Roofing Contractors: How Pre-Tax Benefits Help You Keep Crews Without Raising Base Pay

Benefits Genius

What 30 Roofers on FSA Saves You in Employer FICA

IRS 2026 Health FSA Limit

$3,400

Per employee, per year

30 Employees x $3,400

$102,000

Pre-tax contributions removed from payroll

x 7.65% FICA Rate

$7,803

Employer FICA savings per year

Per-Employee Paycheck Boost

$260

Each worker saves ~$260/yr in FICA taxes alone

Source: IRS Revenue Procedure 2025-32; FICA rate per IRC Section 3111

Turnover Is Killing Roofing Crews - And It Is Getting More Expensive

Ask any roofing contractor what keeps them up at night and the answer is almost always the same: keeping a good crew together.

Roofing has one of the highest voluntary turnover rates in the construction trades. Workers get poached mid-season by competitors willing to pay a dollar more per hour. Experienced crew leads walk after a tough winter. New hires quit before they finish their first month on the roof. And every time someone leaves, you spend time recruiting, training, and covering jobs with whoever you can find.

The problem is not new. What is new in 2026 is how much it costs. When an experienced roofer walks out the door, the lost productivity, rehiring, and retraining costs stack up fast. And because most roofing crews run lean, you cannot just absorb one or two open positions without it hitting your job schedules.

Most owners respond the way the industry has always responded: raise hourly pay. Sometimes that is the right call. But a straight wage increase has a hidden cost - it raises your FICA tax bill on every dollar, it raises workers compensation premiums in most states, and it raises the pay floor that your competitors will eventually match anyway.

There is a different move that most roofing contractors have never looked at: Section 125 pre-tax benefits.

This article explains what Section 125 is, how it works for a roofing crew, and what the actual dollar math looks like. No market surveys, no ballpark figures - just the IRS rules and the arithmetic.

What Is Section 125 and Why Does It Matter for Roofing?

Section 125 refers to a section of the Internal Revenue Code that allows employers to set up a “cafeteria plan” - a formal arrangement under which employees can direct part of their compensation into qualifying benefits on a pre-tax basis. The most common components are:

Health Flexible Spending Accounts (FSAs): Employees set aside pre-tax dollars to pay for out-of-pocket medical expenses - copays, prescriptions, dental work, eyeglasses.
Dependent Care Flexible Spending Accounts (also called Dependent Care FSAs): Employees set aside pre-tax dollars for childcare, after-school programs, or elder care expenses. The IRS calls this a Dependent Care Assistance Program, often shortened to DCAP.
Health insurance premiums: If you offer group health coverage, employees can pay their share of premiums pre-tax through a Premium Only Plan, which is the simplest form of a Section 125 arrangement.

The key mechanic: pre-tax contributions come out of gross wages before FICA is calculated. That means both the employee and the employer pay less in payroll taxes on every dollar shifted into a qualifying benefit.

For a roofing contractor running a crew of hourly workers, that mechanic creates two advantages:

Your employees get a paycheck boost without you raising base pay. Their take-home pay goes up because they are paying less in taxes on the same gross wages.
Your FICA tax bill goes down. Employers pay 7.65% matching FICA on employee wages. Every pre-tax dollar removes 7.65 cents from your tax liability.

Neither advantage requires comprehensive group health coverage. But there is an important nuance most articles skip: a health FSA must be paired with some form of group medical coverage to remain ACA-compliant as an “excepted benefit” - this can be a limited-purpose plan, minimum essential coverage (MEC) plan, or another low-cost option, not necessarily a full comprehensive group health plan. A Dependent Care FSA carries no such requirement and can be offered as a true standalone benefit. A qualified benefits professional can help structure the right pairing for your specific workforce.

The Roofing Workforce Problem in 2026

The 2026 State of the Roofing Industry report from Roofing Contractor magazine found that 72% of contractors cite competitive pay and bonuses as their primary retention strategy. But “pay more” has a ceiling - especially in residential roofing, where margins are thin and storm work is seasonal.

