Guide to employee benefits for small businesses


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To build a great team, it’s important to retain your best employees. One of the most influential factors in keeping employees happy on the job is offering benefits.

Managing benefits can be tricky and costly for a small business. However, with a little forethought and planning, you can build a package of employee benefits that will encourage loyalty and great work, which will positively impact your bottom line.

The first step is to consider the rules and regulations for employee benefits.

Required employee benefits

Before you can start building your aspirational list of employee benefits, first you must meet certain federal and state requirements. Here are the employee benefits you must provide:

Social Security taxes

Your business must pay Social Security and Medicare taxes at the same percentage rate as your employees. Company tax payments are a business expense. Firms must also withhold the employee’s share of tax payments from gross pay.

This IRS publication explains the requirements for Social Security and Medicare.

Unemployment insurance

Unemployment insurance pays a benefit to workers who are laid off. Both states and the federal government manage unemployment programs, which are funded by a tax on businesses.

Depending on your state’s requirements, you may need to pay unemployment insurance taxes. If you are required to do so, you must register with your state’s workforce agency or department of revenue.

Disability insurance

Several states and territories require that businesses provide partial wage replacement insurance to eligible employees for non-work related sickness or injury. These programs are also referred to as short-term disability plans.

Family and Medical Leave Act

Employers must comply with the Family and Medical Leave Act (FMLA). This federal act entitles workers up to 12 weeks of job-protected and unpaid leave during a 12-month period for any of the following reasons:

  • Birth and care of the eligible employee’s child or placement for adoption or foster care of a child with the employee
  • Care of an immediate family member (spouse, child, parent) who has a serious health condition
  • Care of the employee’s own serious health condition

There are other company benefits that are frequently offered to employees. If you provide these benefits, you’ll attract and retain qualified workers.

Common employee benefits

While not required by federal or state law, it is common for employers to provide some standard benefits for their employees. Offering benefits directly impacts your employees’ sense of well-being, which may impact your staff’s work performance.

Here are some of the more common employee benefits:


Medical insurance (health and dental coverage) is one of the more expensive benefits, but it’s also one of the most important to your employees.

Many employers only pay a percentage of the premium charged per worker, passing the rest of that cost to the employee via his or her paycheck. As further incentive, some employers elect to pay the entire health insurance premium per employee.

There are a number of options for insurance providers, depending on where your business is located. Aside from regional considerations, the number of full-time employees will affect your health insurance coverage options.

Additionally, the passage of the Affordable Care Act by Congress in 2010 has added even more complexity to healthcare coverage. Talk with an insurance agent to determine what type of medical insurance you’d like to offer, and the related costs.

Many workers pay for benefits using a flexible spending account.

Flexible Spending Accounts (FSA)

FSAs allow employees to contribute pre-tax dollars every pay period to a Flexible Spending Account.

This money can often be accessed using a credit or debit card issued by the account holder. There are four common types of Flexible Spending Accounts:

  • Medical expense: This money can be used to cover the costs of medical expenses that your health insurance does not cover (i.e., prescriptions, office visit copayments or procedures). It can be used for many types of healthcare expenses, including vision and dental costs.
  • Dependent care: Pre-tax contributions up to $5,000 per family are allowed annually in this type of FSA. The funds are generally used to pay daycare expenses for employees with children under the age of 13.
  • Health premiums: If you choose not to offer health insurance, you can instead offer your employees a Health Premium FSA. The money that your employees contribute to this account can be applied toward health insurance premiums that employees pay for on their own.
  • Adoption Assistance: Adoption costs can be very high, and allowing employees the opportunity to contribute pre-tax funds into an Adoption Assistance FSA may enable them to fulfill their dream of adopting a child.

Paid leave

Most employers offer their employees some type of paid leave, often in the form of vacation, personal days and national holidays.

Employers may allow workers to accrue vacation time and sick days based on the number of hours they have worked throughout the year, combined with the number of years of service. Personal days, or floating holidays, are often set at the beginning of the year and do not change.

Observance of national holidays is up to the discretion of the employer; however, it is important to remember morale when choosing to observe or not observe a particular holiday. While many employees won’t bat an eyelash if you keep your office open on Columbus Day, they might resent being forced to work or take a vacation day to observe Thanksgiving.

Retirement savings plan

There are a few options available to small businesses when deciding to adopt a retirement savings plan.

The most popular is a 401(k). Similar to FSAs, a 401(k) allows workers to contribute a certain amount of their pre-tax salary into an account that is managed by a 3rd-party investment company, such as Merrill Lynch or Fidelity.

Unlike an FSA, however, 401(k) contributions are not eligible for withdrawal until employees reach a specific age. If you funds early, you’ll pay income taxes and a penalty.

There may also be tax breaks associated with maintaining a retirement savings plan, including IRA-based plans, profit sharing, 401(k) or defined benefit plans.

Many organizations offer a retirement savings plan “match” to their employees. This means that if employees invest a certain percentage of their annual salary, the company matches part or all of the investment.

Tuition reimbursement

Some of the best employees are the most curious. Offering them a tuition reimbursement incentive might be just the thing to keep their minds engaged both on and off the clock and increase their overall happiness with you as an employer.

Some employers have restrictions on tuition reimbursement, such as only reimbursing for coursework directly related to the employee’s job; some are a bit more open with the requirements. Regardless, your intelligent and motivated employees will find satisfaction in furthering their education with your monetary support.

Transportation and parking benefits

If you are located in a major city with a terrific public transportation system, or if your location does not have access to complementary employee parking, you might consider offering employees parking or public transportation reimbursement.

Environmentally conscious businesses can offer incentives to employees who frequent public transportation, bike to work, or choose to carpool with colleagues.


It’s no secret that sometimes the way to someone’s heart is through his or her stomach. It’s as true in the business world as it is on a college campus.

A well-stocked kitchen gives employees a sense of being cared for, along with offering free coffee and beverages.

Some businesses go so far as to order lunch on a regular basis, or have fresh fruit delivered once a week. These luxuries have a financial impact on your small business, but a little goes a long way to your employees.

Discounts and offers

As a small business owner, you may not be able to offer much clout or spending power to secure discounted rates for your employees. However, there are organizations, such as Working Advantage and Tickets at Work, that offer access to discounts online on a variety of entertainment, travel and other expenses.


Other types of discounts can be welcomed as well, including savings at a local restaurant that is frequented by your employees, or an offer for free car detailing from a reputable auto shop near your office.

A great work environment

In the race to keep employees happy, employers have gone to great lengths, providing things like in-office dry cleaning pickup and drop-off to weekly masseuse visits and bring your dog to work day.

In truth, the types of benefits you offer, whether formal like health insurance or informal like casual Friday, will depend on the type of work environment you are trying to cultivate and the types of employees you want on your team.

It’s a balance between costs and benefits, but when the payoff is the longevity of your business and your employees, it’s easy to offer the right perks for all involved.


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