How much can a manufacturing shop save with a Section 125 plan?

A 100-employee manufacturing or fab shop at $50,000 average wage with $3,500 average pre-tax benefit election saves approximately $26,775 per year in employer FICA payroll tax. The math: $350,000 in pre-tax elections times 7.65% FICA equals $26,775. IRC §3111. Skilled-labor shops often have higher average wages, which means higher absolute savings.

Do my shop floor workers save money too?

Yes. Every worker avoids 7.65% FICA on their pre-tax elections, plus federal income tax and state income tax in most states. On a $3,500 election, that is roughly $90 more per paycheck in take-home for each worker, with no change to benefits. For a skilled workforce that is hard to replace, this is a real retention lever.

Will my CPA approve a Section 125 plan?

Almost certainly yes. Section 125 is standard payroll and tax practice. Your CPA either already files it for you (if you have any pre-tax deductions today) or works with the TPA who does. David will talk to your accountant directly to walk through the setup.

For specialty manufacturing and fab shops: pay less in payroll taxes on the benefits you already offer.

Q: Is Section 125 legal for specialty manufacturing and fab shops?

Yes. Section 125 of the Internal Revenue Code (26 U.S.C. §125) has been federal law since 1978. Cafeteria plans are explicitly defined and protected by statute. The law has been amended dozens of times since, never repealed.

A 100-employee company saves $26,775 a year through Section 125. Every employee sees up to $90 more per paycheck. Same benefits, same coverage, less out of your pocket.

Math: 100 employees × $3,500 average pre-tax election × 7.65% FICA = $26,775. IRC §3111.

Get your company's number

See what Section 125 saves your shop — retain skilled labor while lowering payroll costs. David reaches out within one business day.

How the math actually works

1
Your team picks pre-tax benefits (health premiums, FSA, HSA, supplemental coverage) through a Section 125 plan you already have or we set up.
2
Those dollars come out of wages before payroll tax is calculated.
3
You and your team both pay 7.65% less in FICA on a smaller wage base. Same benefits land in their pocket. The 7.65% you both used to pay stays in yours.

For a 100-employee specialty manufacturing & fab shops company at $50,000 average wage:

	Without Section 125	With Section 125
Annual wages	$5,000,000	$5,000,000
Pre-tax benefit elections	$0	$350,000
Wages subject to FICA	$5,000,000	$4,650,000
Employer FICA (7.65%)	$382,500	$355,725
Your annual savings	-	$26,775

Your number depends on headcount, average wage, and election size. Connect with David to get yours.

Why this matters for specialty manufacturing and fab shops specifically

Shop owners feel three pressures most: skilled labor (welders, machinists, operators) that is hard to find AND hard to keep, materials and energy inflation hitting margins, and an aging workforce where the next generation of apprentices is thin. Section 125 hits the first two without writing a new check.

Skilled labor retention without raising the floor rate.

When the shop down the road poaches your journeyman welder with a $2/hr offer, $90 more on every paycheck through pre-tax benefits is the counter you can offer without changing your shop rate. Same income to them. No margin hit to your gross.

Materials and energy inflation. Section 125 is one line item where inflation HELPS you.

Steel, aluminum, energy, freight: most of your line items only climb. Section 125 is a rare lever where inflation actually works in your favor. The more premium your team runs pre-tax, the more 7.65% adds up. Premiums went up roughly 14% in 2025. As premium dollars go up, your FICA savings go up automatically.

One less thing for your shop manager to figure out.

David handles the plan document, nondiscrimination testing, payroll integration with ADP / Paychex / shop-floor payroll software, and IRS compliance filings. You sign off on the math, he sets it up, your CPA reviews. Your shop manager stays on production.

Is this actually real?

Section 125 sounds too good to be true. It is real. It has been real since 1978.

It is federal law.

Section 125 of the Internal Revenue Code (26 U.S.C. §125) was enacted by the Revenue Act of 1978. Cafeteria plans are explicitly defined and protected by statute. The law has been amended dozens of times since. Never repealed.

The 7.65% is not negotiable.

IRC §3111 sets the employer payroll-tax rate at 7.65% (6.2% Social Security + 1.45% Medicare). Pre-tax elections reduce the wage base. Lower wage base means lower FICA. Arithmetic, not interpretation.

Have your accountant in the room.

Section 125 is standard payroll and tax practice. Your CPA either already files it for you or works with the TPA who does. Bring them into the conversation with David. He will talk to them too.

About David

David Toves, Licensed Benefits Consultant

Licensed Benefits Consultant | Phoenix, AZ

David Toves is a licensed benefits consultant based in Phoenix. He works with HVAC owners, electrical contractors, plumbers, restaurant operators, trucking fleets, and hotel operators across the country to set up Section 125 cafeteria plans, FSAs, HSAs, and supplemental coverage. The closest thing most owners get to a benefits guy who picks up the phone.

Already know you want to talk? Email David directly at dtoves@tovesfinancial.com

Keep reading

For manufacturing

Employee Benefits for Manufacturing

Guide

How Much Does Section 125 Save? FICA Savings by Company Size

Comparison

Section 125 vs. Raising Salaries: A Tax Comparison

Run a different kind of business? See all the industries we work with.

Ready to see your company's number?

Scroll up, drop your name and contact info, and David reaches out within one business day.

Connect with David