The labor shortage in roofing is structural. There are not enough trained roofers entering the trades to replace those leaving, and experienced crew leads with the skills to run a team safely are genuinely scarce. When you lose one of those people, the gap is hard to fill.

Here is what that means practically for most roofing operators:

You are constantly recruiting, which takes time away from running jobs
You are carrying new hires who are slower and need more supervision
Your injury rates can rise when you have inexperienced people on roofs
Your bids get harder to price accurately when your labor capacity is uncertain

Benefits can help on the margin. Not because they replace pay - they do not. But because they change the conversation. When a competitor recruits your crew lead with a $1/hour bump, and your workers know that their FSA is putting an extra $260 in their pocket every year that they would not have anywhere else, the math on leaving looks a little different.

That $260 per employee figure is not an estimate. It comes directly from the IRS numbers. Here is how.

The Math: What a Health FSA Actually Saves Your Crew

In 2026, the IRS allows each employee to set aside up to $3,400 per year in a health Flexible Spending Account (FSA). That money is deducted from their paycheck before federal income tax and FICA (Social Security and Medicare taxes) are calculated.

FICA stands for the Federal Insurance Contributions Act. Employees pay 7.65% of wages in FICA taxes (6.2% Social Security + 1.45% Medicare). If an employee contributes $3,400 to an FSA, they avoid $260.10 in FICA taxes alone:

$3,400 x 7.65% = $260.10 per employee in annual FICA savings

That $260.10 shows up as higher take-home pay - a paycheck boost - without you raising their base rate at all. On top of that, they also avoid federal income tax on the $3,400, which typically saves them another $340 to $816 depending on their bracket. The combined effect is real money in their pocket.

From your side of the ledger, you also stop paying employer FICA on those pre-tax contributions.

Employers pay a matching 7.65% FICA on employee wages. When employees contribute to a Section 125 plan, that portion of their wages is excluded from FICA. So your employer FICA savings look like this:

30 employees each contributing the IRS maximum of $3,400:
- 30 x $3,400 = $102,000 in pre-tax contributions removed from FICA taxable wages
- $102,000 x 7.65% = $7,803.00 in employer FICA savings per year
50 employees each contributing the IRS maximum of $3,400:
- 50 x $3,400 = $170,000 in pre-tax contributions removed from FICA taxable wages
- $170,000 x 7.65% = $13,005.00 in employer FICA savings per year

These are not projections. They are IRS arithmetic. The actual savings at your company depend on how many employees enroll and how much each one contributes - the IRS maximum is a ceiling, not a requirement. But even if only half your crew participates and half contribute the maximum, the employer savings are real and recurring every year the plan runs.

Use the FICA Savings Calculator at /tools/fica-calculator to run your own numbers with your actual headcount.

Adding a Dependent Care FSA: The Other Option Most Roofers Miss

If some of your crew members have young children or pay for elder care, there is a second pre-tax benefit they can access: the Dependent Care FSA, sometimes called a DC-FSA or DCAP (Dependent Care Assistance Program).

In 2026, the IRS allows each employee to set aside up to $7,500 per year in a Dependent Care FSA. This money covers childcare, preschool, after-school programs, and qualifying elder care for a dependent parent or relative.

For roofing crew members who are paying $1,000-$1,500 per month out of pocket for childcare - a real cost for anyone with young kids - the ability to run those expenses through a pre-tax account is significant.

The employer FICA math works the same way as health FSAs:

20 employees each contributing the IRS maximum of $7,500:
- 20 x $7,500 = $150,000 in pre-tax contributions removed from FICA taxable wages
- $150,000 x 7.65% = $11,475.00 in employer FICA savings per year

Most roofing companies do not offer a Dependent Care FSA because no one has ever told them they can. Unlike a health FSA, a Dependent Care FSA does NOT trigger ACA market-rule constraints - it can be offered as a true standalone benefit with no companion group medical plan. It requires a Section 125 plan document and a payroll process that handles the pre-tax deduction.

