Small business owners may find themselves wavering between one or more benefit options or plans. It’s important to be familiar with benefit laws as well as the types of plans that would be best for employees. This article will unpack each of these elements, and more.
Once employers have completed the recruiting portion of the new hire process, they have to convince their new employees that the company is leaps and bounds above anything that any competitor could offer. That’s where employee benefits come in. Offering a unique and attractive benefits plan can be the tipping point for candidates who may be wavering between two options for their next role.
What benefits are legally required?
There are five primary benefits that employers are required to provide to employees by federal law. There are:
- Medicare and Social Security. Medicare and Social Security taxes are part of what employers are obligated to pay to the federal government through payroll taxes, calculated on the wages or salaries of employees.
- Unemployment. Unemployment benefit payments vary from state to state, and are paid to either Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes. Some employers will pay both based on individual state tax provisions.
- Workers’ Compensation. Employers are required to carry workers’ compensation insurance, as it protects the business and employees from lost wages if an injury or illness occurs on the job. Employers should refer to their state workers’ compensation guidelines to ensure proper coverage for injured employees.
- Health Insurance. Employers are mandated to offer health insurance under the Affordable Care Act (ACA) if they have 50 or more full-time equivalent (FTE) employees.
- Family and Medical Leave. The Family and Medical Leave Act (FMLA) protects an eligible employee’s job if they need to take unpaid leave for family and/or medical reasons. The employer is required to continue group health insurance coverage, for participating employees, while the employee is on leave. FMLA is a requirement for businesses with 50 or more full-time equivalent employees, and can also be offered at the employer’s discretion if there are fewer than 50 employees.
Note: State laws may mandate other provisions that employers are also required to follow.
What benefits should a small business offer?
A standard package will likely contain some or all of these options:
Paid time off (PTO)
Under this policy, employees are offered a bank of hours or days to use when they need time away from work. A modern approach is to offer unlimited PTO. This progressive plan gives employees the ability to take as much time off as they need for any reason, including sick leave, vacation, or personal days, without abusing the luxury. For such a program to be successful, an employee’s time away from work must not cause hardship for the organization or put ongoing business operations at risk.
Health and medical benefits
This set of benefits includes general health insurance. Under the Affordable Care Act (ACA), small businesses that offer health insurance must do so no more than 90 days past the employee’s hire date. Employers with 50 or more full-time equivalent employees must report coverage to the Internal Revenue Service (IRS). Small businesses who have an alternative to ACA and are providing health or medical coverage to employees are able to continue this coverage at the discretion of the employer, and may be eligible for the Small Business Health Care Tax Credit.
Not sure how many full-time equivalent (FTE) employees you have on staff? Use this FTE calculator to obtain this information and see if your business qualifies for additional government credits.
Retirement and 401(k)
Offering a 401(k) plan with an employer match percentage has become somewhat of a standard offering and is an incentive to employees. There are a few different types of 401(k) contributions that can be made by employers. A partial match allows employers to match a predetermined fraction of the employee’s contribution. The employer will determine the maximum percent matched based on the employee’s salary. A dollar-for-dollar match maintains the employer will match employee contributions at 100 percent.
Lastly, a discretionary contribution is made by the employer on behalf of all plan participants. For example, managers are able to calculate contributions based on the employee’s success against their performance over the last review period. Discretionary contributions are a good way for employers to motivate or positively encourage engagement without overcommitting to a set percentage of employer match funds—a much more budget-friendly plan for small businesses looking to offer a more robust benefits package. Additionally, employee contribution matching is a tax deduction for the organization.
What other perks can I give my employees?
Prospective candidates are likely interested in seeing some of these benefit options available when shopping their next career move.
Employee assistance programs (EAP)
This program offers confidential resources for employees to address certain challenges, including mental health, counseling, substance abuse, financial services, career advice, etc. These services are often available 24/7 for participant employees to talk or chat online with a licensed professional, or through an online resource library.
Volunteer hours
Volunteer hours are hours gifted by the company to employees who wish to dedicate some of their work time to a volunteer opportunity. Participating organizations offer a set number of hours or days to be used each year, at will, or opt to have the entire office volunteer together at the same event on the same day.
