Most entrepreneurs start out just relying on themselves and their own labor. However, at some point you’ll obviously need to hire some employees. Besides guaranteeing their salaries, you will also need to put together an employee benefits package for people that you work with.
Expanding your team means hopefully relieving some of the workload on you, but navigating what your employees require in terms of benefits can be challenging for business owners used to operating just on their own or with family members.
This quick guide can help you figure out what to offer potential employees and how to navigate this possibly overwhelming sphere.
Why Benefits Are Important
Offering employee benefits as a business owner is important for a few different reasons.
It’s the Law
When you work for yourself or get family members to work for you, you can count on them to work for you no matter the conditions. However, when you hire outside employees, you have to meet certain legal requirements, including providing them with certain benefits.
You Need to Be Competitive
If you are working in a field where skilled employees are difficult to find, such as IT, you need to make your business attractive to top candidates. One way to do this is by offering generous or creative benefits packages. Often, candidates will opt for a pay cut if it means better benefits, such as health coverage for family and dependents, showing just how important these benefits are to potential employees.
Improve Workplace Morale
You may be able to find someone who is willing to work for you for the lowest possible salary and minimal benefits. However, that person will probably not be motivated to go above and beyond for your company and will be looking to skip on for the next possible position. Offering generous benefits encourages workplace loyalty, improves morale, and boosts productivity.
Legally Required Benefits
When you hire an employee, there are some benefits that you are required to pay as their employer. Knowing about these benefits is important because the expense a potential employee represents for your business is larger than just your payroll.
Plus, if you don’t report your employees’ incomes and avoid paying some of these benefits, you may face stiff legal penalties and fines if caught. No one wants that!
These are the most common forms of legally required benefits, but double-check the requirements for your business. Some states have additional required benefits that business owners have to pay.
Social Security and Medicare
Social Security and Medicare are two mandatory contributions that employers pay into throughout an employee’s career. You’re also required to pay these contributions for yourself as the business owner. For every employee you hire, make sure that you budget the extra Social Security and Medicare tax that you will need to pay.
Unemployment Insurance
In most situations, you also have to pay unemployment insurance for your employees. This is insurance that they can collect if they get laid off. Some states require additional state unemployment insurance, so look into laws that apply to your business.
Besides unemployment insurance, some states require additional forms of insurance. Most states (except for Texas) require business owners to pay workers compensation insurance in case someone is injured on the job.
Family Medical Leave Act
Depending on the size of your business, you may need to pay FMLA benefits. The Family Medical Leave Act is a law that employees are allowed to take unpaid leave up to 12 weeks for important events such as childbirth, adoption, or severe family illness. Small businesses with only a few employees are not required to provide this benefit.
Healthcare
Most people in the United States have healthcare through their employer. Businesses that have more than 50 employees are legally required to provide healthcare benefits for their employees.
While small businesses are not required to provide health insurance, businesses that provide this benefit see higher levels of employee retention. Since healthcare plans through the marketplace are expensive, businesses that don’t offer healthcare benefits in competitive fields will have trouble retaining employees.
There are many different types of healthcare plans out there, creating a confusing market for both employees and employers. Besides basic healthcare coverage, there are a few other healthcare-related benefits that you can consider offering your employees.
Dependent Coverage
Most people think about their families, not just themselves, when they are comparing potential healthcare benefits. Employers that offer healthcare plans that cover dependents are attractive to employees who have families. Most healthcare plans cover children, but more expansive plans cover spouses, foster children, and stepchildren. Depending on the family situation of your employees, they may need more extensive dependent coverage.
Vision and Dental
Most basic employer-covered healthcare plans don’t cover vision and dental. This causes additional expenses to employees whenever they have to get new glasses or go to the dentist, both of which can be quite costly out-of-pocket. Some employers offer this benefit to their team to help them save money.
HSAs
Most basic healthcare plans in the United States don’t actually fully cover all healthcare-related expenses. If you don’t offer full coverage to your employees, one way to mitigate that is to offer Healthcare Savings Accounts, or HSAs.
HSAs are accounts specifically for healthcare expenses that can receive contributions from your employee, you as the business owner, or both. The advantage is that this type of savings account is not taxed. That way, the employee can have access to an emergency fund in case of medical expenses.
Other Wellness Benefits
Besides health insurance, think about providing other benefits to your employees that promote health and wellness. Some companies offer wellness packages such as wellness stipends for fitness classes, discounts on gym membership, and more.
These benefits boost employee morale because they feel as if you genuinely care about their wellbeing. Plus, promoting healthy behavior and lifestyle choices means fewer instances of sickness or injuries that affect productivity.
