10 Affordable Small Business Benefits to Consider

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In recent years, it may seem like small-business benefits have gotten out of control. They go well beyond the average health insurance policy, 10 days of vacation and a small handful of sick days and paid holidays. Trendy startups are now offering everything from free snacks, pet-friendly offices and adult nap time to unlimited paid vacation. How the heck do they make money, right?

All of that stuff sounds expensive, but it can actually be quite affordable for a small business. These sorts of benefits can often provide tax incentives and can save you money by attracting and retaining the type of highly productive, whip-smart talent your company needs to stay competitive in the market. Never underestimate the true power of an employee who is actually happy.

Why Offer Small-Business Benefits?

Small-business owners may think they’re too bootstrapped to offer employee benefits, but benefits can actually save you money in the long run. Some of it is direct, like in the form of tax incentives and decreased sick leave, and some of it is indirect, like increased productivity (i.e., you're getting more bang for your buck) and decreased employee turnover.

Onboarding costs are significant no matter which way you look at it. In 2016, companies spent an average of $4,129 for each new hire and 42 days to fill an open position. That’s significant. That's 42 days of lost productivity and resources spent in a place where they don't need to be spent.

Beyond employee retention, certain small-business benefits — like short-term disability programs and leave mandated by the Family and Medical Leave Act — are required by law. Others are simply just a good idea and are a requirement to remain competitive within the job market.

1. Health Insurance Plans

Health insurance is immeasurably important, but it’s also a requirement for businesses that have 50 or more employees. To save money, small businesses can purchase a group health insurance plan for their full-time employees, who can contribute up to 9.5% of their gross pay toward health insurance premiums. You’ll also get a significant discount if you include other types of insurances, like workers' compensation insurance and disability insurance, through a single insurance company’s group plan.

Group health insurance plans are also a great way to offer voluntary benefits like dental and vision to your employees. They get a group rate, but you don’t have to pay anything extra because they're footing the whole premium. Most companies do pay a portion of their employees' health insurance premiums, but it depends on your business model.

2. SHOP Health Care Plans (for Small Employers)

Even if it’s not mandated by the government, it’s hard to attract and retain top talent without health insurance coverage as part of your employee benefits package. Unfortunately, the most cost-effective health plans are often the least desirable and tend to have the highest deductibles.

Luckily, small businesses with fewer than 50 employees may qualify for a tax credit through the Affordable Care Act’s Small Business Health Options Program, or SHOP. This helps ease the financial blow of both health and dental insurance on small employers’ finances. To qualify, you have to pay an average wage of less than $50,000 and half of the employees’ health insurance premiums.

3. HSAs and FSAs

Out-of-pocket health costs are rising year after year, which is why many employers opt to include a tax-free way to pay for medical expenses through health savings accounts and flexible spending accounts. These are surprisingly cheap and can save you money every month.

The main difference between FSAs and HSAs is that with the former, money is held by the employer, and with the latter, money is held by the employee. FSAs only cost about $4 per month per employee, which is negligible considering that you don’t have to pay payroll taxes on employee contributions. HSAs allow for a higher maximum contribution, but your employee must have an HSA-qualified high-deductible plan.

4. 401(k) Retirement Plans

As far as retirement savings plans, 401(k)s are pretty standard. It might seem like an expensive benefit — and it can be if you’re matching employee contributions — but nobody said that you have to do that. Still, most employers do contribute to 401(k)s because there are clear tax incentives. Contributions are tax deductible and can be tax deferred up to a certain amount of time depending on the IRS.

Even if you don’t want to contribute to a 401(k), it still helps your employees save for retirement tax free, which saves you money right off the bat. You’re not paying payroll taxes on their employee contributions. In addition, 43% of employees would rather take a lower paycheck in exchange for better 401(k) matching. In this case, the costs for small companies may balance.

5. Flexible Work Hours

Employees care about flexible hours almost as much as they care about having better health benefits. A 2018 Paychex Pulse of HR survey revealed that flexible scheduling is the single most popular nontraditional employee benefit across the board — and the best part is that it doesn’t have to cost your company a dime. In fact, you might actually end up saving money in productivity.

