Employee Benefits 101
As we enter a new year and the window to sign up for health insurance is closing, it’s the perfect time to start thinking about employee benefits. There are many publicly available resources to ensure that you offer your employees the optimal benefits package.
Many small businesses believe they can’t afford to offer great benefits. But today, that’s simply not the case. A robust benefits package will help you retain your employees as well as ensure that they’re productive. Both will ultimately contribute to the success of your business.
The law requires that employers provide employees with the following benefits.
Your business must:
- Give employees time off to vote, serve on a jury and serve in the military
- Comply with all workers’ compensation rules
- Withhold FICA taxes from employees’ paychecks and pay your own portion of the FICA tax
- Provide employees with retirement and disability benefits
- Pay state and federal unemployment taxes
- Contribute to state short-term disability programs (in states where they exist)
- Adhere to the Federal Family and Medical Leave Act (FMLA). FMLA requires that employers give workers up to 12 weeks off to attend the birth or adoption of a baby and/or attend to a serious health condition or that of a family member. However, in most states only companies with 50 or more employees are subject to this law. Check with your state’s labor department to learn about what you must offer.
You are not required to provide:
- Retirement plans
- Health insurance (except in Hawaii)
- Dental or vision plans
- Life insurance plans
- Paid vacations, holidays or sick days
However, to remain competitive and attract top talent, small businesses tend to offer the following benefits:
- Paid holidays for New Year’s, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
- Allow employees to take time off without pay
- Let employees use vacation days for religious holidays
- Offer one to two weeks of paid vacation per year
- Provide two to four days of leave for deaths of close family members
How to Avoid Costly Benefits Errors
Benefits can cost you up to 40 percent more on top of an employee’s base pay. It’s important that you establish a benefits package correctly so that you can stretch your investment as far as it can go. Unfortunately, small businesses tend to make common errors related to employee benefits:
Paying for All of Your Employees’ Benefits
Today it’s common for employees to contribute to their employer benefits package. This is designed to eliminate employees for your insurance pool who don’t need coverage – they won’t want to give up a portion of their paycheck if they don’t actually need the benefits. For example, an employee may be covered by their spouse’s insurance package and would therefore not enroll in your offering. Splitting costs will ultimately save your company money on benefits
In an effort to save money, employers might try to buy group-rate plans and use it to cover not only their employees, but also their friends and family. But a major problem may arise if there’s a large claim from one of these “non-employees” that the insurer chooses not to cover. This could result in the insurer cancelling your entire policy, which will be a costly occurrence.
Often times, the employee who is responsible for managing employee benefits may not be an expert in the field – especially in a small business. This may result in undesirable scenarios, like employees not being enrolled in health insurance during the open enrollment period. Situations like this would lead to expensive litigation. Make sure the person you have managing benefits knows what they’re doing.
Lack of Communication Around the Cost of Employee Benefits
Many small businesses fail to communicate how much benefits will cost an employee and what they get in return. If employees know these details, they’ll be more likely to take advantage of what you’re offering.
Providing Benefits That Aren’t Wanted
Young, healthy employees want different benefits than older employees. Make sure you survey your employees to get a sense of what they want in their benefits package. Generally, medical and financial benefits are the most appealing to the widest array of workers.
Employee Benefits 101 should give you a quick overview of what the law requires you offer employees in terms of a benefits package and common mistakes that you can (and should) avoid. The next article in this series will explore health and retirement plans. Stay tuned!
What was your experience setting up an employee benefits package? Let us know in the comments below or tweet us @KabbageInc!