Employee Benefits

Organizations are characterized not only by how they treat their customers but their employees as well. Employees add significant value to brand perception, especially within the competitive job market. It goes without saying that in order to attract high-quality talent, you must be a high-quality employer.

That does not necessarily mean you have to be a Fortune 500 company with thousands of employees on your payroll and vibrant workplace culture; you can just as easily become a desirable employer, even as a small business, by treating your existing employees fairly.

One of the ways in which businesses offer a better Employee Value Proposition to their workers is through an employee benefits plan, which is what this blog discusses in detail.

What are Employee Benefits?

Offering job benefits is an effective means of keeping employees happy, retaining them by offering perks and incentives not available elsewhere. Job benefits do not always have to be monetary in nature, as in the form of a bonus or commission.

They can also include flexible work schedules and paid leave programs. Indeed, much of the younger workforce (particularly millennials) lend just as much weight to the benefits that come with a job as they do to the salary itself.

Accordingly, an array of carefully-considered benefits helps significantly with talent acquisition strategies. And while it is much easier to offer a wider range of benefits when running an established business, there will always be certain benefits the law requires you to offer. These are discussed in greater detail below.

Mandatory Employee Benefit Programs

When running or starting a small business, it usually helps to have a firm grasp of federal and state employment laws. This includes the small business employee benefits that you are legally required to offer. While many benefits are optional depending on your place and nature of the business, state, and federal laws make it mandatory for businesses to offer the following benefits to their workers:

Workers Compensation

Offering workers compensation is a mandatory requirement for any business with three or more employees. Simply put, workers’ compensation is a type of insurance policy that protects businesses when an employee is injured or becomes ill during the course of work. For a small business owner, the protection this provides is incredibly valuable.

When an employee is injured or becomes ill on the job, it gives rise to a number of significant expenses. Your worker’s compensation policy will take care of the employee’s medical bills, rehabilitation costs, and lost wages during this time.

On the other hand, if you neglect to take out a workers compensation policy, you will have to pay for all of these expenses out of pocket. Consider your state’s insurance requirements carefully.

Social Security

Businesses operating anywhere in the United States have to pay Social Security taxes as well as Medicare taxes for their employees at the same percentage as the employee. Remember, the tax payments that you make are a deductible business expense, meaning you’ll have to pay a lower tax amount at the end of the year. The IRS also requires you to withhold the employee’s share of Social Security and Medicare taxes from their gross pay.

Disability Insurance

Businesses in several states and territories like New York, New Jersey, Rhode Island, and Puerto Rico must offer disability insurance to their workers. Disability insurance plans cover injuries and illnesses not related to the workplace.

They usually cover both long-term and short-term disability. In most cases, private providers offer disability insurance policies to small businesses for employees. These policies guarantee income to an employee over both the short and long term based on the claim itself.

There are certain caveats to consider disability insurance. For an employee to be eligible for disability benefits, they must have worked at your business for at least twelve months, especially in the case of long-term disability insurance. While disability insurance is not a mandatory requirement in every state, many firms offer this employee benefit because it helps with employee retention and boosts morale.

Unemployment Insurance

The Federal Unemployment Tax Act requires businesses to contribute to their state’s unemployment funds. This ensures that employees who are laid off continue to receive benefits until they can find another job. Depending on the regulations of the state your business is based in, you may need to pay unemployment insurance after registering with the state department of revenue or labor.

When a former employee claims these benefits, if eligible, the state will notify you and deduct it from your unemployment insurance tax account.

Health Insurance

The Affordable Care Act requires all businesses with more than 50 full-time employees to offer health insurance to its workers. As a small business owner, this is a mandatory benefit you have to offer if you cross the 50-full-time-employee threshold.

If you do not offer a group health insurance plan, you are liable for the costs associated with each of your employees. Every health insurance policy should also cover, if possible, the following:

  • Vision Insurance
  • Dental Insurance
  • Life Insurance

Small business owners can opt for traditional health plans that offer a large number of doctors in-plan. This necessarily requires higher premiums, however. Conversely, you might choose to go with a managed healthcare plan that has lower premiums than traditional plans, but this necessitates a narrower selection of doctors.

Most small businesses opt for an HDHP or High Deductible Health Plan. This type of plan requires employees to pay more of the treatment costs than the insurance provider (the employer) contributes.

Another option that is very popular with small and medium-sized businesses is the use of a Health Savings Account along with the HDHP. In this model, the employer deposits a contribution for every pay cycle into the HSA for every employee enrolled in the program. These deductions are tax-deductible and can help your business save on taxes paid at the end of the year.

Family and Medical Leaves

The Family and Medical Leave Act or FMLA is a federal requirement with which all employers must comply. The FMLA protects employees by offering up to twelve weeks of unpaid and job-protected leave each year. The law also requires you to continue group health benefits for such employees.