Retirement
Besides healthcare, one of the primary benefits that employees look for when they are applying for jobs is retirement. While all employers are required to pay into Social Security, those payments are usually not enough to cover people’s expenses after they retire. Although some professions, such as police officers and teachers, can count on a pension, most people rely on retirement savings.
Depending on your state, you may be required to provide your employees with retirement plans. There are a few different plans you can offer.
401(k)
The most common retirement benefit people get through their employer is a 401(k). This is a type of savings account where you save a certain amount for your retirement each year. The income that you divert towards the account is not taxed when you save it, allowing employees to lower their tax burden for the year.
Many employers also offer 401(k) matching, which means that they contribute to the retirement fund as well. This gives employees peace of mind going into the future and is the standard in many competitive industries. Usually, the contribution is set ahead of time as a percentage of the salary.
403(b)
A 403(b) plan is similar to a 401(k), but is only available to employees of institutions that don’t pay taxes. If you are running a school, religious institution, or non-profit, look into this type of benefit.
Other Financial Benefits
Besides employer-sponsored retirement plans, there are other employee benefits that you can offer to employees that help them save money and feel more secure as they plan for retirement.
Some employers offer their team members stock benefits. While this isn’t possible if you are a small business, it is a common benefit among tech companies and provides employees with additional income and financial security if your company does well.
Other employers opt to pay for additional insurance for their employees, such as life insurance or disability insurance. That way, they know that they and their families will be taken care of if something happens to them. Again, think about some more creative things you can offer to your employees to give them a better quality of life.
Lifestyle Benefits
When comparing benefits packages, candidates are not just looking at how much money they will be making. Many are also thinking about the way that their job will affect their life. Lifestyle benefits are a way of signaling to employees that you will respect their work-life balance and acknowledge that they have responsibilities and time spent outside of work.
Time Off
Everyone needs time off from work to recover from stress, relax, or attend to other responsibilities. Being a tad flexible here can really make a difference.
There are a few ways that you can provide your employees with adequate time off. Sick leave is a bank of days that employees can use if they are sick or if they have to take care of ill family members.
Many employers offer PTO, or paid time off. PTO is a block of days that employees can use to take time off from work, usually for vacation, and still get paid for that time off work. In tech and other industries, competitive benefits packages usually include unlimited PTO.
Some companies don’t offer unlimited PTO, but combine PTO with allowances for sick leave, jury duty, bereavement leave, and other forms of leave. That way, if something happens to the employee, they don’t also lose potential vacation days if they have to take time off to take care of illness or another disruption.
Family Benefits
For employees that have families or are looking to start one, lifestyle benefits relating to their family are very important.
Although the United States does not require employers to provide paid parental leave, employees in competitive industries may expect this type of leave. Women that are hoping to get pregnant look at parental leave policies to see if they can balance childbirth and having a job. Some employers offer paid parental leave to male employees as well, who want to spend time with their families after birth, or family planning leave for employees going through infertility cycles.
Other types of benefits can make your business an attractive workplace for people with families. Flexible work and attendance policies as well as options to bring children to work in an emergency are helpful for families that know they may experience childcare emergencies. Other employers offer an FSA account that helps employees save for childcare, which is important as daycare fees skyrocket.
Professional Development
Benefits that show that you are willing to invest in your employees, such as regular training, professional development stipends, and access to online courses, are attractive, especially in competitive fields.
Employees today know that they probably can’t expect to stay at the same position their entire careers. They want to advance within the company, which requires learning new things and staying on the cutting edge of the industry. Providing benefits that relate to professional development show your team that you hope that they grow, rather than stay stagnant.
How to Decide Which Employee Benefits to Offer
These are just some of the most common benefits that employees get in a package. There are many other types of benefits that do not fit here — and which would be overwhelming if we included them.
More important than knowing about all of the different benefits out there is knowing which ones to offer to your employees. Here are a few factors to consider.
Budget
While a generous benefits package is great for employees, it will cost your business money. Tally up how much the benefits package would cost you in taxes, matching funds, and other expenses. It’s important to have a clear picture of how much each employee costs that goes beyond payroll.
Industry Standards
Take a look at what other businesses are offering in your field. If you offer a smaller benefits package than most of your competitors, you will have a hard time attracting and retaining quality talent.
Company Culture
When putting together your benefits package, think about what type of company culture you want to foster. For example, if you are a family-oriented company, include childcare benefits, or professional development benefits if you want your employees to be growth-oriented.
Why Employee Benefits Are Important
Navigating employee benefits as a business owner can be difficult since there are so many different types of benefits. Putting together a benefits package means walking a tight balance between making your employees happy and balancing your business’s budget.
While this guide cannot tell you exactly what to do, after reading it you hopefully feel more prepared for navigating the benefits conversation!
Stephanie
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 200k entrepreneurs to start, run, and grow their businesses.
