The Ultimate Guide to Small Business Employee Benefits & 4 Ways You can Get Started

Benefits are a vital component of compensation packages that small businesses should offer. In fact, employees use benefits as a key criteria when choosing a new job, especially when there is such a wide assortment of the types of employee benefits that an employer can offer. An American Institute of CPA survey found that 80% of the surveyed candidates said they would keep a job that offered better benefits rather than a higher salary. Candidates choose employers who care, taking their employees’ health and all around well-being into account.

In this article, we’ll provide guidance and information you need for understanding employee benefits for small businesses.

Read on to learn more about this topic! Click on the sections below to jump right to your specific question.

How do Employee Benefits differ for a Small Business?

What are Typical Employee Benefits for a Small Business?

Required Benefits for Small Businesses?

Other Employee Benefits?

What is the Cost of Benefits for Small Businesses?

What Impact will Benefits Have for Your Business?

How to Compete with Larger Employers who have More Budget?

4 Ways you can get Started on Providing Benefits for your Small Business’ Employees

How do Employee Benefits differ for a Small Business?

A small business managing employee benefits can be daunting, especially when competing against their corporate counterparts for top talent. Employer benefits packages are vital to recruiting high performing workers. Though they assist with getting talent employed, an employee’s benefits package will continually contribute to aspects of their job and life in terms of health and well-being, work-life balance, and financial stability. If you are curious, here are some top employee benefits your employees will love.

What are Typical Employee Benefits for a Small Business?

Required Benefits for Small Businesses

Not all employer-offered benefits are optional. The following benefits are required and regulated by law. Some required benefits can also differ by state, so it’s crucial to check all local, state, and federal regulations when putting together a benefits package.

Workers’ Compensation

Workers’ compensation is insurance that protects employers and employees in case of an accident or illness while on the job, or related to the job. It covers cost of care, rehabilitation, and can also partially cover lost income in case of disability. 

Check your state’s workers’ compensation laws to ensure they’re being followed within your organization. Inability to comply with these laws can result in substantial fines for small business owners.  The National Federation of Independent Business provides the regulations for workers’ compensation on a state-by-state basis.

Unemployment Insurance

Unemployment programs help provide financial assistance to workers who become unemployed due to aspects outside of their control, like downsizing. The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) require employers to pay taxes to fund unemployment costs. 

These programs require contributions from employers and employees. The tax rates for these contributions fluctuate and can change depending on turnover rates and industry. You can find each state’s SUTA requirements through the IRS’s website. 

Disability Insurance

Disability insurance covers employees that suffer a long-term illness or injury due to a non-work related incident. Employers must abide by the specific regulations governing eligibility for plans, payments, and length of time on disability insurance.

There are two types of disability insurance: 

1. Short-Term Disability: typically provides coverage for two to six months, and matches a fixed percentage of the employee’s annual earnings.
2. Long-Term Disability: provides coverage for years, and provides a fixed percentage of the employees earnings (about 50-70%). This is typically reserved for full time employees with at least one year of tenure at the employer to be eligible.

Health Insurance

Employers with 50 or more full time employees are required to offer health insurance under the Affordable Care Act (ACA). These plans must offer minimum essential coverage that meets ACA standards. Employee wellness is crucial to business productivity, so offering health insurance is an important factor when putting together an employee benefits package. 

There are several different types of insurance plans to choose from when deciding on health coverage. 

• Traditional Health Insurance Plans: Where employers pay the insurance carrier a fixed rate based on the number of employees enrolled in the plan. These are often the most common offered by employers. While these can be costly, they have a large selection of providers to choose from for healthcare.
• Managed Care Plans: This includes plans like Preferred Provider Organizations (PPO) and Health Maintenance Organizations (HMO). Managed care plans have contracts with health providers and medical facilities, which allow plan members to pay a reduced cost for services.
• COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides continued health coverage to individuals after employment ends or after a qualified event, such as divorce, reduced hours, or death. COBRA benefits cover ex-employees, spouses, and their dependents with extended health insurance from 18-36 months. Small businesses with less than 20 employees are exempt from COBRA, but some states have created a different version of COBRA for smaller companies. You can look for this on your state government website.

Whichever insurance plan you decide to choose for your business, ensure employees are aware of any changes to their healthcare plans and deductibles.

Family and Medical Leave

The Family and Medical Leave Act (FMLA) requires employers to provide up to 12 weeks of unpaid, job-protected leave. This act does not cover all workers, according to the law, the employed must have at least one year of tenure. These leave benefits apply to employees who give birth to a newborn, adopt or foster a child, are caring for an immediate family member with a serious health condition, or have a serious health condition of their own that limits their ability to work. 

Some states have their own paid leave programs with different rules and regulations. This makes it imperative to understand the state and local laws that apply to your business. 

Other Employee Benefits

These are benefits that are not required by law, but attractive to potential workers and can keep your existing employee population satisfied. In case you are wondering on how to go about figuring out which employee benefits would work for your organization, you should check out this post on how to do employee benefits planning!

Retirement Plan Options

Employers are required to pay taxes toward social security, but not all employers are required to provide pensions. Providing retirement plans has great benefits and can attract talent, but requires planning. Employers should consider the size of their workforce, whether to offer a company match, and the number of years until employee retirement. Below are a few common retirement plan options:

• Simplified employee pension plan (SEP-IRA): A SEP allows employees to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. Employer contributions are high, but can be deducted as a business expense
• Simple IRA: IRAs allow participants to make tax-deferred investments to provide financial security when they retire. Employer contributions are lower than SEP-IRAs, but there are limits to employee contributions
• 401(k): 401(k)s are the most common form of retirement plans offered in the workforce today. This plan offers tax and retirement benefits with high contribution limits for both the employer and employees.

