and self-funded or HRA arrangements add nondiscrimination testing. The classes have to be written into the plan document and applied consistently, and a design that favors highly compensated attorneys can fail testing even when the classes themselves are legitimate. We check the design against those rules before it goes to the carrier.
New Hires
Laterals and staff can be made to wait for coverage, but never more than 90 days. A shorter wait is a cheap recruiting advantage. The limit counts calendar days, weekends included, so a policy that starts coverage on the first of the month after 90 days breaks it. We check the waiting period in the carrier contract and in the handbook against each other.
Voluntary Benefits
Dental, vision, life and disability options let employees buy what they value without raising the firm’s fixed cost. Because employees pay the premium through payroll deduction at group rates, the firm’s cost is mostly the enrollment effort. Underwriting is often lightest at initial enrollment, so that is the moment to explain them properly.
What we look at first in a law firm’s plan.
We split the census into owners and employees before touching the renewal, because the tax treatment, the contribution strategy and the right funding options all depend on that split. For smaller firms, an individual coverage HRA or a small-employer HRA can sometimes replace a group plan entirely.
What law firms ask us.
Can partners be covered on the firm’s group health plan?
Generally yes, as working owners, subject to the carrier’s eligibility rules. The difference is in the tax treatment of the premium, not in eligibility for coverage. Owners are usually listed separately on the carrier application, and their eligibility follows the policy’s definition of an eligible employee. We check that definition before partners are added, because a partner enrolled outside it becomes a claim problem later.
Can partners pay their premiums pre-tax?
No. Partners and more-than-2% S corporation shareholders cannot participate in a cafeteria plan. They generally deduct premiums as self-employed health insurance on their personal returns. For a partnership, a premium the firm pays for a partner is generally reported to that partner as a guaranteed payment, which the partner may then be able to deduct. Your CPA should confirm the reporting for each partner.
Can we contribute more for attorneys than for staff?
Often yes, if the classes are based on bona fide job categories and the carrier allows it. Self-funded plans and HRAs need nondiscrimination testing before the design is final. Within each class the contribution should be uniform, and the class definitions belong in the plan document, not only in an email. We build the design so it holds up if it is tested.
We are a small firm. Do we need a group plan?
Not necessarily. Firms with fewer than 50 full-time equivalent employees are not required to offer coverage, and an HRA can reimburse individual coverage instead. The right answer depends on who is on the census. A QSEHRA reimburses individual premiums up to $6,450 for employee-only coverage in 2026. Partners cannot participate in either arrangement, which is why the owner and employee split comes first.
How much disability coverage do attorneys need?
Enough to replace a meaningful share of actual income. Group plans cap the benefit, so higher earners usually need an individual policy on top. An individual policy is underwritten on the attorney’s own income and occupation, and it stays with them if they change firms. Who pays the premium, and whether it is taxed as income, decides whether the benefit is taxed when it is paid.
Do we need COBRA?
Federal COBRA applies to employers with 20 or more employees. Michigan has no separate state continuation law for smaller groups. The count includes part-time employees as fractions and looks at the prior calendar year, so a firm with a lot of part-time staff can cross it before anyone notices. We check it at each renewal.
General information, not tax or legal advice. Confirm the treatment of owners with your CPA.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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