Small Business Benefits Package : Everything You Need to Know
Small business benefits package offerings can be nettlesome & expensive part of opening a commercial enterprise which to be thoughtful about what it may entail.8 min read
Small Business Benefits Package
Small business benefits package offerings can be a nettlesome and expensive part of opening a commercial enterprise, which is why it makes sense to be thoughtful about what it may entail. While dollars and cents are, of course, a bottom line priority, it is important to appreciate that your business is only as good as your employees, so benefits are a critical enticement in recruiting and retaining the best workers. In fact, a 2015 Glassdoor Employee Confidence Survey revealed that nearly 80 percent of respondents said they would prefer better benefits than a salary hike. Keep that in mind while putting together your small business benefits package.
Benefits All Businesses Must Provide in Some States
There are five employee benefits listed by the Small Business Administration that employers in some states must provide for their workers:
- Matching Social Security Taxes: These taxes are withheld to pay for retirement, disability and Medicare benefits offered by the federal government. Employers must pay the same rate of Social Security taxes as each employee.
- Workers’ Compensation: Workers’ compensation laws can vary from state-to-state with some businesses exempted in some states. But, the bottom line is, if you have employees, generally, you need to enroll in a self-insured, state or commercial workers’ compensation insurance policy.
- Unemployment Insurance: Employers must register with their state workforce agency and pay state and federal unemployment insurance taxes in most cases.
- Family and Medical Leave (FMLA): While standards can vary by state, the federal government mandates that businesses with 50 or more employees must provide job protection for workers to be accorded up to 12 weeks of unpaid leave for family or medical contingencies during the course of a year.
- Disability Insurance: Again, this benefit is not required in every state and is not federally mandated. This insurance provides an employee a percentage of their normal salary. It is a separate benefit than Social Security, which is usually only applicable if a worker becomes is determined to be totally disabled.
Favor Plan Providers That Will Educate Enrollees on Benefits
Small businesses are often confronted with a choice between providing a benefits package that will recruit and retain qualified employees or funnel profits back into the business. Finding the right balance can be elusive, especially with health care getting more expensive and so much regulatory and legislative uncertainty.
The time and resources dedicated to this can be overwhelming to small-business owners without the experience and knowledge to make the most-effective decisions regarding employee benefits packages.
Therefore, most employers – large and small – purchase benefit packages through providers that will manage and administer employee benefits for your business. Benefits providers are professionals in the complexities of the insurance market and, like individual brokers, can get their small business clients a better rate than if they attempted to negotiate directly with big insurance/benefits companies.
In some cases, these benefits providers also offer HR services, tax compliance expertise, and payroll management
Among the things to look when determining what benefit plan provider will best suit your needs, one bit of advice small-business owners who have gone through the process repeat is to select a provider who will make the effort to educate you and your employees through on-site seminars and other methods about what the benefit plan offers and how to best make use of it.
Health care, life and disability insurance, retirement, and specialty benefits -- such as dental and vision – are the standard offerings in most employment-related benefit packages. There is no cookie-cutter plan that is most suitable for every business and all employees, but there are some common guidelines that could provide direction.
Company size, industry, and location all influence how much a small business must set aside to pay for employee benefit packages. Variations in state requirements can play a significant role in determining how costly it can be, ranging 10 percent to 15 percent of payroll costs in some, to between 30 percent and 40 percent of total payroll in others. No matter what, small businesses of 50 employees or less tend to pay more than larger operations.
Anticipated Changes in American Health Care Act of 2017
Health insurance is required by federal law. The current law is set forth in the Affordable Care Act – aka “Obamacare” -- although that is certain to change sometime soon with the presumed adoption of the American Health Care Act of 2017 in one form or another. Stay tuned for changes once this new set of regulations are approved.
Among those anticipated changes is the mandate that small businesses with 50 full-time employees or more be legally required to offer health insurance to their employees. If the American Health Care Act is adopted in most recent iteration, this Affordable Care Act mandate will be lifted.
Types of Health Insurance
The most common forms of employment-based health insurance packages are “traditional” and “managed care” plans. Generally, those enrolled in a traditional plan pay high premiums for access to a wide selection of enrolled doctors and hospitals while managed care plans offer lower premiums but a smaller selection of service providers. Managed care plans are also referred to high-deductible health plans (HDHP).
Both types of plans are offered by most insurance plan providers, including Blue Cross Blue Shield. Most states require employers pay at least half of the premium.