Paid Time Off (PTO)

PTO is crucial to an employee’s work-life balance, it provides time for employees to disconnect from work, spend time with their families, and focus on their personal lives. A well rested employee can provide increased production, while also lowering the chance of burnout. The amount of PTO offered by companies varies widely, some offering unlimited and some are giving their employees up to 4 weeks off per year. How much PTO your organization offers should depend on your worker’s needs. 

Life Insurance

Life insurance provides peace of mind for your employees and their families in case of a serious emergency. Most employers offer group-term life insurance, which is in effect for as long as the employee is employed. Group-term life insurance can be offered to employees only, not to their spouses and dependents.

Vision and Dental Plans

Vision and dental are not covered under traditional medical insurance, but can be vital. Optometrists and dentists can identify early signs of disease and chronic health conditions. Catching these conditions early is vital to ensuring better outcomes for the employee, as well as alleviating health insurance costs. 

Fringe Benefits

Fringe benefits that are nice to have depending on your employee population’s needs and wants. Benefits like free snacks and beverages, pet-friendly workspace, and team bonding events/ retreats can be valuable and improve employee morale. 

What is the Cost of Benefits for Small Businesses?

How much will these benefits cost a small business?

The cost will vary depending on what kind of benefits you decide to offer. A study done by the Bureau of Labor Statistics on employer costs for employee compensation shows that small businesses spend about 30% of each employee’s total compensation on employee benefits. This can be important when doing a cost benefit analysis when figuring out your budget. 

In addition, you may also be offering benefits to your employees that are unused. Be sure to check for benefit usage, unused benefits can be costly and those funds could be put toward a different benefit that more employees will actually utilize to compensate. 

What Impact will these Benefits have for your Business?

Offering a robust benefits package will be a great tool to attract and retain high performing employees. Giving employees the ability to take care of themselves and their families, establish a healthy work-life balance, and save money is a great investment and will build your company’s reputation.

How to Compete with Larger Employers who have More Budget?

Competing with large employers with an endless budget may be intimidating, but small businesses can offer benefits that large employers often cannot.

• Offer flexible hours and location: Give employees the flexibility to work remotely or at non-traditional hours, if your business allows for it. Allowing employees to choose their scheduling and location can help them be more efficient.
• Grant PTO instead of separate vacation and sick time: Offer employees more flexibility and control when they need to take time off from work.
• Allow flexible vacation time: Allow employees to pick vacation/ time off of their choosing. Large companies have employees select vacation weeks based on seniority, leaving many employees to pick among whatever days are available.
• Personalized Fringe Benefits: If a majority of your employee population is enthusiastic about specific interests, like pets, you may be able to provide a pet friendly workplace, or pet friendly days. Poll your employees to see if there are any interests that stand out to see what you may be able to provide.

If you are curious to see what types of benefits a larger employer may offer, check out the perks that Google offers its employees.

4 Ways you can get Started on Providing Benefits for your Small Business’ Employees

1. Set up a budget: You’ll need to create a budget to determine how much you can contribute towards an employee benefits program. Performing a needs assessment can help you figure out what the company can afford. Be sure to take into consideration that many benefits are available as pre-tax options, which lowers an employee’s overall taxable income. Completing a cost analysis per benefit per employee can help you figure out your budget.
2. Decide which benefits to include in your program: Decide what benefits to include in your program by considering what your employees’ needs are. You can survey your employees to determine your best options. Another way to determine benefits is to research your employee population’s demographics and what benefits are most desired by each demographic.
3. Utilize external resources: Creating a benefits program can be daunting, especially when you have to take federal and state laws into account. A Professional Employer Organization (PEO) is a full service human resource outsourcing company that can put together a benefits package, as well as manage various HR tasks like payroll and benefit administration on behalf of your business. You may also want to consider softwares the remove any administrative burden of an employee benefits program (check out this guide on benefit administration systems).
4. Roll out benefits to employees: Once you’ve built out your benefits package, you’ll need to communicate the plan to your employees. Notify your employees of the updates to their benefits and be sure to double-check that they understand the changes and provide guidance on how they can redeem their benefits.

While most of the benefits listed are not required, small business owners should consider offering a solid benefit package to compensate their employees appropriately. This can make all the difference when attracting and retaining top employees. Choosing the right benefits for your employee population and their needs will better your company’s reputation, regardless of size.

Other Resources

Interested in how to use Wellness to promote an engaged workforce? Check out the “Definitive Corporate Wellness Landscape” for a high-level view of all of the options on the market right now! (Pro tip: look for the comparison table to which products are most common with companies your size.)

If you want to see how benefits differ for mid-sized businesses, check out this guide to employee benefits for mid-size businesses.

Want to learn more about corporate wellness? Take our three-part Wellness Foundations Webinar Series for HR managers. It’s a kickstart for anyone who wants (or needs) to dive head first into the industry. 

Interested in speaking with a benefits expert for more one-on-one support? Schedule an introductory call with IncentFit. We’ll learn a bit more about your company’s unique needs and point you in the right direction.