There are a variety of factors that determine what employee benefits an organization offers. An organization should view benefit packages as part of the total compensation of an employee. Although it is an indirect form of compensation, it is also a major part of job negotiation and is traded like salary for employee services. Benefits include health insurance, pensions, and employee services such as a wellness center or day-care center. Some benefits such as worker’s compensation are mandatory while others such as bonuses are optional. A business must have an understanding of its budget, the legal system and its competitors in order to make wise decisions about benefits..

Mandatory Benefits

Some benefits are mandatory, such as unemployment compensation, worker's compensation, and the Family and Medical Leave Act for organizations with more than 50 employees. Some states have additional mandates. It is important to know the legal requirements in your state.

Optional Benefits

Some optional benefits include health insurance, pension plans, paid vacations and tuition reimbursement. Benefits may be determined on length of time an employee works at the organization or performance levels. Research shows competitive salaries and benefits help improve employee retention. Businesses may also offer profit sharing.

Budget Constraints

A business’ beliefs about how workers are motivated -- by monetary benefits or by the mission of the company -- may determine which benefits it offers employees. A small business with a limited budget may match its smaller salaries with a larger benefits package, which may include bonuses or salary increases based on meeting certain goals. Although starting salary may be lower, salary percentage increases and profit sharing may help in recruiting talented workers and motivate existing employees.


Look to see what competitors are offering employees and consider what you might do to compete. Small business might not be able to offer as good a benefit package as a larger company but may be able to offer a “welcoming” work environment instead to increase worker job satisfaction. If possible, include your employees in the decision about adding benefits. Tell them what it costs the company.