Employee Benefits: Everything You Need to Know
Employee benefits are the term that refers to a generous package of “perks” given to an employee when they work for a company.8 min read
2. The Basics of Employee Benefits
3. Legal Matters
4. Cost Containment
5. Retirement Plans
6. A Deeper Look at Employee Benefits
7. The Legalities of Employee Benefits
Employee benefits is the term that refers to a generous package of “perks” given to an employee when they work for a company. These benefits are designed to attract and retain the most talented, qualified individuals that a company wants to keep. After all, if you talk to more than half of employees that were surveyed by Glassdoor’s 2015 Employment Confidence Survey, they’ll tell you that a generous employee benefit package has a lot to do with whether or not they will take a job offer or decline it. Not only that, many companies do prefer offering their employees a benefits package than a salary raise since it can potentially save them some money.
Google is known for offering lavish benefits to their employees including lunch meals prepared by professional chefs, yoga classes, haircuts, and chair massages. Twitter also splurges on their employees by offering unique benefits such as improvisations classes, catered meals, and acupuncture.
A team at Fractl conducted a survey and discovered that employees found the most desirable benefits to be flexible work hours, paid vacation, the option to work from home, and of course, health insurance (being the top priority for virtually all employees). Another interesting discovery by Fractl was that you could persuade a job candidate to choose your company over a competitor’s that might be offering more pay by having a generous, unique benefits package.
The Basics of Employee Benefits
If you run a small business, you might believe the common misconception that you can’t afford to offer your employees any benefits. However, offering employee benefits (even if they aren’t as lavish as Google and Twitter’s benefits packages) is a great way to boost office morale, foster an environment for better company culture, and retain valuable employees. Most enticing of all, offering benefits could save you money that you might have otherwise dedicated toward a costly pay raise. If you don’t offer benefits and potential job candidates know about this right away, it could send the crème of the crop running in the other direction, right toward your competitors.
There are also some legal requirements you should know about regarding employee benefits. Such legal requirements include:
- Granting an employee time off for jury duty, voting rights, or military service.
- Appropriate worker’s compensation insurance.
- Federal and state unemployment taxes.
- FMLA compliance.
Examples of things a company does not have to include in employee benefits are:
- Dental and vision plans
- Life insurance plans
- Health plans
- Retirement plans
- Paid sick leave, holidays, and vacations
Although these benefits do not legally have to be offered to your employees, by providing the people who work for you with them, you can have an edge over your competitors. The majority of small businesses and big companies offer paid holidays for Christmas Day, Thanksgiving Day, the Fourth of July, New Year’s, Labor Day, and Memorial Day. Additionally, it is customary for the majority of companies to offer two weeks of paid vacation to full time employees every year. Another thing that is not a legal requirement but is often practiced by most employers is giving employees time off for funeral leave (usually two to four days).
Although there are many advantages to having a generous benefits package for your employees, you will also encounter many complications along the way and a rigid legal structure that has countless regulations that have to be abided by. When you start offering some basic benefits such as retirement plans and health insurance, you are immediately subject to specific legalities. It might just be a matter of time before you are audited by the IRS and they quickly learn that the benefits you offer are not compliant with government regulations. Another government entity that could end up auditing you is the United States Department of Labor.
A very common mistake that business owners make is not offering benefits packages to employees correctly. For example, some business owners might forget or not even know that they have to offer the plan to part-time workers or some other type of staff workers (like a custodian). And while there are certain loopholes regarding what has to be offered to employees, this isn’t something you should even consider attempting without professional legal help. If you plan to cut down on business expenses this way, you should absolutely contact a lawyer for legal advice and assistance with preliminary research on how to legally accomplish this. Even just a $1,000 investment in legal consultations could save your business hundreds of thousands of dollars later down the line.
Health insurance is an expense that has been on the rise for years and it has been the culprit behind many small business owners being forced to reduce some of their employee benefits. It is not uncommon for carriers to charge extremely high premiums for small business owners. You can expect a carrier to require a large amount of each employee’s medical information. And in the event that one of your employees has a pre-existing condition, some careers won’t write a policy. Additionally, if one of your employees becomes very sick, a carrier could end up canceling your policy. In certain states, laws are now requiring small business owners to offer a specific kind of coverage if they are offering employees a health care plan.
It is a common problem that most small businesses simply cannot afford to comply with these new insurance-related laws and they end up having to nix the insurance coverage completely. Fortunately, lots of states are now passing new laws that facilitate an easier path for small business owners to obtain health insurance for their workers. Some states that have passed laws to help small businesses have an easier time getting insurance for employees include Illinois, Iowa, Kansas, California, Connecticut, Maine, New Jersey, Massachusetts, North Carolina, South Carolina, Oregon, Wisconsin, Tennessee, and Wyoming.