However, leaves under the FMLA may not be available to every employee. The law states that an employee is eligible for FMLA only after working at least twelve months and 1,250 hours for an employer. Furthermore, employees can only take advantage of FMLA protection in the following circumstances:

  • Birth, adoption, or foster home placement for a new child.
  • Caring for an immediate family member suffering from a serious health condition.
  • Caring for self when suffering from a health condition.


With the COVID-19 crisis, the US Department of Labor has expanded the ambit of the FMLA to include family members exposed to or suffering from Coronavirus. Please note that this list of employee benefits is not exhaustive, and businesses can offer varying benefits based on the states in which they operate.

Do Businesses Need to Offer Part-Time Employee Benefits?

Part-time employees usually work less than thirty hours a week. The IRS and Bureau of Labor Statistics differ on what exactly defines a part-time employee. However, you are still required to offer certain employee benefits, in addition to wages or salaries, to your part-time workers. In the case of part-time employees, such as the temps you source from a marketing staffing agency:

  • Offering health insurance to part-timers is optional.
  • Offering paid vacation to part-time workers is up to you.
  • Offering holiday pay is not mandatory, and is at your discretion.

Other Benefits to Consider

If you’re a new business hoping to assemble a dynamic team of motivated individuals, offering extra benefits can provide a considerable boost to your growing talent pool. For example, if you work with an IT staffing partner, they can offer considerable insight into benefit plans to offer to prospective candidates.

If you’re offering certain benefits that your competitors don’t, you are operating at a considerable advantage to the competition. Examples of unique and creative benefits can include any of the following:

Leave Benefits

Offering leave benefits is not a mandatory requirement for employers. However, by offering things like sick leave, holiday leave, and bereavement leave, you can attract more motivated workers. For workers who don’t avail themselves of these options, or don’t utilize their benefits in full, you might offer a leave encashment program, offering financial incentives for recovery of unused time off.

Retirement Plans

Retirement plans are a very attractive employee benefit. Instead of a pension plan, you could offer a 401k, allowing employees the chance to set aside a portion of their earnings for when they retire. You should choose plans based on whether you can match employee contributions, how much employees can contribute, and the tax implications of a retirement plan.

Frequently Asked Questions

What percentage of an employee’s salary is benefits?

According to the Bureau of Labor Statistics, employers spend an average of $37.73 per hour on employee compensation, of which $25.91 or 68.67% is composed of salaries and wages. The remaining 31.32% or $11.82 is employee benefits.

How do benefits improve employee morale?

Employee benefits show workers that their employer cares about their wellbeing. They also offer employees an incentive to stay with your business over the long term.

How much do health benefits cost per employee?

According to Forbes, the average cost of healthcare for a family of four is slightly more than $28,000. Employers on average pick up 51% of the cost in the case of a preferred provider.

What employee benefits are required by law?

Federal and State laws require Social Security Taxes, Unemployment Insurance, and Disability Insurance for all employees beyond a certain number. Remember that healthcare may not always be a mandatory employee benefit.

Can a temporary employee get unemployment benefits?

It depends on the terms of employment. In certain cases, temporary employees may qualify for unemployment benefits at the end of employment. Most state laws do not disqualify individuals from receiving benefits if they are temporary or seasonal workers.

How do employee benefits affect total employment compensation?

Employee benefits offer value over and above the wages or salaries that come with jobs. Benefits, when taken together with salary, make up employment compensation, which goes up with an increase in extras.

How to design an employee benefits program?

An employee benefits program requires significant consideration. You need to have an understanding of federal and state laws as well as what your competitors offer in terms of benefits. Ultimately you want to offer a workers compensation package that is balanced and fair.

Do small businesses have to provide benefits?

Certain state and federal laws concerning employee benefits are mandatory. That means all businesses, regardless of size, need to follow them and offer the necessary benefits to employees.

What are the 4 major types of employee benefits?

The four major types of conventional employee benefits are disability insurance, medical insurance, life insurance, and disability insurance. However, the modern definition has expanded to include a total of 12 types of employee benefits.

When Should a Growing or Small Business Offer Employee Benefits?

A small or growing business should offer employee benefits as soon as it decides it wants to hire and retain better employees. Of course, the scale of these benefits will vary based on the business cycle. But offering benefits is one of the best ways to ensure you build a great team.

Are employee benefits really necessary?

Certain employee benefits are obligatory based on state and federal laws. On the other hand, many businesses offer additional benefits that they are not required to. Employee benefits help businesses attract and retain quality talent and help motivate the existing workforce, often improving productivity as a whole.

Employee benefits also ensure fair compensation to employees, so that they have security in case they fall sick, are injured, or have to take leaves.

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