Section 125 Plan for Funeral Homes: The 2026 Employer Guide

• Morticians, undertakers, and funeral arrangers earned a median $55,010 per year as of the May 2025 Bureau of Labor Statistics Occupational Employment and Wage Statistics release, while funeral home managers earned a median $78,790 per year in the same release.
• Embalmers earned a mean $58,390 per year, a median hourly wage of $28.26, across just 3,890 workers employed nationally, per the same May 2025 BLS release, one of the smallest licensed occupations the Bureau tracks.
• Service Corporation International, the largest funeral and cemetery consolidator in North America, operates 1,531 funeral service locations and 471 cemeteries and employed 17,685 full-time and 7,268 part-time associates as of its fiscal year 2024 Form 10-K.
• The U.S. Census Bureau counted 10,931 funeral home businesses operating 15,456 establishments nationally under NAICS 812210, Funeral Homes and Funeral Services, as of 2020, the most recent County Business Patterns breakout available for the code.
• A 250-employee multi-state funeral home consolidator division generates approximately $36,720 per year in employer FICA recapture at typical election levels, before accounting for any commission-only preneed agents who remain ineligible for the operator's own plan.

A funeral director wrapping up a 2 a.m. first call at a family-owned home in Brookfield, Wisconsin keeps an extra $34.95 a month in take-home pay the day her employer turns on a Section 125 plan, for coverage she already paid for after tax. The preneed arrangement counselor down the hall, paid almost entirely on commission for prearrangement contracts, gets the identical flat-dollar benefit, since her Section 125 election never moves with how many contracts she closes in a given month. Brookfield is home to the National Funeral Directors Association, the trade group representing more than 20,000 individual members across nearly 11,000 U.S. funeral homes, and with the Bureau of Labor Statistics counting fewer than 4,000 embalmers nationally, most independent funeral home owners have never modeled what a pre-tax benefit plan would actually save their staff. The full benefit stack every W-2 participant receives is in the table below.

How much does a Section 125 plan save a funeral director or embalmer?

A funeral home's W-2 payroll typically splits into licensed funeral directors and embalmers, removal and transport staff, administrative and arrangement-office staff, and often one or more owner-directors. Consider a full-time funeral director working at a family-owned home in Brookfield, Wisconsin, the Milwaukee-area suburb where the National Funeral Directors Association is headquartered.

Funeral director, Brookfield, Wisconsin. $55,010 per year, the median annual wage the Bureau of Labor Statistics reported for morticians, undertakers, and funeral arrangers in its May 2025 Occupational Employment and Wage Statistics release. Single. Electing $140 per month in employer-sponsored medical coverage, or $64.62 biweekly. Wisconsin taxes this income at 5.30% under the state's third bracket, which covers single-filer taxable income between $50,480 and $323,290 for tax year 2025, per the Wisconsin Department of Revenue's official tax rate guidance. No Wisconsin city or municipality levies a local wage or income tax, so this employee's paycheck runs exactly three layers, federal income tax, Wisconsin state income tax, and FICA, a simpler structure than a funeral home operating in a state with county-level or city-level payroll taxes layered on top.

This employee keeps an extra $34.95 a month for the identical coverage, simply because it moves through payroll pre-tax instead of post-tax. The funeral home recaptures $140 x 12 x 7.65% = $128.52 per year in FICA on this single employee, calculated only on the flat election, not on any on-call stipend or preneed commission a coworker earns on top of base pay.

"We run a first-call rotation between three of us, and no two months look the same for who gets called out overnight. What I needed to know before I signed anything was that the FICA savings didn't move around with any of that, it was tied to what each person elected, not whatever on-call stipend happened to land that pay period."

Does on-call and first-call pay change the Section 125 math?

No. Most funeral homes keep at least one licensed director or embalmer on an after-hours first-call rotation to respond to death calls around the clock, often paying a flat on-call stipend, a per-call payment, or straight hourly pay once a call is actually answered. Whether that pay is compensable under the Fair Labor Standards Act depends on the specific arrangement. Under 29 C.F.R. Section 785.17 and the Department of Labor's Fact Sheet 22, an employee who is not required to remain on the employer's premises and is free to use on-call time for personal purposes is generally not owed wages for the standby time itself, but is owed wages for any time actually spent responding to a call. None of that FLSA analysis changes how a Section 125 election works. A director's benefit election is a flat dollar amount chosen at enrollment, and that same dollar amount comes off the top of every paycheck regardless of how many death calls came in that pay period.

