To attract and retain top talent, you need to offer competitive compensation. And part of that compensation? An excellent employee benefits package.
A competitive benefits package can make workers feel taken care of, both inside and outside of business hours. But deciding which small benefits to offer—and which you have to offer—can be difficult.
Let's take a look at everything you need to know about small business benefits, including the different types of employee benefits, why they're important, and how to assemble a benefits package that works for your business and your employees.
What Are Employee Benefits?
Small business benefits are a type of non-monetary compensation that employees earn on top of their salaries or wages.
The top five benefits are:
- Employer-covered healthcare
- Life insurance
- Pension and retirement plans
- Paid time off
- Mental health assistance
When Should a Small Business Offer Benefits?
Employees rely on certain benefits, like health insurance—so you should offer them as soon as you can.
While some employers opt to offer them on day one, others have benefits kick in after a certain time period (typically 30, 60, or 90 days).
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Why Is It Important to Offer Benefits to Employees?
The majority of employees rank benefits as very important, and it's a good idea to offer employees something they value so highly. But that's not all—benefits can also help your company succeed.
Reasons to offer benefits to employees include:
Attracting and Retaining Top Talent
Benefits are often one of the first things that employees look at when deciding if they want to apply for—and ultimately take—a job.
And because talented workers often receive multiple job offers, the benefits package can be the deciding factor for which company they go with.
By offering a comprehensive and generous benefits package, you can attract top talent to your business and help your company stand out against your competitors.
Benefits can also help you retain the talent you have. In fact, in 2021, 43% of employees who quit their jobs did so because the job didn't provide good benefits.
By offering great benefits to your team, you demonstrate that you're invested in them, ensuring they feel appreciated and have access to policies and programs that help them stay (or become) happy, healthy, and productive.
And when employees feel that their company is invested in them, they're more likely to stay with that company.
Offering benefits to your employees can grant them peace of mind, reducing stress levels and concerns (like how to pay medical fees during a serious illness or how to take some time off without losing out on income).
This can help your employees be their best selves—at home and at work—and improve employee morale and satisfaction.
For example, if an employee is given a fringe benefit like comprehensive childcare, they can be less distracted about their child's safety and more focused on a given work task.
At the same time, psychotherapy or meditation coverage could teach employees strategies to reduce negative reactions that could hurt team spirit at work or to improve time management for better work-life balance.
A Healthier Workforce
For businesses that employ 50 or more full-time or full-time equivalent employees, healthcare coverage is mandatory. Even if this doesn't apply to you, it's still a good idea.
That's because uninsured Americans are responsible for paying their own healthcare costs, which can cost as much as $30,000 for a three-day hospital stay—or, potentially, hundreds of thousands more for long-term treatment and care (for example, dealing with a cancer diagnosis).
Offering healthcare coverage to your employees can give them (and their families!) access to the care and treatment they need, whether that's preventive care, prescription drugs, or therapy.
And when all of these needs are taken care of, it leads to fewer sick days, enhanced peace of mind, and more energy—which, in turn, can help increase employee engagement and productivity.
The Different Types of Employee Benefits
Now that you know what small business benefits are—as well as the advantages of benefit plans—let's jump into the different types of employee benefits you can offer your team, including:
The federal government requires employers to provide certain mandatory benefits, including:
- Medicare and Social Security: Medicare and Social Security are programs that pay for an employee's healthcare and income after reaching retirement age and/or becoming disabled. Both employees and employers need to contribute to both programs, which is typically done via payroll deductions.
- Health Insurance and FMLA: The federal Affordable Care Act (ACA) requires that businesses with 50 or more full-time or full-time equivalent employees (those who work 30 or more hours per week or 130 hours per month) provide health insurance coverage. For these businesses, providing health insurance is mandatory. These same employers must also provide eligible employees with up to 12 weeks of unpaid time off—for which the employee can't be fired—for certain events (like childbirth or to care for an immediate family member with a serious illness)—under the Family Medical Leave Act (FMLA).
- Disability insurance: Disability insurance pays out a portion of an employee's income if that employee suffers a short-term or long-term illness or injury. These payments are intended to cover most of an employee's wages or salary as they recover and before they return to work—or until death, in the case of a long-term disability.
- Unemployment insurance: Unemployment insurance provides temporary financial support to employees who lose their jobs through no fault of their own (like getting laid off or terminated). This is paid for through a payroll tax at the federal and state level.
