Whether you’re building a business from the ground up or simply improving an existing one, including employee benefits as part of the compensation package for new hires is vital.
Even where not legally mandated, employee benefits are critical to the long-term success of a company – both for enticing quality employees and even potentially as an instrument of savings.
Importance of Offering Employee Benefits
The job market is highly competitive, even cutthroat, these days. For both employers and employees, the process of filling a position is a stressful endeavor.
Salary or wage is always the first priority for a selecting a job, but the benefits package is a close second. 60% of employees would accept lower base pay in exchange for robust benefits.
A comprehensive package can be beneficial to both employee and employer – the company saves money on base salary and the individual buys into a plan that is subsidized by the company and others that are enrolled.
In fact, there is a strong body of research that illustrates the value of employee benefits.
More Employee Benefits Equals More Retention
A full 50% of employees admit they have left a job for the sole reason of the potential of better benefits elsewhere.
Considering that the average cost of just hiring a new employee starts at $4000 (not including time), throwing in some health insurance doesn’t sound like a bad deal. Turnover causes huge problems in every company:
- Loss of investment in employee (training, etc.)
- Talent bleeding
- Hiring costs
- Decreased morale
And the list goes on.
Benefits shouldn’t be viewed as an expenditure without return – on the contrary, it’s almost like insurance for the business itself!
Types of Employee Benefits
The first thing that comes to mind when one thinks of “employee benefits” is usually the standard offerings of health insurance and some sort of retirement plan, maybe a discount for a local gym. In reality, those are only a few of the many possible benefits a company can offer its employees.
Don’t forget to emphasize the advantages of pre-tax benefits to employees. Paying the premiums for health, life, vision, and dental insurances (as well as a few others) are taken out of a paycheck before taxes are. Lowering your total taxable income is an important trick for businesses and individuals alike.
1. Health Insurance
Health insurance, also known as medical insurance, is the bread and butter of employee benefits. It’s an assumed benefit for many salaried positions, and it usually extends to both the employee and their immediate family.
Plans for health insurance generally come in two flavors: a low premium (monthly or annual rate) with a high deductible (out of pocket costs), or a high premium with low deductibles. When deciding what plan to go for, consider your employees’ needs.
Some people prefer to pay higher premiums and have peace of mind that any deductible will be covered or mitigated, while others depend on their good health and want to minimize costs with a low premium. The business may be able to cover the whole premium in that case, while only being able to subsidize the more expensive ones.
Health insurance presents a large cost for businesses – especially small ones. However, it’s an expected part of a compensation package. Neglecting to offer health insurance will likely compromise the quality of potential hires your business attracts.
Health Insurance Providers
- United Health Care – As part of the greater United Health Group, UHC belongs to the largest health insurer in the United States. They offer a variety of plans to suit the needs of any business between 2 and 50 employees. Of particular note is their 24/7 online care feature – employees have access to doctor advice at any time from their phone and computer and can receive necessary prescriptions.
- BlueCross / BlueShield – Another large provider, the BlueCross operates internationally in over 170 countries across the world. The main benefit of using this insurance provider is that they have the largest preferred provider network – almost every doctor or hospital is “in-network” so care is always discounted.
2. Life and Disability Insurance
Depending on your business and its employees, life and disability insurance can be useless or a very attractive benefit.
Naturally, life and disability insurances are highly desirable for people middle-aged and beyond. Businesses that typically employ older employees, such as some retail spaces and corporate offices, will find it imperative to offer this insurance.
Younger employees still think themselves invincible and likely won’t be as enticed by the offering of life or disability insurance. An exception would be those with a family and children – they tend to think a little more long-term.
Depending on the plan, these insurances can be comparable to health insurance or dirt cheap. The cost will depend on the numbers of employees enrolling, their ages, and outstanding health problems. If staff consists mostly of young professionals with families, this is a low-cost benefit that adds high perceived value to them.
