What Is the Best Employee Benefit Package for Small Businesses?
There are some basics when it comes to having a competitive employee benefit package. Some benefits are required by law, while others are pretty much expected by today’s employees. By knowing what should be included as standard employee benefits, you can create the best benefits package for your employees.
What Employee Benefits Am I Required to Provide?
The Small Business Administration lists 5 employee benefits that employers usually must provide:
- Matching Social Security Taxes: Taxes withheld from employees’ paychecks are used to fund benefits like retirement, disability, and Medicare. Your business must pay the same rate of Social Security taxes as each employee.
- Workers’ Compensation: If you have employees, you most likely need to enroll in either a self-insured, state, or commercial workers’ compensation insurance policy. Each state regulates workers’ compensation laws, and some states may exempt certain types of businesses from providing this coverage.
- Unemployment Insurance: Your business may have to pay state and federal unemployment insurance taxes if certain labor requirements are met. Your company must be registered with your state’s workforce agency if you’re required to pay state unemployment insurance taxes.
- Family and Medical Leave (FMLA): If you run a private company with 50 or more employees, you must provide FMLA benefits. FMLA provides job protection for an employee to take up to 12 weeks of unpaid leave for certain family or medical situations during a 12-month period.
- Disability Insurance: There are only a few states that require businesses to provide disability insurance. If your business is required to offer this benefit, eligible employees must get partial wage replacement if they have an illness or injury that did not happen at work. This disability coverage is different from what employees may get from Social Security if they become totally disabled.
What Are Typical Employee Benefits for a Small Business?
You may be surprised by just how much employees value workplace benefits. In a 2015 Employee Confidence Survey from Glassdoor, nearly 4 in 5 employees would rather have more benefits than a pay raise. You may be even more shocked to know that this is what 89 percent of younger workers ages 18 to 34 preferred. So what do job seekers and employees expect when it comes to benefits? Let’s take a look at these benefits:
- Health insurance
- Dental and vision insurance
- Paid time off (PTO)
- Retirement benefits
- Supplemental benefits
No surprise here. Health insurance is at the top of the list of what’s expected in an employee benefit package. It’s no secret that health insurance is a big expense for employers, especially for small business owners who typically use most of their revenue (about 70 percent) to pay employees. This may leave a very tight budget to provide employees with qualified health insurance that includes the 10 “essential health benefits” the Affordable Care Act (ACA) requires plans sold in the individual and small group market to have:
- Prescription drugs
- Laboratory services
- Emergency services
- Ambulatory patient services
- Maternity and newborn care
- Pediatric services, including oral and vision care
- Rehabilitative and habilitative services and devices
- Preventive and wellness services and chronic disease management
- Mental health and substance use disorder services, including behavioral health treatment
The ACA also established the employer mandate in which business owners with 50 or more full-time equivalent (FTE) employees may be subject to a tax penalty if they don’t offer health insurance. But businesses with fewer than 50 FTEs are not subject to the mandate.
So what’s a small business owner to do? Forego health insurance to save money and risk losing good employees, or offer health benefits and possibly hurt the company’s bottom line? Neither of these options would be good in the long run. But what if there were a way for everyone to win—for employees to get the health coverage they expect and need, and for you to better manage your small business healthcare costs? There are actually a number of ways this could be possible. Let’s take a look at the different options.
Offering Traditional Group Health Insurance
Providing group health insurance means that you have to pay a portion of employee premiums. While it’s true that health insurance premiums are on the rise, it’s still possible that a traditional group plan could be a suitable option for your business. And because we give small businesses owners access to a myriad of health insurance choices, it may be easy to find a group health plan both you and your employees can afford.
Pairing a High Deductible Health Plan with a Health Savings Account
A high deductible health plan (HDHP) provides lower premiums for employees, which also lowers your employer premium contribution. While an HDHP is not the only health insurance option for group coverage, it could reduce your overall healthcare costs. When deciding if you should include an HDHP in your employee benefit package, you want to keep your employees in mind. If the majority of your staff need frequent medical care for instance, then you probably wouldn’t want to make an HDHP the only option because the deductible must be met before the plan covers its share of costs for certain services. This is where a health savings account (HSA) comes in—it’s designed specifically to be used with a qualified HDHP to help pay for medical, dental, and vision out-of-pocket expenses (except for premiums).
