A Section 125 plan, or a cafeteria plan, allows employees to pay for certain benefits on a pre-tax basis. In order to receive this tax advantage, Section 125 plans must comply with legal rules, including having a written plan document, requiring elections to remain in effect for the entire plan year, and passing certain nondiscrimination tests. Only common law employees may participate in the Section 125 plan on pre-tax basis. This Compliance Overview summarizes the legal rules for cafeteria plans and outlines the steps that employers should take to implement a cafeteria plan. Employers should work with their Health and Benefits Consultant and legal advisor to assess their documents and procedures to ensure they are complying with all of the Section 125 plan requirements.