Life and Disability Insurance Providers
- Mutual of Omaha – Omaha offers a flexible disability insurance plan that you can customize to fit the needs of your group of employees. They also allow for the plan to be company-paid or employee-paid, as well as a mixture of the two.
- State Farm – State Farm doesn’t just do car insurance; they have a wide variety of business insurances as well. In addition to their strong group life insurance plans, they can aid in offering several fringe benefits to help retain strong employees.
3. Vision and Dental Insurance
Vision and dental insurances are usually paired and sold as a package. They are not necessarily an expected part of a compensation package, but for business owners, it’s a cost-effective conscription tool.
Vision and dental have markedly cheaper premiums than other types of insurance. Deductibles vary greatly since a good portion of vision and dental procedures are considered voluntary. Paying the entire premium for your employees is a cheap way to garner goodwill and increase recruitment and retention.
Combining a ‘free vision and dental plan’ with a mediocre health or life insurance offering will allow a business to attract superior candidates without overspending on benefits.
Vision and Dental Insurance Providers
In most cases, the provider of your company health insurance will also have a vision and dental plan that can be bundled in with health for cheap. If your company does not offer health insurance, use one of the following.
- SHOP – The government-sponsored healthcare marketplace allows an owner to shop around and compare a variety of insurances, including dental (not vision, however). There are plans designed for small businesses, as well as tax credits you may qualify for.
- Humana – Humana offers both vision and dental insurance in individual and group plans, allowing employees to opt in or out. It’s one of the more inexpensive options – both premiums and copays tend to be heavily discounted.
4. Retirement Plans
“Retirement Plan” generally refers to 401Ks or any of the multitudinous IRAs, but it’s possible to extend the meaning to stock options and equity (within or without of the company). Here are examples of the most common retirement plans:
- Simple IRA
- SEP IRA
- Traditional IRA
- Roth IRA
While it’s very possible to offer both 401K and IRA, given the choice, most people would prefer their company offer the 401K. The maximum contribution per year is much higher than most IRAs, and with employer matching, it’s a significant advantage.
Furthermore, Roth IRAs are an attractive investment vehicle for many interested in long-term saving, and it’s post-tax anyway.
A 401K plan is, like health insurance, a standard offering and will be expected for any competent business that wants to attract and retain talent. Additionally, desirable employers usually match contributions up to at least 4%.
While matching contributions is optional, a well-executed retirement planning package has the potential to attract top talent or serve as a tax-advantage for your company.
Retirement Plan Providers
- ADP – ADP is an immense program that doesn’t just dabble in everything business related – it dominates them. From payroll to HR, to booking, to taxes, and even insurance; getting onboard with ADP can streamline every facet of a business. Their services include 401K for employees and a nifty app that lets them access the info at any time.
- American Funds – Similarly gigantic, American funds offers over 360,000 different plans; surely one is a match for any business. Employees can choose between 401Ks, Traditional IRAs, and Roth IRAs, as well as specifying the objective of the fund (preservation, balance, or growth).
5. Miscellaneous Benefit Options
The above benefits are the most common but there are a variety of lesser-recognized benefits that can be incredibly useful to a business and its employees both. Many of these have negligible costs to a company but greatly increase the morale and loyalty of employees, making them highly effective for retention.
Pre-Tax Deduction Benefits
It’s important to give to the Man his due, but the government has purposefully put in place a number of systems and exemptions that lessen the burden on individuals and small businesses. All of the above major benefits are pre-tax, and here are a few more that are worth considering.
- HRA – A Health Reimbursement Account is used by exceptionally generous employers to mitigate the financial impact of health insurance. It allows employees to be reimbursed by the company for any costs related to health insurance, including premiums and deductions.
- FSA – Sometimes used in place of or in addition to regular health insurance, the Flexible Spending Account helps pay for out of pocket costs related to medical care, child care, or prescriptions and medical equipment.