The advantage for employees is that the account is funded through automatic, pre-tax deductions, which can lower their taxable income. Some employees may be able to lower their taxable income by up to 10 percent using an HSA. Money in an HSA is also tax free and doesn’t have a “use it or lose it” policy.
Buying Group Health Insurance Through the SHOP
Another option is to buy group health coverage through the Small Business Health Options Program (SHOP) Marketplace. The SHOP Marketplace is primarily available to companies with 1 to 50 employees, but as of 2016, some states may include companies with up to 100 employees. If you buy health insurance for at least two years through the SHOP Marketplace, your business could qualify for a tax credit of up to 50 percent if you have fewer than 25 employees who earn less than $50,000 in average annual wages and you pay for at least 50 percent of their premiums. If you have fewer than 10 employees whose average annual salaries are $25,000 or less, your business may be eligible for the full 50 percent tax credit. A health insurance agent can help you evaluate whether this option makes sense for your business.
Giving Employees Access to Buy Health Coverage Through an Insurance Agency
You can schedule a time for one of our agents to meet with each of your employees to assist them with choosing a health insurance plan. This is a no-cost consultation that gives employees the opportunity to work with a licensed insurance professional who has the industry knowledge to help them choose the best coverage. Employees can choose from among several individual and family health insurance plans available in their area from multiple health insurance companies—offering more choices to better meet their needs.
Referring Employees to Buy Coverage Through the Marketplace
Because employees who shop on the Health Insurance Marketplace for Individuals and Families can qualify for a premium tax credit or cost-sharing reduction subsidy based on income, this option may be more suitable if you have mostly lower wage earners. Typically, the lower the income and larger the household, the bigger the subsidy. A HealthMarkets agent can sit down with each of your employees to help them figure out if they qualify for a subsidy, and which health insurance plan on the marketplace would best meet their needs. This service is at no cost to you or your employees.
The Kaiser Family Foundation provides a Health Insurance Marketplace calculator that provides an estimate of how much cost assistance an individual can get for buying a marketplace health plan. However, if you offer affordable, minimum essential coverage that has at least a 60 percent cost-sharing equivalent to a marketplace Bronze plan, then employees won’t qualify for a subsidy if they buy a marketplace plan instead—even if their income would otherwise qualify them for a subsidy.
Using an Employer-Sponsored Arrangement
Under IRS Notice 2013-54, an employer can use this arrangement to offer employees the option of applying post-tax dollars toward the purchase of health insurance or taking those post-tax dollars as cash compensation. To establish an employer-sponsored arrangement, the IRS states that business owners can set up their payroll to have a portion of employees’ post-tax wages go directly to a health insurance company (if requested by employees) to pay for coverage without having to set up a group health plan. One of the unique things with this arrangement is that the IRS excludes it as an employer payment plan. Employer payment plans are considered group health insurance plans. So with this arrangement, you’re giving employees the choice of buying an individual health policy from an insurance company you provide them access to.
Using a Health Reimbursement Arrangement (HRA)
The Small Business Health Care Relief Act (SBHRA), which was added to the larger 21st Century Cures Act, brought back the legal use of health reimbursement arrangements (HRAs) effective January 1, 2017. Before the 21st Century Cures Act was passed, small business owners were subject to fines set forth by the Affordable Care Act if they used HRAs to reimburse employees for individual health insurance premiums. Under the 21st Century Cures Act:
- Small businesses with fewer than 50 full-time equivalent employees can use qualified HRAs.
- Eligible small businesses can contribute pretax dollars to qualified HRAs of up to $4,950 for each single employee and up to $10,000 for each employee with dependents.
- Employees can use HRA funds to buy their own individual insurance, or pay for qualified medical expenses if they already have coverage.
What You Need to Know About Setting Up a Health Insurance Plan
The National Federation of Independent Business says small businesses usually don’t have the expertise and human resources manpower to set up a health insurance plan on their own. This is why you need a licensed insurance professional, like the knowledgeable agents at HealthMarkets Insurance Agency, who can help guide you through the process. A HealthMarkets insurance agent can go over different benefit packages examples with you to determine how you can save the most money.
Check out the video below to learn how we saved the Fiddly Fig thousands of dollars on health insurance coverage.