Commuter benefits
Transportation to and from the workplace can be expensive. In 2019, transportation costs, including vehicle insurance, increased more than 10 percent from the previous year, taking the per household total to nearly $11,000 annually. In some instances, employers offer commuter benefits to employees to make the travel to and from work easier from a cost perspective. Reimbursable expenses can include parking fees (including metered spots and lots), the cost of public transportation, and some companies even offer ride-sharing services.
Adoption assistance
Employer-sponsored adoption benefits can include everything from informational resources (e.g., agency referrals, support groups, or access to adoption professionals) to financial assistance (e.g., payment of some or all adoption-related fees or expense reimbursement) and leave of absence (beyond what is offered to employees through the Family and Medical Leave Act (FMLA)).
Fitness reimbursement
With this benefit, employers offer employees a set reimbursement amount annually for fitness-related expenses, like gym memberships, personal trainer fees, sports league or team fees, smoking cessation program fees, personal activity tracking device, or equipment (e.g., skates, running shoes).
Student loan repayment
The incoming generation of new hires has likely already incurred student loan debt. On average, employees between the ages of 25 to 34 are carrying more than $33,800 in student loan debt, compared to those between the ages of 35 to 49 who have around $42,300 in student loan debt. Companies large and small are taking the initiative to offer this type of benefit with either lifetime maximums or per-year maximums until the loan is paid off or the employment agreement is severed.
Extended paid maternity or parental leave
Not all organizations have an official maternity or parental leave policy in place, and often, if there is a policy, the leave is not usually paid. Business owners have the ability to opt for partial or full paid leave options for employees who are about to give birth, or have just given birth or adopted a child. A Mercer study revealed that 40 percent of survey respondents confirmed offering paid parental leave (birth parent and/or non-birth parent) was a major perk for potential job candidates. Learn more about the Federal Employee Paid Leave Act (FEPLA) here.
How to build an employee benefits plan
To build an enticing and competitive employee benefits package, employers will want to consider these points as they navigate the process:
- Take a step back and classify the organization’s needs, objectives, and budget restrictions. Then, do the same with the employee base.
- Prepare an outline that distinguishes between the needs of the organization and the employees. An employer’s perception of what employees need may not be in-line with what employees want.
- Build the program features
- Identify the right health insurance provider (more on this below)
- Select unique, intriguing, and needed voluntary or ancillary benefit options, like pet insurance or extended parental leave (more on this below)
- Double-check your budget to see what financial benefits can be allotted in the upcoming calendar or fiscal year
- Plan to reevaluate employee benefit options far in advance of open enrollment each year to ensure the business is staying competitive in the market.
Benefits are yet one more part of the payroll ecosystem that is integral to a business, whether small and brand-new or large and established. Small business owners face similar challenges to enterprise-level owners in that payroll processes need to be maintained and executed properly to avoid confusion, employee frustration, and ensuing fines.
What benefits are legally required?
There are five primary benefits that employers are required to provide to employees by federal law. There are:
- Medicare and Social Security. Medicare and Social Security taxes are part of what employers are obligated to pay to the federal government through payroll taxes, calculated on the wages or salaries of employees.
- Unemployment. Unemployment benefit payments vary from state to state, and are paid to either Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes. Some employers will pay both based on individual state tax provisions.
- Workers’ Compensation. Employers are required to carry workers’ compensation insurance, as it protects the business and employees from lost wages if an injury or illness occurs on the job. Employers should refer to their state workers’ compensation guidelines to ensure proper coverage for injured employees.
- Health Insurance. Employers are mandated to offer health insurance under the Affordable Care Act (ACA) if they have 50 or more full-time equivalent (FTE) employees.
- Family and Medical Leave. The Family and Medical Leave Act (FMLA) protects an eligible employee’s job if they need to take unpaid leave for family and/or medical reasons. The employer is required to continue group health insurance coverage, for participating employees, while the employee is on leave. FMLA is a requirement for businesses with 50 or more full-time equivalent employees, and can also be offered at the employer’s discretion if there are fewer than 50 employees.
