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What you should know about small business employee benefits

Employee Benefits
by Dave Palmer
What do employees really want from their work benefits?
What do employees really want from their work benefits?

Whether you are the owner of a small business or an insurance company that provides products for one, it's valuable to understand at least a few basics when it comes to small business employee benefits. Let's dive into some of the most important considerations of benefits for small business employers and their staff.

What kind of small business benefits are there?
For small business owners, cost-effectiveness is often at the top of their priority list, but an employee benefit is usually a necessary component of running a company. The Affordable Care Act (ACA) has a specific provision that addresses employer-shared responsibility, including benefits.

Health insurance 

According to the ACA, "employers with 50 or more full-time employees (or the equivalent in part-time employees) must provide health insurance to 95% of their full-time employees or pay a penalty to the IRS." During the last revision to the act in 2020, the penalty is about $3,860 per employee each year no health insurance is provided. Health benefits are valuable to every employee.

There are different kinds of health insurance plans that are created, and each small business can pick which one best suits its needs. Here are some examples:

  • Group health insurance: Owners are able to offer employees Small Business Health Options Program (SHOP) coverage.
  • Health reimbursement arrangements (HRAs): According to HealthCare.com, "HRAs allow employers to help their employees pay for medical expenses, including premiums for individual health coverage in some cases."
  • Health savings accounts: Find out more about a tax-favored health plan. View the IRS's Publication 969.

Paid time off (PTO)

When it comes to a voluntary employee benefit plan, many businesses offer paid time off (PTO), which is important to many employees. here are several different kinds of PTO, and a small business owner often has at least one version. Here are some examples of PTO, with the percentage of small businesses that offer them according to the U.S. Bureau of Labor Statistics:

  • Holiday: 70%
  • Vacation: 69%
  • Sick leave: 64%
  • Funeral leave: 39%
  • Personal leave: 33%
  • Family leave: 14%
  • Jury duty(required by law): 42%

In 2019, QuickBooks released its Time 2019 PTO Report, which found that 69% of employees at small businesses receive paid vacation, and 81% of employers offered paid sick leave. In the same report, 61% of employees didn't use all their PTO but said that it was still important for them to have.

Retirement plan benefits

Many small businesses offer retirement plan benefits if they can, despite the fact that it's not required by law for any private business to do so. According to the Department of Labor (DoL) there are tax advantages to offering retirement plans to your employees:

  • Employer contributions are deductible from the employer's income.
  • Employee contributions (other than Roth contributions) are not taxed until distributed to the employee.
  • Distributions may be eligible for tax-favored rollovers or transfers into other retirement programs.

There are many different types of retirement plans that small business owners can pick, depending on the specific needs of each individual company. Some examples that the DoL reports are some of the most popular:

  • Payroll deduction IRA.
  • SEP.
  • SIMPLE IRA plan.
  • Profit sharing.
  • Safe harbor 401(k).
  • Automatic enrollment 401(k).
  • Traditional 401(k).
  • Defined benefit plans.

You can work with an actuary to help determine which is the best option for you and your employees.

Overtime pay

Because of the Fair Labor Standards Act (FLSA), business owners have to provide employees who earn less than $684 per week or $35,568 per year with overtime pay. Overtime is considered any hours worked more than 40 hours per week. Small business owners need to keep in mind that the minimum rate for overtime is one-and-a-half times the employee's usual hourly wage.

Other benefits

There are many more benefits that business owners are required to offer or can voluntarily give to their employees.

Here are the mandatory benefits:

  • Social Security and Medicare.
  • Unemployment insurance.
  • Workers' compensation.
  • Overtime pay.
  • Jury duty leave.
  • Coronavirus leave.  

Here are some of the voluntary benefits:

  • Paid leave.
  • Unpaid leave.
  • Health insurance.
  • Life and disability insurance.
  • Retirement.
  • Fringe benefits.

Offering a variety of employee benefits is important because small businesses have many different specialized requirements.

What employees want from their jobs

In order to attract new employees and retain important current ones, it's important for small businesses to have benefits for their workforce. But the world is changing, and 48 million people quit their jobs in 2021 according to a study by EDsmart. As of March 2022, a total of 8.6 million people quit their jobs, and some employers are still struggling to keep their workers. So what do employees want? Here are the top things that the workforce wants, according to a survey by Gallup.

1. Income and benefits

The survey found that 64% of their respondents said that "a significant increase in income or benefits" is very important to them. This means that if employers can't afford high wages, they should at least be able to offer great employee benefits.

2. Work-life balance

Since the last time that the same survey was conducted by Gallup in 2015, more people reported valuing their work-life balance. 61% of today's workforce desires greater work-life balance and better personal well-being. This is why it's so important for small businesses to offer PTO of some kind.

3. Stability and security

Much of the workforce is unlikely to stick around if their job feels unreliable, and 53% of employees need their employer to provide them with stability in some form or another. According to Gallup, "stability and security are based on future expectations; as expectations for the future change, what job security means is likely to change too." Employee benefits like retirement plans can contribute to employee retention.

How much you should budget for employee benefits

If employee benefits are so important, how much should a small business budget for these types of additions? Every circumstance is different, but a professional can help break down what's appropriate in each case. But here are some basics to consider, which can give a good idea of where to start.

  • Insurance: Cost is about $2.77 to $3.24 per hour per worker in 2021 based on com­pa­ny size, according to the Kaiser Family Foundation.
  • Paid time off: Cost averages https://smallbusiness.chron.com/paid-vacation-cost-company-68990.html according to Chron.
  • Fringe benefits: Other advantages and benefits that business offer usually average out to $50-$200/month per employ­ee, and even less for remote companies, according to Fringe.


The U.S. Department of Labor reports that an employee's total compensation benefits package normally costs a private employer about $28.89 per hour, but that can vary depending on their unique situation.

Seeking advice from professionals

Because small businesses have variable needs and requirements when it comes to budget and employee benefits, it can be beneficial to seek assistance from professionals. Experts in the industry can offer advice on which products and services would work best. For example, Lewis & Ellis work with both public and private employers to help them discover a strategic and cost-effective approach to managing their risks.

  • The actuarial advantage is clear when it's broken down. Let's take a look at some things that our consultants can help you with:
  • Developing reserves for self-funded health plans.
  • Setting appropriate contribution levels for employees.
  • Understanding the costs and savings of benefit options.
  • Determining post-retirement or post-employment liabilities.
  • Measuring cost-effectiveness and legal compliance of resource pools.
  • Analyzing the cost-effectiveness of PPO networks.
  • Comparing your costs to Benchmarks using the L&E Health Care Cost Model.
  • Valuations.

If you're ready to get started, reach out to Lewis & Ellis today.

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