Nobody said that your employees have to work nine to five, and giving them flexible hours can increase their quality of life, which prevents burnout and fosters productivity. Think about it this way: How many times have you felt like having a meltdown in seemingly unending rush-hour traffic? How many workers have to dip out early to pick up their kids from school? This type of policy attracts top talent, encourages employees to work hard and may even help businesses open earlier and stay open later.

6. Remote Work Days

It shows a lot of trust to allow your employees to telecommute, but the ability to occasionally or fully work at home is seen as a massive, low-cost perk that attracts high-quality talent. Of course, not all types of businesses can offer telecommuting, but the ones that do generally see higher productivity and employee retention.

According to research, remote employees work 1.4 more days a month than people who work in the office. Telecommuting also helps prevent employee burnout, lowers your carbon footprint and in some cases lowers office costs (the less employees present in an office, the less square feet you need to rent).

Adding remote work to your employee benefits plan doesn’t have to be all or nothing. You can allow for a certain number of days a week or a certain number of hours. Just be wary of using screen- and mouse-tracking software to keep track of productivity. This fosters a hostile work environment that has been statistically shown to encourage employees to avoid doing work.

7. Unlimited Paid Time Off

You might think that offering unlimited time off is an absolutely absurd drain of company resources, but that’s not actually the case. Unlimited PTO is a favorite among millennials and has become an increasingly popular nontraditional benefit among trendy tech startups and major companies like Dropbox, GE and Sony Electronics. Why is it so popular? It’s a win-win for employees seeking a better work-life balance and companies looking to increase productivity and save money.

Unlimited PTO can actually be cheaper than paid time off, as it’s traditionally structured. In a typical PTO structure, unused vacation days are either rolled over at the end of the year or paid out. If they do roll over, you still have to pay these out when an employee leaves, but with an unlimited PTO structure, there are no days to accrue. Studies have even shown that workers with unlimited PTO take about two days of vacation less than their counterparts, which can be a significant savings for a company with a lot of employees.

8. Free Food in the Office

Tech companies led the charge with this one. Google is known for having free lunches catered by professional gourmet chefs, and Twitter employees get three catered meals a day. This may be a bit much for a small, bootstrapped business, but never underestimate the morale booster that is free food. Your employees may be past the college days of helping someone move apartments in exchange for pizza, but no one’s really that far off.

In 2018, 32% of companies were offering free refreshments to their employees, and it’s a clear, measurable cost-savings tactic. Think of it like this: If you’re paying a salaried employee the equivalent of around $40 per hour, but he spends a half hour going on a coffee or snack break every day, you’re losing $20. If he consumes even $10 per day in beverages and snacks without leaving the office, you would save $10 a day or around $200 a month.

Free food encourages mingling among employees, which creates better camaraderie and fosters an environment with strong collaborative ethics. It also helps with employee retention (and onboarding new employees is actually pretty expensive). According to a survey by Peapod, 67% of employees with free food at work report being “extremely” and “very happy” at their jobs, while just 56% of employees without free food said the same.

9. Wellness Programs

Wellness programs aren’t just affordable — they help keep your employees healthy (read: more productive and far away from sick leave). A wellness program can be as expensive as creating an in-office gym or as cheap as offering gym memberships at group discounts. The latter doesn’t have to cost you anything but the effort it takes to contact local gyms and yoga studios about group rates. Some companies even offer health screenings at no cost to employees

Wellness programs have been proven to save money by lowering health care costs, decreasing workers’ compensation claims, increasing productivity and employee happiness and providing tax benefits. A study found that every $1 invested in an employee wellness program translated to $6 in health care savings. In companies that adopted these sorts of programs, medical claim costs were reduced by about $1,421 per person from the year before. That’s no small chunk of change.

10. Professional Employer Organizations

Small businesses may opt to work with PEOs to help provide their employees with better benefits packages than they may otherwise be able to offer at their current size. This includes things like workers’ compensation, health benefits, disability and life insurance. It also relieves the burden of various human resources duties like:

  • Payroll administration
  • Unemployment administration
  • Workers’ compensation administration 
  • Benefits administration (like health benefits or retirement benefits)
  • Family and Medical Leave Act administration

Basically, the way it works is that a PEO acts as the employer of your employees. They report the wages under their federal employer identification number and retain the employee liability. Because the PEO has more technical employees, it can often offer greater discounts for benefits options because it gets better group rates. The downside is that you lose a bit of control over your company’s culture and some functions of human resources.