- Workers' compensation insurance: Workers' compensation insurance (or workers' comp) helps employees who get injured or sick while on the job. It covers lost wages and medical expenses without requiring a lengthy (and potentially costly) lawsuit or any admission that your company was negligent or at fault.
- Retirement benefits: Some states require businesses to provide employees with some sort of retirement plan. Those states include Maryland, California, New York, Oregon, Virginia, Maine, New Jersey, Illinois, Connecticut and Colorado.
Bonus tip: Hourly makes it easy to manage benefits like workers' comp. The platform syncs your payroll and time tracking with your workers' comp policy in real-time—so you never overpay or underpay for coverage. Time to say buh-bye to those nasty audit surprises!
How Does Health Insurance Work for Small Businesses?
An employer-sponsored health insurance plan, also known as group health insurance, is a benefit that covers an employee's medical expenses—and in some cases, those of their spouse and/or dependents.
This includes doctors' appointments or prescription medication, hospital visits, and surgical procedures.
Insurers offer different types of group health insurance plans to employers. This helps you choose the best plan for your business (and employees!), with options including:
- Fully-insured plans: With a fully-insured health insurance plan, you—and, potentially, your employees (through payroll deductions)—pay premiums to an insurance company. In exchange, the insurer takes on all of the administration, management, and risk of providing employees with coverage.
- Self-funded plans: Self-funded (or self-insured) health insurance is a plan in which you take on the responsibility of paying for your employees' healthcare and claims instead of paying premiums to an insurance company. This is typically done by hiring a third-party administrator (TPA) to manage your policy and can give your business more flexibility in setting up coverage.
- Managed care plans: Managed care plans require employees to visit specific networks of doctors and providers for services to be covered under the insurance policy. Employees with a managed care plan typically have one of two types: health maintenance organizations (HMOs), which limit coverage to doctors and medical facilities within a network, and preferred provider organizations (PPO), which cost less for using preferred providers within a network (while still covering out-of-network healthcare providers). Managed care plans can help keep premiums low—though sometimes at the expense of flexibility and choice.
- High-deductible health plans: A high-deductible health plan (HDHP) provides healthcare coverage for low premiums. On the flip side, these plans have higher out-of-pocket costs in the form of a high deductible—the amount of money your employees will have to pay before the plan kicks in.
Other Health Benefits You Can Offer
In addition to health insurance, you can also offer voluntary benefits, such as:
- Dental insurance: Dental insurance covers all or a portion of employees' dental care, including dental exams and basic procedures like cleanings, X-rays, or oral surgery.
- Vision insurance: Vision insurance is an insurance plan that covers all or a portion of an employee's vision care, like eye exams, prescription lenses, or common ocular procedures, like cataract surgery or LASIK.
- Life insurance: Life insurance pays out a lump-sum cash benefit to an employee's family and/or loved ones if the employee passes away.
- Mental health coverage: In addition to physical health, employers may opt to offer additional mental health coverage, which covers treatment like psychiatric care, therapy, inpatient treatment options, or others.
- Employee assistance programs: Employee assistance programs (EAPs) are intervention programs developed to help employees overcome personal problems harming their work performance (like addiction or drug abuse).
- Healthcare classes: Healthcare classes are designed to teach employees more about taking better care of their health, improving their diets, and becoming more active and fitness oriented.
- Healthcare savings options: Funding accounts—like health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement accounts (HRAs)—can help employees pay for out-of-pocket healthcare expenses with pre-tax dollars (and, in some cases, employer contributions).
Wellness programs and benefits are any type of benefit that helps your employee become their healthiest self. This can include coverage or reimbursement for:
- In-office yoga
- Programs to help you quit smoking
- Gym memberships
- Designated on-site quiet rooms
- CPR and first aid training
- Complimentary wellness app subscriptions or publications
Besides access and discounts, employers can give incentives to further encourage employee wellbeing—for example, by hosting a company-wide wellness initiative, like a steps goal, and offering cash incentives for employees that participate.
Paid Time Off
Paid time off (PTO) enables employees to take personal, sick, or vacation time off from work without sacrificing pay. Based on employer needs, small business owners can offer different types of PTO, including:
- Traditional PTO: Employees are given a limited number of days they can take off from work and still get paid. This typically requires approval and scheduling in advance, with a specific number of days set aside for personal, sick, and vacation leave.
