A Section 125 POP (Premium-Only-Plan) is a type of cafeteria plan that allows your employees to pay for their insurance premiums with pre-tax dollars.

Employer contributions to insurance premiums are always pre-tax. But many employers require their employees to shoulder at least part of the premiums, and employee contributions aren’t pre-tax—unless there’s a Section 125 POP in place.

Being able to pay for premiums using pre-tax dollars obviously benefits your employees, but it’s also a win for you. Any amount that employees deduct pre-tax for their premiums is subtracted from their total wages, which in turn reduces the amount of employer payroll taxes that you have to pay.

A Section 125 POP can be applied to premiums for group insurance products that you offer your employees. That includes health, dental, vision, disability, up to $50,000 in term life coverage, and other supplemental coverage.

Keep in mind that the Section 125 plan itself is not insurance though—you still have to offer group insurance coverage separately.