- HSA – Unlike the other two accounts, the Health Savings Account is owned by the employee, not the company. It’s specifically for people that have a high-deductible health plan (HDHP) that want to set aside (pre-tax) money in savings for use in case paying a deductible is necessary. It rolls over year to year and even accumulates interest. Employers can contribute to this account under specific conditions.
Paid Time Off / Paid Holidays
So standard that it is hardly considered a benefit, paid time off is a must-have for any full-time employees.
Once a company has enough employees, however, offering paid holidays off is a huge incentive – especially to workers in the service or retail industries. It’s similar to PTO in every way, no additional pay is required, but being able to take off time to spend with the family will make employees grateful.
Companies that are physically located in cities, have employees that travel long distances to work, or that primarily employ people without access to personal vehicles should absolutely consider commuter benefits.
Implementing commuter benefits is quite cheap: city transportation will have deals on company bus passes, paying for bicycles and/or their maintenance, and encouraging carpools are all low cost. Paying the federal standard gas mileage rate can get pricey, but that’s it.
For employees to whom the commute is a big deal, offering benefits to subsidize it will also be a big deal.
Commuter benefits are mandatory in the following places:
- San Francisco Bay Area
- Washington DC
- New York City
- Berkeley, CA
- Richmond, CA
Fringe benefits are practically everything you give to employees for free. From the tea and coffee in the break room to the company shirts, to the office pizza party – it’s a fringe benefit.
These are rarely described directly in a benefits package but they’re a significant contributor to employee happiness. Many of these can facilitate the formation of a positive company culture as well! The best part is that many fringe benefits can be written off as business expenses. It’s a win-win.
However, fringe benefits don’t stop at free Oreos. They can also take a much more valuable (and expensive) form: tuition assistance or student loan repayment. These are extremely desirable, especially amongst the younger generations. In specific circumstances, they can also be paid with pre-tax funds.
Work-Life Balance Benefits
Talking about benefits puts you in a financial state of mind, but for an increasingly large segment of the workforce, remuneration isn’t the only consideration.
“Work-Life Balance” is a buzzword with some clout. Finding equilibrium between work and personal life makes people more satisfied with both and prevents burnout. The easiest way to increase retention is simply to make your company an enjoyable place to work at.
Startups are particularly adept at adopting positive work-life balance habits to offset what would otherwise be a very taxing job. You don’t have to build a state-of-the-art napping room or install massage chairs in the corridors like they do, though.
Here are some easy work-life balance options to implement:
- Allow remote work where possible
- Implement a casual dress code
- Implement a bring your pet/child to work day
- Adopt flexible working hours
- Encourage social events in and out of work
Legally Required Employee Benefits
Surprisingly, not many employee benefits are mandated by law. Some of the ones that are aren’t things you’d typically consider benefits.
- Social Security and Medicare are mandatory federal taxes that are, in fact, benefits. A company has to match the taxes that are also paid by the employee (which can vary).
- Another somewhat obscure benefit is Worker’s Compensation Insurance. The requirements vary by state, but almost every state requires it if a company has at least one employee.
- The Family and Medical Leave Act (FMLA) protects people from losing their job for up to 12 weeks of (unpaid) leave in a 12-month period. It’s valid in the 4 following situations:
- Birth and care of a child
- Foster care or adoption placement for a child
- Caring for your own serious health issue
- Caring for an immediate family member’s serious health issue
- There exist both Federal and State Unemployment Taxes which are mandatory for businesses to pay. It’s an indirect benefit – from this pool the unemployed draw government assistance. It is separate from severance packages that may be required depending on the state and terms of firing.
- Overtime pay is required by law.
- Some states (and territories) have laws that require companies to give partial wage replacement coverage to employees that are rendered unable to work through sickness or injuries, even if they are not work-related. Disability Insurance is required in:
- Puerto Rico
- New Jersey
- New York
- Rhode Island