Why the recapture stays fixed across every death call

A director who picks up an extra $200 in on-call stipends and call-out pay during a heavy week pays full FICA on that $200, and the funeral home pays its matching share too, exactly as it would without a Section 125 plan in place. The only dollars that move pre-tax are the ones the director actively elected for benefits at open enrollment. This separation is what makes the plan's savings budgetable for an owner-director who cannot predict from one week to the next how many death calls a rotation will generate.

What funeral home staff actually get

Someone earning near the BLS median of $55,010 a year, frequently working an unpredictable overnight call rotation, often has little post-tax budget left for a routine doctor's visit, and a director coming off back-to-back first calls rarely finds time to sit in a waiting room. Licensed funeral directors, embalmers, removal staff, and arrangement-office staff who join a Benecor plan get real care without waiting for a slow week between services.

• $0 Virtual Urgent Care, 24/7: A director finishing an overnight first call reaches a licensed clinician without waiting for a daytime appointment to open up.
• $0 Virtual Primary Care: Routine visits and prescription renewals without pulling a director off an active arrangement or a scheduled service.
• $0 Mental Health Counseling: Death-care work carries real emotional weight, and an unpredictable overnight call schedule adds physical strain on top of it. Zero-cost virtual counseling is consistently one of the highest-used benefits at the funeral homes Benecor works with.
• 800+ commonly prescribed medications at $0, fully covered: Maintenance medications with no out-of-pocket cost from the first payroll cycle.
• Procedures at 57% savings, specialist visits at 35% off, lab tests at 60% off, imaging at 75% off: When a staff member needs in-person care, the network discounts mean the visit actually happens.
• Dental, vision, and family coverage with 350,000+ doctors nationwide: Coverage that follows staff if they transfer between a group's locations.

Are your preneed sales counselors W-2 employees or licensed insurance agents?

Preneed staffing sits in one of the least discussed eligibility gaps on any funeral home Section 125 plan, and the answer determines participation directly, since only W-2 employees of the plan sponsor can join. Many funeral homes sell prearrangement funeral contracts funded by insurance, and the counselor handling those sales is frequently paid on a base-plus-commission or fully commission structure tied to gross production on the policies they place, an arrangement described in industry consulting resources on preneed commission design. Where that counselor is licensed and paid through a separate insurance agency, even one affiliated with or owned by the funeral home, the carrier or agency issuing the 1099 or W-2 determines eligibility, not where the counselor's desk happens to sit. Only staff the funeral home itself classifies and pays as W-2 employees, directors, embalmers, arrangement staff, and salaried managers, can join a Section 125 plan the funeral home sponsors, regardless of how integrated a preneed counselor's day-to-day work looks with everyone else on-site.

This is the single most important eligibility question to resolve before enrolling any funeral home staff in a Section 125 plan, because it determines who is actually eligible to elect benefits at all, not just how large the plan looks on paper. Benecor recommends confirming preneed staffing arrangements with the funeral home's own employment counsel first, since worker classification is a labor law question independent of whether a benefit plan exists at all.

Section 125 for funeral homes from 10 to 250+ employees

Single-location family-owned funeral homes

A typical single-location family-owned funeral home running 10 W-2 employees, an owner-director, two staff funeral directors or embalmers, a removal and transport driver, and administrative staff, at an average election of $150 per month generates approximately $1,377 per year in employer FICA recapture. It is a smaller number than a multi-location group would see, and it is real money on a workforce many independent owners do not realize is eligible at all. Review the full §125 implementation and compliance flow→ for any employer size.

Multi-location regional funeral home groups

A regional group operating three to five locations under common ownership with 45 total W-2 employees across directors, embalmers, and arrangement staff generates approximately $6,403 per year in employer FICA recapture at an average $155 monthly election. At this size, staff frequently rotate first-call coverage across locations, which makes tracking eligibility by location and by on-call schedule, not just by headcount, the operational detail that matters most.

