Employees are the heart and soul of your company, so don’t you want to take care of them? Once a small business makes the jump into hiring full-time employees, they’ve got a whole lot to contemplate. Do you splurge on a generous benefits package or cut corners and offer the bare minimum?
The truth is that a great benefits package can attract and retain the absolute best talent, but the options are boundless – from basic healthcare and family leave to childcare, sick days and pensions. Only some benefits, such as COBRA, workers' compensation, family leave and unemployment, are mandated by law. Others, like employer-provided health insurance, dental care and the much-coveted 401K are attractive (but rather standard) bonuses.
Here’s a rundown of what you must provide employees and which work benefits you can provide. Remember, it’s always best to talk to an insurance professional or financial adviser when setting up any type of health care or financial benefits.
Health Care Employee Benefit Options
Health care benefits are one of the most common parts of an employee benefits package. Though some health care requirements are mandated by law, the likelihood of attracting top talent without a good health care plan is slim. You'll likely offer a mix of:
- Employer-paid health care
- Additional benefits
To find out which type of health care package is right for your business, consult with an insurance agent and look at plans by various providers. Always shop around to get the best deal.
If your business has 20 or more employees, COBRA (or the Consolidated Omnibus Budget Reconciliation Act of 1985) is a mandatory health benefit you must provide. This federal law protects workers’ health coverage if their job status changes. In other words, they get to keep the same health coverage while they’re planning their next career steps in the event of a job loss, hour reduction, death, divorce or a variety of other unexpected situations.
The coverage lasts for around 18 months, though it can be extended in some cases. Workers don’t even need to switch doctors. Though COBRA’s work benefits only apply to businesses with 20 or more employees, most states have similar laws that apply to companies with smaller workforces.
The good news is that employers don’t have to pay their former employees’ COBRA health insurance premium. Employees are on the hook for the whole thing. Many workers may also choose to use the Affordable Care Act (ACA) marketplace instead of COBRA because it can be more affordable.
Optional: Employer-Paid Health Care Plan
As soon as you hit 50 employees, the ACA requires you to offer health insurance. You actually can incur a fine of up to $2,000 per employee if you don’t, but the type of health plan you choose is fully up to your needs and budget.
There are two major types of health benefits packages. A defined benefit health plan (also known as a group health plan) gives all employees the same health insurance plan. You may opt to pay for the whole thing (which is on the generous side) or match your employee's contribution (which is more common).
The other major type is a defined contribution health plan. These tend to save money for employers because they’re tax deductible, and the reimbursements are tax-free for employees. These plans offer employees a fixed dollar amount to spend on the plan of their choice, but the regulations are extremely strict and complicated. This type of plan should be discussed with your company’s lawyers.
Optional: Dental or Vision Plans
Dental insurance or vision insurance plans are never mandated by law, regardless of the number of employees you have. Still, you may wish to offer your employees a dental or vision plan to help them pay for regular checkups, the unfortunate root canal or a broken pair of glasses.
Oftentimes, dental health care plans cost more than the actual routine treatments, so it’s important to talk to an insurance provider about whether or not this would be a cost-effective benefit to add to your employee package. Alternatively, employees who have great vision may not want to pay into a plan they won’t use. Remember to always compare insurance plans with different agents before you decide.
Optional: Additional Health Benefits
As an employer, you may also want to give your employees additional health benefits that span beyond a traditional health insurance plan. This includes a health savings account, which lets employees set aside pretax money for medical expenses in the event they have a health care plan with a high deductible. Employees can contribute $3,450 pretax per year into this type of account.
You can also give your employees a flexible spending account (or FSA), which lets them contribute pretax dollars into an account to later use on copayments, deductibles and other health care expenses. Each employee can contribute up to $2,650 per year into their FSA.
Since these accounts are generally complicated, it’s recommended that you use a third party to help you set them up. This also protects the employee who may not want you to have access to all of their medical claims information.
Income and Accident Protection
Most income and accident protection-related employee benefits are mandated by law. In some cases, a company has to take out an insurance plan; in other cases, they have to pay into a state tax. Other companies may wish to attract employees with increased disability protection.
Required: Unemployment Insurance
Unemployment benefits are another employee benefit mandated by law and regulated through the state. Employers already pay into this with unemployment-related taxes, so there’s no extra work to do on your part. When workers get laid off through no fault of they're own, they can fill out a form and receive compensation while looking for a new job. The amount received depends on how much money the employee earned while working. You may have to answer questions regarding their claim.
Required: Workers’ Compensation
Workers' Compensation is one of the few government-mandated work benefits. It pays an employee’s lost wages and medical bills if they get hurt on the job. The payout usually amounts to two-thirds of their regular salary. Any company that has employees must have workers’ compensation insurance to cover these benefits. To get a good workers’ compensation plan, talk to an insurance professional.
Optional: Long- and Short-Term Disability
Employers may also opt to give employees additional disability insurance, with short-term and long-term disability being exceedingly common in traditional benefits packages. This type of benefit differs from social security disability, which is paid out by the government, and in some states, may be mandated by law. It usually covers 40 to 60 percent of an employee’s gross weekly income in the event they’re injured or have an illness that prevents them from working.
Disability insurance is typically paid for by an employer as part of a benefits package, but the expense can be passed on to employees. Many employers also make their workers use sick days before filing a claim and require proof from a doctor since claims increase insurance premiums. To find out which disability insurance plan is best for your employees, talk to an insurance professional.