- Flexible PTO (FTO): Employees are given a limited number of unpaid days off but can use them for whatever reasons they see fit. For example, an employee with 15 days of FTO can use all 15 days for vacation instead of accruing five for personal time, five for sick time, and five days of vacation.
- Unlimited PTO (UTO): Employees can take off as much time as they would like and for whatever reasons they desire.
Financial benefits can go far beyond the promise of unemployment insurance or direct deposit payments. If a small business owner wants to level up their benefits, some ways to do so are through programs that provide financial education and opportunities to employees.
Some examples of financial benefits include:
- Financial education classes: Financial learning experiences can teach employees how to better handle their paychecks, save for emergencies or big goals, and train them on how to get credit card payment reminders or avoid overdraft fees.
- Stock options: Stock options grant employees the ability to buy company shares at a predetermined (often discounted) price after a predetermined employment period. Leaders can also decide how many stock purchases are allowed and the vesting period—or how long it will take to fully own the stocks after purchase.
- Student loan repayment: If your team happens to consist of early-career employees, another great perk is paying off burdensome student loans. This benefit can fluctuate based on loan amount and minimum payment schedule, with employers often choosing to make monthly payments.
- Tuition reimbursement: Knowledge is power, so why not encourage your employees to garner new skills by offering to reimburse the costs of going back to school?
- Emergency savings funds: Helping your employees with money during crises can include payroll advances or low-interest rate short-term loans. One increasingly popular benefit is offering team members an emergency savings account (ESA), which gives them the choice to automatically deduct a percentage of each paycheck to put into a savings account.
Everyone plans to retire someday—and as a small business owner, you can help get your employees set up for the future by offering retirement benefits like:
- 401(k) and matching: A 401(k) is an employee-sponsored personal pension account. Employee contributions are taken out of pay based on predefined terms, and you can choose to wholly match those contributions or match a percentage.
- Individual retirement accounts: An individual retirement account (IRA) is a 401(k) alternative for those who want to pick their own retirement plan provider with more flexibility on the terms of payment and associated tax advantages.
- Profit-sharing: An employer can take it a step further by offering profit-sharing (also known as a deferred profit-sharing plan), which is when an employer contributes a percentage of the business's earnings to retirement accounts.
- Retirement savings consultations: No matter where they are in their retirement planning journey, offering expert knowledge to develop and monitor an account is essential to meet retirement goals.
Flexible Work Benefits
Giving your employees control over where and when your employees work can help them maximize their productivity and comfort, so consider offering benefits like:
- Remote work options
- Meeting-free days
- Flexible work scheduling
- Making offices pet-friendly
- Sabbaticals (or extended time off to develop new skills or rest)
Tips for Creating Awesome Benefits Packages
So what do you do with all this new information? To deliver a benefits package that meets the needs of your diverse range of employees, consider doing the following:
Ask for Expert Guidance
Nearly 98 percent of organizations in the United States offer health insurance to full-time employees—which means you're not the first owner to offer small business benefits.
When you're working with an insurer (or any benefits provider), communicate your priorities and budget—and then ask for options and recommendations that could be a good fit for your business.
Offer Personalization and Flexibility
Every benefit isn't a fit for every employee; some employees might need access to a childcare stipend, while your child-free employees might prefer a larger 401(k) match.
So, if you want to offer the best benefits package to all your employees, consider personalizing your benefits.
This ensures that each employee gets access to the benefits that are important to them—and aren't paying for benefits they're not going to use.
Added bonus? Offering personalized benefits can help improve retention; 72 percent of employees reported a stronger commitment to organizations that offer benefits personalization.
Take Advantage of Benefits Administration Technology
The more benefits you offer, the more confusing it can be for you and your employees to keep up—and that's where choosing the right benefits administration technology comes in.
Benefits administration technology is software that lets employees research, enroll, and manage benefits all in one place.
For example, employees can opt into daycare on the same platform where all health-related benefits options are explained.
Gather Employee Feedback
Whether you're just starting to build your benefits package or want to expand upon your existing offerings, fostering an open dialogue with your workforce about their wants and needs can have a positive impact on morale and your overall benefits strategy.
You can book quarterly meetings or send out a digital survey to ask employees about the kind of benefits they want or where your business can improve its benefits.
Small Business Benefits Protect Your Employees—and Your Business
Even with all of the above in mind, remember that the small business benefits you offer should evolve with your workforce and business.
Providing benefits is a long-term commitment, but it will always be worth the investment if you want to attract and retain top talent—and take care of the same workforce that takes care of your business.