Dental and Vision Insurance
In the Glassdoor survey, dental and vision coverage make up the health benefits that employees value the most. This may be because regular dental and eye checkups are important in detecting serious medical conditions. In fact, a 2014 health benefits study conducted by a major vision insurance provider and risk management firm, HCMS Group, found that employees who receive stand-alone vision benefits have less long-term healthcare costs, which saved business owners $5.8 billion over a four-year period.
This is because employees who find out about major health problems through comprehensive eye exams are less likely to visit the emergency room and be admitted to the hospital—so that’s less money that businesses can lose from employee turnover and decreased productivity. This may be all the more reason to make vision as well as dental benefits available to your employees. You can offer dental and vision insurance through a group or voluntary benefits plan, or give employees access to buy individual coverage.
Paid Time OffShould employees have a life outside of work? Of course they should! There’s a saying that all work and no play makes Jack a dull boy. This basically means that all of us need downtime so we don’t have burnout. And paid downtime goes a long way with employees. It gives them an incentive to take time off to relax or deal with personal obligations, so they can come back to work with a clearer mind. According to the Glassdoor survey, PTO was the second most valued employee benefit behind health coverage, which included major medical, dental, and vision insurance.
Although you’re not required by law to offer PTO, employees generally expect it—probably more so when it comes to paid vacation and holidays—because 66 percent of small companies offer this employee benefit. If time off isn’t paid, it’s possible employees may be less likely to take a break from work, which could mean more overworked people on your staff, more mistakes being made, and a more tense work environment. Not to mention, being overworked can lead to getting sick. So paid sick days, which are offered by 50 percent of small firms, also contribute to having the best employee benefits package. A good amount of employers also offer PTO for jury duty (44 percent) and funerals (42 percent). Yes, these paid days off are an added expense. But the advantages of giving your employees PTO could outweigh the costs. In a nutshell, paid time off will likely make your employees happier. And happier employees could lead to better job performance and a more successful business.
Tips on How to Offer Paid Time Off (PTO) in Your Employee Benefit Package
- Keep in mind the type of business you’re running. If you run a toy store for example, the holidays may be your busiest time, so you may decide to limit or prohibit vacation days during your busy season.
- Decide who will get PTO. Will only full-time employees be eligible, or will part-time workers be included?
- Figure out how PTO will be accrued. For example, will employees start earning vacation days their first day on the job or after 90 days? Also figure out how many hours or days worked will equal one paid day off.
- Determine how far in advance requests should be made. This may depend on the size and type of business you have. If you have 5 workers for instance, it may be very important to know weeks in advance so you can make the necessary accommodations.
- Decide if unused PTO will roll over or be paid out. It could be a big incentive to retain top talent by having unused PTO roll over to the next year. But this all depends on your business needs. Some states require that employees who leave your company be paid for their unused vacation days. So you should check the labor laws for your state.
Thanks to federal tax breaks, it’s now more affordable for small businesses to set up a retirement plan for their employees. Companies with 100 or fewer employees (other conditions apply) can get a maximum tax credit of $500 every year for the first three years after starting a retirement plan, such as a 401K, Savings Incentive Match Plan for Employees (SIMPLE IRA), or a Simplified Employee Pension (SEP-IRA) plan. The IRS provides more information on the different types of retirement plans. You can also speak with your financial advisor about setting up a retirement plan for your business.
A 401K plan allows your employees to use pre-tax dollars that are deducted from their paycheck to save for retirement. They decide the percentage to be withheld, and you could offer a matching contribution, which is tax deductible up to a limit. You can also participate in the plan as a business owner.
There are different types of 401Ks you can choose. One such plan is the SIMPLE 401K, which was created specifically for businesses with 100 or fewer employees to provide more cost-savings. Another type is the self-employed or small business owner 401K. To set up this type of 401K, all your staff must be part owners of the business.
Savings Incentive Match Plan for Employees (SIMPLE IRA)
This is another retirement plan created with the small business owner (less than 101 employees) in mind. It’s best suited for companies that don’t currently offer retirement savings as part of their employee benefit package template. The IRS reports that this type of plan does not have the operating and startup costs of traditional retirement plans. If you choose a SIMPLE IRA for your business, you cannot have any other type of retirement plan.