Time Off for Vacation or Illness
Whether your employees are sick, planning a family or simply want to enjoy a vacation, paid time off is a necessary part of the most competitive employee benefits packages. In fact, some companies rate their PTO policy as more attractive and popular than their health care benefits.
Required: Unpaid Family Leave
The Family and Medical Leave Act has made it a requirement for eligible employers with more than 50 workers to give employees 12 unpaid weeks off (within a 12-month period) to care for family. This leave can be used after the birth of a child or to take care of a newly placed foster or adopted child, a sick family member with a serious health condition or a family member in the active military. Employees retain their health benefits during this period and are allowed to return to their jobs after the leave is over.
Optional: Paid Family Leave
Though unpaid leave is required by law, some states like New York and California do have paid medical leave requirements. Regardless, many employers opt to give their employees paid maternity or paternity leave as a part of their company benefits. This type of benefit is obtained through paid family leave insurance, which you can obtain through any number of corporate or small business insurance companies. Employees should notify you at least 30 days before they expect to take their leave, and you’ll have to fill out the necessary paperwork. The most generous plans see a year of maternity leave, with three months being more common. Some only offer six weeks.
Optional: Paid Time Off
Whether it’s paid sick days or paid vacation, giving your employees a paid break is an important part of most benefits packages. There are two types: accrued PTO and flexible PTO. With accrued PTO, an employee will earn days off for days worked.
Flexible policies, like unlimited vacation, are becoming increasingly popular. In fact, they increase employee happiness and productivity. In some cases, flexible PTO policies encouraged employees to take less time off while feeling more valued (Kickstarter got rid of their unlimited vacation policy for this reason).
To find out which PTO scheme would be best for your employees, it’s often trial and error. Consult an HR professional who can help you narrow down your options. You’ll probably also want to offer a number of sick and personal days because having sick employees come into the office cuts productivity – especially if they make everyone else sick, too.
Financial Benefits Package
Benefits aren't just limited to health care and time off. The best employee benefits packages include some sort of retirement plan or stock options and equity. These benefits are not mandated by law, but many have become standard.
Optional: 401(k) Retirement Plan or Pension
If you want to boost employee morale and make your workers feel like they’re genuinely working towards a bright future, you want to offer a good retirement plan. Many companies offer to match 401(k) contributions, and it’s a myth that small businesses can’t afford it. In fact, it comes with a tax credit for the first three years.
There are three types of 401(k) plans a company can offer. A traditional 401(k), where you make contributions on behalf of your employees and can also choose to match their contributions, is regarded as the most flexible. Employees can always opt out. A safe harbor 401(k) plan comes with a mandatory contribution, but it also gives employees a larger opportunity to maximize salary deferrals.
An automatic enrollment 401(k) allows you to automatically bring all employees on board, deduct from their salaries and put them in certain standard investments. This type of plan encourages employees to take advantage of the company benefits you’re offering.
401(k)s are complicated to set up, so it's best to do your research and find the right firm for you. Look at mutual fund companies, brokerage firms and insurance companies that have top-shelf reputations. Don’t limit yourself off the bat. A good firm should provide recordkeeping and third-party administration services (it’d be a nightmare to handle that stuff on your own). The best place to start is by asking fellow small business owners for a referral.
Optional: Equity, Stock Options and Profit Sharing
Many companies choose to offer a variety of financial benefits that make their job offers much more attractive in a competitive environment. Some of these are stock options, profit sharing and equity. It’s a great solution if you don’t have a lot of cash to spend on a competitive salary and are still in the early rounds of funding and profitability with your startup.
Equity, profit sharing and stock options help employees feel like they’re building their future while making your dreams happen. If your company does well, they profit. If it doesn’t, they’ve still got their salary. Many companies choose to offer equity only to their top-performing employees or ones who helped spark a groundbreaking part of the business.
Consult a financial adviser before offering these types of company benefits. Remember, the more equity you give away, the less you personally have.
Offering Other Fringe Benefits
If you require employees to work long hours, child care could be the difference between retaining top talent and not. If you require certain skills, tuition reimbursement to send your employees back to school for a master’s degree may help bolster employee performance. If your employees have to do a dangerous job, you may wish to include hazard pay to make the work more enticing. Offering a company car and even housing are other options.
The sky's the limit, but again, consult a financial adviser to help you figure out what you can offer and what suits your business best.
- Anticipate increases in your insurance expenses at least once a year if not more often. Some companies plan for double digit increases annually.
- There are a variety of federal and state mandated benefits programs in which companies must participate. You must allow an employee time off to vote, to serve on a jury and to complete military service. Companies must also provide workers compensation insurance, make matching contributions to Federal Insurance Contribution Act (FICA) and fully support the Federal Unemployment Tax Act (FUTA). Some states also require companies to contribute to state disability insurance funds.
- The Balance: Consolidated Omnibus Budget Reconciliation Act -(COBRA)
- The Balance: Short Term Disability Basics
- The Balance: Workman's Compensation and Disability Insurance Information
- Department of Labor: The Employer's Guide To The Family And Medical Leave Act
- Paychex: Steps for Setting Up a 401(k) Plan to Help Your Employees Save for Retirement
- Fast Company: Kickstarter Nixes Unlimited Vacation Time For Employees
- The Balance: Paid Vacation Time Basics
- Fast Company: We Offered Unlimited Vacation For One Year. Here’s What We Learned.
- Square Up: Should You Offer Your Employees Benefits (and How to Do It)?