As your business grows, you may need to hire employees or you may already have employees. Retaining good employees, particularly in a work environment where skilled labor is essential, is important to business success. Offering your employees benefits is one way to help retain and reward your loyal and competent workers. A good benefit package can trump other factors that may cause good employees to defect to a business offering a higher salary or more desirable vacation.
In general, there are two types of benefits offered by businesses, those required by law and those offered at the employer’s own behest. Government laws intended to provide protections for workers mandate certain benefits be provided by all businesses, or businesses of a certain size.
Benefits required by law of U.S. businesses are not as expansive as those required in Europe or some other highly developed nations. The U.S. government basically requires all employers to pay Social Security and unemployment insurance taxes, and (with a few exceptions) pay for worker’s compensation coverage. Five states, California, New York, Rhode Island, New Jersey and Hawaii, as well as the territory of Puerto Rico, also require employers to purchase disability insurance for their employees.
Depending on your business size, you may also be required to provide unpaid leave under the Family and Medical Leave Act. The act requires businesses with 50 employees or more to provide up to 12 weeks of unpaid leave time to workers who need to care for sick relatives or personal illnesses.
There are a wide variety of other benefits businesses may provide to their employees in order to maximize the effectiveness of the employee or as an incentive toward retention.
Health insurance – Perhaps the most commonly offered benefit given to employees is employer-sponsored health insurance coverage. Most businesses are not required by law to offer health insurance coverage to employees, but many do because it promotes employee health, thus protecting the employees’ value to the company, and because it is a widely appreciated benefit among employees. According to recent surveys, nearly two-thirds of employees value health insurance more than any other benefit offered by employers, and companies that provide health insurance benefits enjoy higher retention rates than those who do not.
Employee health insurance can be quite expensive, and small businesses typically pay a higher rate for coverage than larger businesses do. A 2006 survey revealed that the average monthly cost of health insurance per employee for small group plans was $311. Coverage for a family of four was $814. Health care costs continue to sky-rocket, so chances are today’s costs are much higher than those cited by America’s Health Insurance Plans in 2006.
Offering health insurance to employees isn’t a cheap proposition to businesses, particularly small businesses. However, there are some ways to mitigate the cost of providing benefits.
The recently passed Obama health reform law provides a tax credit to small businesses that provide health insurance to their employees. Basically, small employers who pay 50 percent of premiums for their single coverage employees in 2010 are eligible for a tax credit equivalent to 35 percent of premiums paid. After 2014, the credit goes up to 50 percent. Small employers are businesses with 25 or fewer full-time employees (a firm with 50 part-timers would qualify) whose average wages are less than $50,000 per year.
Small businesses can also realize health insurance savings by finding group coverage from trade associations and other groups the business may be able to join. These associations may be able to negotiate more favorable rates from insurers based on the size of their association (the more members, the broader the risk pool for insurers).
Employers can also realize savings on health plans by offering high deductible plans. While the deductible threshold to get coverage may be high, the benefit of these plans is that they have lower premiums for employees and businesses and allow employees to contribute tax-free dollars to health savings accounts they can use to meet their deductible.
Retirement benefits – Employers who need long-term employees dedicated to the business can help promote retention by offering retirement benefits. The days of employer-provided pensions are in their sunset, but there are a number of other ways that employers can help their employees plan and save for their golden years, such as 401k retirement investment programs, IRAs and assistance with retirement planning.
One easy way of setting up a retirement plan for your employees is to start a Simplified Employee Pension plan, also known as an SEP. In SEPs, employers make contributions to IRAs for all employees of the business, including the employer. One of the advantages of an SEP is that it is not as expensive to start-up and maintain as a conventional retirement plan. It also allows for contributions up to a quarter of each of your employees’ salary.
Another key advantage of an SEP is that the contributions you and your employees make to the plan are tax deductible and earnings on the investments your SEP make are exempt from taxes. Employers are also given flexibility in how much they may contribute each year, and even have the option of not making contributions.
Employers may also be able to realize a $500 per year tax credit for the first three years of the plan to help cover start-up costs.
Profit-sharing is another popular retirement compensation plan among small businesses. In profit sharing, a portion of the company’s profits are deposited in retirement accounts for businesses. New federal rules prohibit employers from depositing more than 100 percent of an employee’s earnings or $46,000 in one year, however.
Flexible schedules – As the Internet age has torn down many of the barriers between home and work life, some employers are choosing to forgo the traditional 9-5 schedule and allow employees to make their own hours. Many employees enjoy the freedom afforded to them by the flexibility to schedule their work hours around family and personal time. If your business doesn’t necessarily need an employee to work set hours, you may offer flexible scheduling or the option of working from home as a benefit.
Sick and vacation leave – Paid sick and vacation leave are another popular benefit to employees. Paid sick and vacation time can foster a sense of loyalty to your company, particularly if you offer increasing vacation time based on years of service to your company.
Employee Assistance Programs – Most appropriate for larger small businesses, EAPs provide support for various personal problems employees may face. An EAP may consist of a hotline for employees to call with emotional, family, financial, substance abuse or other problems. Many EAPs also include a legal assistance program for employees. Keeping key employees emotionally and financially sound can help increase productivity and prevent incidents that may arise if your employees are facing tremendous personal or financial difficulties.
Discounts – One perk just about any small business can afford to provide employees is a discount on goods or services sold by the employer. Offering employees a discount is an easy way to say thank you to your employees for their work and foster a culture of loyalty in your business. Small business owners should take appropriate measures, however, to ensure discount benefits are not abused by employees.
Bargain packages – Many small businesses partner with one another to offer discounts to each others employees. The opportunity to get a discount on restaurants, auto care, electronics, recreational opportunities, etc. can be a great way of generating employee satisfaction.
Employee appreciation events – Holding events like a company Christmas party or rewarding employees with in-work celebrations is an inexpensive morale-builder. By occasionally doing little things like treating your employees to a pizza party or off-site event, you can build a more tightly-knit corporate culture.
When choosing benefits to offer your employees, consider your business needs, the needs of your employees and your bottom line before choosing the plan that best fits your type of business and your employees.