Large multi-state consolidator platforms

A disclosed hypothetical 250-employee division of a multi-state funeral home consolidator platform, the scale at which publicly traded operators like Service Corporation International and Carriage Services or memorialization suppliers like Matthews International compete, generates approximately $36,720 per year in employer FICA recapture at an average $160 monthly election on its direct-hire W-2 payroll. This figure is a disclosed hypothetical scenario, not a claim about any named company's actual headcount or plan design, since no consolidator publishes a per-division W-2 census broken out at this level. At this scale, the design question shifts from whether a staff member qualifies to how fast a newly acquired independent home's staff can be enrolled without a coverage gap.

Can a funeral home owner-director participate in their own plan?

It depends on how the funeral home is organized and how much of it the owner holds. Many independent funeral homes are structured as S-corporations, and under IRC Section 1372, any shareholder who owns more than 2% of an S-corporation's stock is treated like a partner, not a common-law employee, for accident and health benefit purposes. That means a majority owner-director generally cannot receive Section 125 pre-tax accident and health benefits through the home's own plan, even while every W-2 director, embalmer, and support staff member working for that same owner participates fully and captures the full pre-tax benefit. An owner-director holding 2% or less of the home's stock, or a home organized as a C-corporation instead, does not face this same exclusion. Review the full S-corp shareholder eligibility rules→ before assuming ownership structure will not affect the plan design.

Compliance for funeral homes

Nondiscrimination testing across licensed and hourly staff

Section 125 nondiscrimination testing runs the same three annual checks every plan requires: the Eligibility Test, the Benefits and Contributions Test, and the Key Employee Concentration Test, which caps benefits flowing to owners and officers, generally those earning above $160,000 in 2026 or owning more than 5% of the funeral home, at 25% of total plan benefits. A funeral home's pay spread between an owner-director, licensed staff directors, and hourly administrative or removal staff rarely pushes many employees near that threshold, but multi-location groups still need to confirm that eligibility rules and waiting periods apply identically across every location, since a plan that quietly favors one location's staff over another can fail the Eligibility Test even without any intent to discriminate.

ACA mandate for multi-location funeral home groups

Independent funeral homes are consolidating through acquisition at a steady pace, and whether a given funeral home group counts as an applicable large employer under the ACA depends on FTE counts aggregated across every commonly owned location, not on any single home's headcount alone. A 30-employee group that acquires a smaller 15-employee independent home does not reset its FTE count to zero for the acquired staff, and the newly combined workforce needs to be evaluated together under the Internal Revenue Code's controlled-group rules from the acquisition date forward. Getting this wrong after an acquisition can put nondiscrimination testing results at risk if a newly acquired location's payroll was left out of the testing population entirely.

Does state licensure affect Section 125 eligibility?

No, not directly. There is no uniform national licensing law for funeral service, and states differ on whether they issue one combined license or two separate licenses for funeral directing and embalming, a distinction confirmed across multiple state licensing board resources. That variation affects how a funeral home structures roles, apprenticeships, and staffing across state lines, but it does not change Section 125 eligibility, which turns only on W-2 employment status, not on which license or licenses a staff member holds.

Launching §125 for a funeral home: 5 weeks

1. Week 1: Benecor confirms which staff are true W-2 employees versus commission-only preneed agents paid through a separate insurance entity, checks whether any owner-director's S-corp ownership stake affects their own eligibility, and maps your on-call and first-call rotation pay structure. You select your benefit menu and receive a signed savings projection.
2. Week 2: ERISA counsel drafts the plan adoption agreement and summary plan description built for on-call differential pay, preneed commission, and staff working across multiple locations with different state licensure requirements.
3. Week 3: Fast, QR-code enrollment staff complete on their own phone between family arrangement conferences, no group meeting required.
4. Week 4: Election data transmitted to your payroll platform, whether that's ADP, Paycor, Gusto, or funeral home management software with a payroll integration. Deduction codes configured as pre-tax for federal income tax and FICA, correctly applied across base pay, on-call stipends, and preneed commission.
5. Week 5: First pre-tax payroll runs across every location simultaneously.