Why This Matters More for Roofing Than Most Industries

A lot of the coverage of pre-tax benefits is written for white-collar employers with 200-person HR departments. The truth is that Section 125 plans are often a better fit for roofing contractors than they are for large corporate employers - here is why:

Your Workers Pay Full Price for Healthcare Out of Pocket

Many roofing crews do not have employer-sponsored health insurance. That means workers are paying for every prescription, every copay, and every dental visit with after-tax dollars. An FSA changes that immediately. Even without group coverage, a health FSA can reimburse a wide range of out-of-pocket medical costs pre-tax. For a worker spending $200-$400 per year on copays and prescriptions, getting that money back from a pre-tax account is a real and tangible benefit.

Your Margins Are Thin and You Cannot Afford Wasted Payroll Tax

Residential roofing operates on tighter margins than almost any other construction segment. Storm work helps, but it is unpredictable. Commercial jobs take longer to close. Material costs have been volatile. In that environment, $7,803 per year in payroll tax savings on a 30-person crew is not a rounding error - it is a real line item.

Crew Poaching Is Your Biggest Competitive Threat

When a competitor offers $1/hour more to your crew lead, that is an annualized raise of roughly $2,000 for a full-time worker. Your health FSA is worth $260.10 in FICA savings alone - but combined with the income tax savings, the total annual tax benefit to the employee is typically $500-$900 depending on their bracket. That narrows the gap considerably. And unlike a wage increase, your FSA does not raise the floor that a competitor needs to beat next season.

You Can Start Mid-Year for New Hires

Section 125 plans can be structured to allow new hires to enroll after a waiting period and set aside pro-rated contributions for the remainder of the year. That means you do not have to wait until January to offer this to a crew you are building right now.

What Does a Section 125 Plan Actually Include for a Roofing Company?

The specifics depend on your plan design, but a basic Section 125 setup for a roofing contractor typically includes:

Plan Document A written plan document is required by the IRS. It spells out who is eligible, what benefits are offered, the plan year dates, and the rules for mid-year changes. This document is the legal foundation of the plan.

Health FSA Employees contribute pre-tax. They can access the full annual amount on day one of the plan year. Expenses are reimbursed from the account - either through a debit card or reimbursement request. Unused balances up to $680 (the 2026 IRS carryover limit) can roll to the next year.

Dependent Care FSA Employees contribute pre-tax, up to $7,500 per household in 2026. Unlike health FSAs, the balance must be in the account before it can be reimbursed. This is a “pay-in first” model. Eligible expenses include daycare, preschool, before/after-school care, and qualifying dependent elder care.

Payroll Integration Pre-tax deductions need to be coded correctly in your payroll system so FICA is calculated on the reduced taxable wages. Most payroll platforms (Gusto, ADP, Paychex) support Section 125 deductions natively. You or your payroll processor sets up the deduction type and the amounts deduct automatically each pay period.

Non-Discrimination Testing The IRS requires that Section 125 plans do not discriminate heavily in favor of highly compensated employees or key employees. For most roofing companies - where the majority of the workforce is hourly crew and the owner/principals are a small fraction of headcount - passing non-discrimination testing is straightforward. A qualified benefits administrator can run the tests annually.

Annual Administration Once the plan is running, ongoing administration involves tracking contributions, processing reimbursements, and running the annual non-discrimination test. Some companies handle this in-house; most small and mid-size roofing contractors use a third-party administrator (TPA).

Comparing Section 125 to Just Raising Wages

This is the comparison most roofing owners have not run. Let us look at it directly.

Say you have 30 employees and you are trying to decide between:

Option A: Raise average pay by enough to give each worker an additional $260 per year

To get $260 more in take-home pay after FICA and federal income tax (assuming a 22% income bracket), you need to raise gross wages by roughly $380 per employee per year
30 employees x $380 = $11,400 in additional gross wages
Employer FICA on that increase: $11,400 x 7.65% = $872.10 in additional FICA you now owe
Net cost to you: approximately $12,272 per year
And that wage floor is now the new baseline - competitors will eventually match it

Option B: Offer a Health FSA under Section 125

Employees contribute $3,400 each pre-tax
Their FICA savings: $260.10 each - same take-home boost as the raise, but from their own pre-tax dollars
Your employer FICA savings: $7,803.00 per year
Net cost to you: negative - you save money rather than spend it
The competitive advantage: “our people have pre-tax benefits” is harder to replicate with a simple hourly counter-offer

The math on Option B is not close. A Section 125 FSA gives your employees a comparable take-home benefit at no direct wage cost to you - and saves you nearly $8,000 in employer FICA taxes in the process.