Many small business owners mistakenly believe that they just can’t afford to offer their employees a retirement plan. In fact, less than 50% of employees who are employed by small businesses are offered a retirement plan. However, businesses that do offer retirement plans have noticed that they are able to retain, happier, more loyal employees.
In an attempt to encourage small businesses to initiate retirement plans for employees, the Economic Growth and Tax Relief Reconciliation Act was introduced in 2001. The act offered tax credit for retirement plan costs, including plans like a 401(k), SEP (Simplified Employee Pension) and the SIMPLE plan.
If you are trying to launch a retirement plan for your small business, the best thing you can do to get started is to speak with a business accountant. They will be able to advise you on the different types of plans that are available to you and which one would be best for your small business.
A Deeper Look at Employee Benefits
An employee benefit is basically any kind of compensation from an employer that could not be classified as salary. Usually benefits are offered by an employer in addition to regular pay and a salary base.
There are certain employee benefits that are actually mandated by law for employers to have to offer their employees. They include the following:
- Worker’s compensation insurance
- Minimum wage
- FMLA (Family and Medical Leave Act)
- Unemployed Benefits
- Social Security Disability Insurance
Aside from employee benefits that are required by state and federal law, plenty of employees offer additional benefits to their employees because they feel a social responsibility to do so. A few examples of the most common fringe benefits offered include the following:
- Paid vacations
- Sick Leave
- Personal Leave
- Health Insurance
- Vision and Dental
- Child Care
- Retirement plans
It is up to the company what additional benefits that they want to offer employees. Generally, companies offer their employees an average of ten days paid leave, according to the Bureau of Labor Statistics. Roughly 75% of companies also offered their employees some sort of health care coverage, but would usually require the employees to pay for a portion of the cost as well. In recent years, there has also been a rise in the number of incentives, bonuses, and perks that are being offered to attract and keep top-level employees.
Some other more specific benefits that certain employers offer that are also covered by a labor agreement include maternity, paternity, and adoption leave, paid vacation, work breaks and meal breaks, pay raises, promotions, sick leave, and hazard pay. Aside from the more general and commonly used benefits, some companies offer lots of “fringe” benefits, or perks as they are often called. These are usually offered by bigger, more economically well off companies. Some fringe benefits include the following:
- Use of company car
- Company holidays
- Stock options
- Company discount on products and services
- Tuition assistance
- Tuition reimbursement to employee and/or their family members
- Free meals
- Life insurance
- Paid vacations
- Profit sharing
These kinds of fringe benefits are considered to be quite valuable to employees and can play a huge role in retaining high-level employees, creating good company culture, and building a strong brand identity. With that said, though these fringe benefits have some monetary value, employees are not allowed to trade their fringe benefits for a higher salary or try to swap in certain benefits for cash. It should also be noted that there is no legal requirement to offer fringe benefits to employees.
The Legalities of Employee Benefits
At large, businesses both small and large have a lot of say in what kind of benefits they will offer employees and how they will offer them. However, there are also plenty of legalities associated with employment benefits that employers have to comply with. It is always a good idea for a business owner to read employee benefit regulations or even talk to a legal expert about how to set up an employee benefits package that is compliant with the law. When you design an employee benefits package, keep the following things in mind:
- Make sure you are first providing the employee benefits that you are required to provide by law. These could include some kind of health coverage or family and medical leave.
- Familiarize yourself with the employee benefits that are voluntary and not mandate d by law.
- The next step is figuring out who is considered a covered employee and who is considered a covered employer as well as distinguish who your employees are and who your independent contractors are.
- Differentiate federal law from state law in regards to employee benefits. For example, benefits such as health coverage and retirement plans may be optional but they are governed by federal law under EIRSA (Employee Retirement Income Security Act).
- Be aware of the taxations associated with employer-provided benefits.
When you review the Employee Benefits section you should read over the following areas:
- Fringe Benefits
- Cafeteria Plan
- Health Insurance
- Health Insurance-Related Laws
- Independent Contractors
- HAS and FSAs
- Leave/Time Off
- Retirement Plans
- Mandated Disability Benefits
- Worker’s compensation
- Unemployment insurance
Are you in need of additional information related to all things employee benefits including state and federal regulations, legal factors, and ways to set up a generous, comprehensive employee benefits package for your company? Don’t hesitate to post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.