Since the bigger the pool of employees, the more the costs for a health care plan can be dispersed, larger corporations tend to favor traditional insurance packages while small businesses are more likely to opt in to a managed care plans that offer high-deductibles and lower premiums but impose a greater share of treatment costs up-front on employees before the insurance benefit can be applied.
Health Savings Accounts
Employers can offer a supplementary third option: Health savings accounts that allow enrollees dedicate pretax dollars from gross wages to an account that can cover health care and medical costs not covered by managed care plans.
Retirement plans are becoming an increasingly common benefit being offered by small businesses in recruiting employees. In most cases, this is a contribution plan, such as a 401(k). Few small businesses can afford to offer pension plans, which are rapidly disappearing in the 21st century landscape.
As the name indicates, contribution plans encourage employees to dedicate a “set aside” from their own gross wages for retirement from each paycheck. In most instances, companies will match a percentage of employees’ contribution. A standard 401(k) package, for instance, would allow enrollees to contribute up to 6 percent of a paycheck to a 401(k) account with an additional 3 percent contributed by the employer.
Another aspect of retirement-contribution plans is employees have options in choosing how they want to invest their “set asides.” Most providers offer a mix of funds based on employees’ preferences and comfort with risk.
Employers can establish eligibility requirements, such as requiring an enrollee be an employee for at least a year before eligible for contributions from the business.
Another potentially attractive option that could generate tax savings for employers is the small-business owner himself or herself could enroll themselves into the 401(k)s plan.
Supplemental Insurances and Benefits
Disability and life insurance, as well as dental and vision coverage, can be benefits that small businesses can use to recruit and retain qualified employees. The best aspect of these insurance benefits is they can be packaged in a fashion that emphasizes choice for the employee.
The rule of thumb in developing a disability insurance offering is to select policies that cover at least 60 percent of an employee’s wages. A life insurance policy, depending on the nature of the employment, is usually not an employee’s primary life insurance policy. Many workplace-based life insurance policies are supplemental and relatively small with a standard being about $20,000, which is generally enough to pay for a funeral and provide some immediate financial relief for survivors until other policies are executed.
Dental and vision coverage are usually optional and primarily paid for by the enrollee. Most health insurance group or voluntary benefits plans will provide “add on” options for dental and vision insurance.
Family & Medical Leave
The Family and Medical Leave Act entitles eligible employees to job protection during up to 12 weeks of unpaid leave during any 12-month period, for any of the following reasons:
- Birth and care of the employee’s child, or placement of a child with the employee for adoption or foster care.
- Care of an immediate family member with a serious health condition.
- Care of the employee’s own serious health condition.
During FMLA leave, employers must maintain group health benefits as if the employee continued working.
Most types of leave benefits, such as vacation, jury duty, personal and sick leave, are left to employer discretion and are not required by federal law. However, public employers and those with 50 or more employees must provide leave under the Family and Medical Leave Act (FMLA), which is discussed below.
Standards for workers’ compensation insurance vary greatly by state. Most states require that businesses with employees carry some type of workers’ compensation insurance, though there are frequently exceptions for sole proprietorships, business partners, and limited liability corporations.
Some states and territories require that employers provide partial wage replacement insurance coverage to eligible employees for non-work related sickness or injury. These include: California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island.
Supplemental accident insurance is often offered by insurance plan providers and is something employees themselves can opt in to or an employer can provide.
The standard way accident insurance works is it provides the policy holder a cash benefit to cover out-of-pocket medical expenses not covered by health insurance, as well as for lost income to pay bills and other obligations while unable to work and recovering from their injury.
Statistics show that the vast majority of accidents do not occur in the workplace and that workers miss six times as many work days from off-site accidents as workplace mishaps. This benefit is often subscribed to by employees as an assurance that they can continue to provide for their families in the event they are unable to work and recovering from an injury.
Comprehensive Guide and Directory
Putting together an employee benefits package is a significant component of creating a competitive business. Websites, such as UpCounsel.com, can provide information and access to local law firms and individual attorneys who specialists in state and federal laws related to small business benefit packages. For a more information, consult UpCounsel’s The Ultimate Guide to Small Business Health Insurance & Benefits Requirements.
Upcounsel.com provides a comprehensive directory of attorneys who are practitioners in distinct fields of business law, including such specialties as small business law in specific states and in putting together an employee handbook that covers all the bases.
The directory features profiles on individual attorneys that outline his or her experience, education backgrounds as well as a general outline of fees. UpCounsel has verified that any attorney listed on its site has been endorsed their state Bar associations with a “Good Standing” rating.
If you need help determining how to proceed in assembling a small business benefit package, you can post your legal needs 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, Stripe, and Twilio.