See the side-by-side breakdown with your numbers at /tools/roi-calculator.

The Seasonal Workforce Question

Roofing contractors often raise one specific concern: “My crew is seasonal. Does any of this work for me?”

Short answer: it can, with the right plan design.

Section 125 plans are structured around a plan year, typically 12 months. Workers who are employed for only part of the year - a common situation in roofing - can still participate for the months they are on the payroll. The contribution amount is typically pro-rated or limited to what they will actually earn during their active period.

Key considerations for seasonal roofing crews:

Eligibility waiting periods can be set to match your typical crew ramp-up period, ensuring you are not enrolling workers who will leave after two weeks.
Health FSA contributions are available in full on day one of the plan year, but if a worker leaves mid-year having spent more than they contributed, the employer typically absorbs the shortfall. Plan design can mitigate this with conservative contribution caps.
Dependent Care FSA operates on a “use what you put in” basis, so there is no over-spend risk to the employer.
Year-round core employees (crew leads, project managers, office staff) can participate fully regardless of whether you extend the plan to seasonal workers.

Benefits Genius connects roofing contractors with qualified professionals who specialize in Section 125 plan design for trades and construction employers. They can help you structure eligibility rules that work for your specific mix of year-round and seasonal crew.

What Roofing Contractors Often Get Wrong About Pre-Tax Benefits

“That’s too complicated for a company our size.” Section 125 plans scale down to very small employers. The IRS does not set a minimum employee count. A five-person roofing crew can have a plan. The administrative machinery is simpler than running a group health plan.

“Our guys won’t use it - they don’t even know what an FSA is.” That is a communication problem, not a benefits problem. When someone explains that $3,400 of what they spend on prescriptions, copays, and dental work every year comes out of their check before taxes - which means they get more money in their pocket - most people understand it fast. The concept of “spend less in taxes” does not require an HR background.

“We don’t offer health insurance so this doesn’t apply to us.” A Dependent Care FSA can run as a true standalone benefit - no group health plan required. A health FSA is more nuanced: under ACA market reforms, a health FSA generally must be paired with some form of group medical coverage to maintain its ACA-compliant “excepted benefit” status. The pairing does NOT have to be a comprehensive group health plan - it can be a limited-purpose plan, a minimum essential coverage (MEC) plan, or another low-cost arrangement designed to satisfy the rule. A qualified benefits professional can structure the right pairing for your situation.

“I’ve already tried to offer benefits and no one enrolled.” Enrollment rates for voluntary benefits are almost always a function of how the benefit was explained, not the benefit itself. If someone handed your crew a stack of brochures at open enrollment and called it done, that is not a real enrollment effort. A walkthrough at a crew meeting explaining the paycheck math in plain terms produces very different results.

A Scenario: What 30 Roofers, a Health FSA, and a Dependent Care FSA Looks Like

Let us put all the numbers together in a realistic scenario.

Say you run a roofing company with 30 W-2 employees. Of those 30:

All 30 participate in the health FSA and contribute the full IRS maximum
10 of them also participate in the Dependent Care FSA and contribute the full IRS maximum

Health FSA: In 2026, the IRS allows each employee to contribute up to $3,400 per year to a health FSA.

30 employees x $3,400 = $102,000 in pre-tax FSA contributions
$102,000 x 7.65% = $7,803.00 in employer FICA savings

Dependent Care FSA: In 2026, the IRS allows each employee to contribute up to $7,500 per year to a Dependent Care FSA.

10 employees x $7,500 = $75,000 in pre-tax Dependent Care FSA contributions
$75,000 x 7.65% = $5,737.50 in employer FICA savings

Combined employer FICA savings: $7,803.00 + $5,737.50 = $13,540.50 per year

That is recurring. It happens again next year, and the year after, as long as the plan is in place and employees are contributing.