Simplified Employee Pension (SEP-IRA)
An SEP-IRA could be a simple plan to set up because it only requires completion of a two-page form. As long as you have one or more eligible employees, you can start a plan for yourself and for each employee. The Department of Labor reports that this type of retirement plan has low operating and startup costs, which makes it an attractive option for smaller firms. An SEP-IRA also offers flexibility because you can decide how much money to put in the plan each year, and you’re not required to contribute every year. Money you contribute to each employee’s pension account is usually a fixed percentage of their pay.
Which Supplemental Employee Benefits Should I Offer?
Coverage such as dental, vision, disability, critical illness, accident, and life insurance fall under the supplemental benefits category. Because dental and vision are usually more commonly offered in an employee benefit package, we’ve listed them higher on the list as typical employee benefits. This section will focus on the other types of supplementary products.
The National Federation of Independent Business points out that supplemental insurance benefits are easy to administer and have little startup costs. You can offer supplemental insurance in a number of ways:
- Through an employer-sponsored group plan where you pay all or some of the costs of coverage
- As a voluntary benefit where employees pay 100 percent of premiums through payroll deduction
- By providing employees access to buying their own individual coverage where they pay premiums directly to the insurance company
HealthMarkets provides all of these options to give you and your employees more cost-effective choices. By offering supplemental coverage, you can:
- Make your small business stand out
- Provide employees with a more comprehensive benefits package they can customize to meet their needs
- Make it more convenient for employees to get additional insurance protection
Besides a handful of states that require disability insurance, this is typically a supplemental benefit you can offer employees. There are two types of coverage: short-term disability (STD) and long-term disability (LTD). Both types of insurance pay income directly to employees if they’re unable to work due to a disabling accident, injury, or illness. STD benefits can last from 6 months to 2 years, while LTD benefits are paid out for 2 years until age 65. Disability insurance is a very important benefit for employees because most disabilities are not work-related and wouldn’t be covered under workers’ compensation, according to the Council for Disability Awareness. Without the replacement income that a disability plan provides, many employees may have a hard time paying for everyday living expenses. So, offering group disability coverage or providing access to a voluntary or individual plan is a way to help protect your employees.
Among small businesses with less than 50 employees, just 36 percent offer life insurance. This provides an opportunity to be more competitive in the job market by providing workers access to the financial protection that a life insurance policy can provide. Your company usually needs just 2 employees to offer group life insurance. But many business owners offer coverage when they have at least 10 employees.
The type of life insurance that’s typically offered by companies is group term life. Term insurance provides coverage for a specific number of years, usually 5-30 years, and is often used as income replacement when a primary income earner dies. You decide the amount of coverage you want to offer employees, such as 1 or 2 times their annual salary or a flat amount like $50,000. Premiums for group term policies are a tax-deductible business expense, which offers more incentive to provide this benefit. If you give employees access to life insurance through a voluntary or individual plan, you still get an advantage because employees pay their own premiums.
Critical Illness InsuranceEarlier we mentioned that most disabilities are not work-related. And according to WebMD, critical illnesses like cancer and stroke are some of the main causes of disability that lead to missing work. Cancer is also one of the fastest growing diseases, so it’s likely that someone on your staff would be affected during their employment. By including critical illness insurance in your employee benefit package, you get the satisfaction of knowing that you’re providing a voluntary health benefit that’s relevant to what’s taking place in society, and your employees get added financial protection by receiving a cash benefit for a qualified illness.
Supplemental accident insurance covers medically related services and products that are necessary due to a qualified accident. It may make practical sense to offer accident coverage because most accidents happen off the job—employees miss 6 times as many work days from off-the-job accidents compared to on-the-job accidents. Cash benefits employees receive for a covered accident can be used for out-of-medical expenses, transportation, lost income, or whatever they decide. Dealing with an accidental injury can be stressful. But the financial benefit may offer some peace of mind, which could make it easier for employees to mentally focus once they get back to work.
How Do I Customize My Small Business Benefits Package?
There is no one way to offer workplace benefits. That is why the agents at HealthMarkets work with small business owners and their employees one-on-one to get a clear picture of how to put together the best employee benefit package that can meet everyone’s needs. We specialize in creating a custom benefits portfolio for your company whether you have 25 people on your staff or just a few. Tell us about your business and one of our agents will contact you to get started on your personal consultation. Call us any time of day at (800) 827-9990 to learn about our employer benefits solutions for saving money.