Your crew’s paycheck boost on the health FSA alone:

Each of the 30 employees saves $260.10 in FICA taxes on their $3,400 FSA contribution
Plus whatever they save on federal income tax (not calculated here - it depends on individual brackets)

The Dependent Care FSA participants save an additional $573.75 each in FICA taxes on their $7,500 contribution ($7,500 x 7.65% = $573.75).

How to Get Started

Benefits Genius does not sell or implement Section 125 plans directly. What we do is educate employers about how these plans work and connect them with qualified professionals who specialize in Section 125 administration for trades and construction businesses.

If you are a roofing contractor who has never looked at pre-tax benefits, the first step is understanding what your current headcount and potential contribution levels mean for your FICA savings. The FICA Savings Estimator at /tools/savings-estimator takes about 60 seconds to run and gives you a concrete number based on your crew size.

From there, a qualified benefits professional can:

Review whether a Section 125 plan makes sense for your specific workforce mix
Draft a plan document that meets IRS requirements
Set up the payroll integration so pre-tax deductions are handled correctly
Run annual non-discrimination testing
Help you communicate the benefit to your crew in plain terms

The IRS rules here are well-established. Section 125 has been in the tax code since 1978. Pre-tax FSAs have been available to hourly workers since the beginning. Most roofing contractors simply have not had anyone explain how it works for their industry specifically.

That is what this article is for.

Summary: The Numbers That Matter

Metric	Amount	Source
2026 Health FSA IRS Limit	$3,400 per employee	IRS Rev. Proc. 2025-32
2026 FSA Carryover Limit	$680	IRS Rev. Proc. 2025-32
2026 Dependent Care FSA IRS Limit	$7,500 per household	IRS / FSAFEDS.gov
Employer FICA Rate	7.65%	IRC Section 3111
Per-Employee FICA Savings (Health FSA)	$260.10/yr	$3,400 x 7.65%
30-Employee Health FSA Employer Savings	$7,803.00/yr	$102,000 x 7.65%
50-Employee Health FSA Employer Savings	$13,005.00/yr	$170,000 x 7.65%

Frequently Asked Questions

Can roofing contractors offer FSAs and Section 125 plans to hourly workers? Yes. Section 125 plans apply to any W-2 employee, including hourly crew members. As long as they meet your plan’s eligibility rules, hourly roofers can contribute to an FSA or Dependent Care FSA pre-tax.

How much can a roofing employee set aside pre-tax in a health FSA in 2026? In 2026, the IRS allows employees to contribute up to $3,400 per year to a health FSA. That money is deducted before federal income tax and FICA are calculated, which reduces their taxable wages and puts more in their paycheck.

How does Section 125 save roofing contractors money on payroll taxes? Every dollar an employee contributes to a qualifying Section 125 benefit is excluded from FICA taxable wages. Employers pay 7.65% FICA on employee wages, so each dollar shifted to a pre-tax benefit saves the employer 7.65 cents. For 30 employees each contributing $3,400, that is $7,803.00 per year in employer FICA savings.

Do I need to offer health insurance to run a Section 125 plan? It depends on which benefit. A Dependent Care FSA can be offered as a true standalone benefit under Section 125 with no group health plan required. A health FSA is different: under ACA market reforms, a health FSA generally must be paired with some form of group medical coverage to maintain its ACA-compliant “excepted benefit” status. The pairing does NOT have to be comprehensive group health - it can be a limited-purpose plan, MEC plan, or another low-cost option. Your plan must also meet IRS plan document requirements and pass annual non-discrimination testing. A qualified benefits professional can help you structure the right combination.

What about seasonal or part-time roofing crew - can they participate? Participation rules are set by your plan document. Many plans include eligibility thresholds such as working a minimum number of hours per week or completing a waiting period. A qualified benefits professional can design eligibility rules that fit your crew structure.

Disclaimer: This article is for educational purposes only and does not constitute tax, legal, or benefits advice. IRS rules are subject to change. Consult a qualified benefits professional or tax advisor before implementing any Section 125 plan.