Should Your Small Business Offer Benefits? How to Get Started

As a small business owner with employees, you face a critical question: should your small business offer benefits? Although the prospect of creating an employee benefits program may seem daunting, it may be easier than you expect when you have the right assistance. Small businesses that offer benefits also enjoy many advantages.

Do Your Workers Expect Benefits?

When deciding whether your small business should offer employee benefits, consider the expectations of your workforce.
If you primarily employ students who still depend on their parents for their health insurance and aren’t yet worried about things like disability and life insurance, you may be able to get away with offering no employee benefits. However, most workers expect to receive employee benefits as part of their compensation package.

According to the U.S. Census Bureau, 54.3% of people in the U.S. receive their health insurance coverage through an employer, making job-based coverage the most common type of coverage by a long shot.

If you don’t offer health insurance and other basic employee benefits, some workers may avoid your company. Think about it from their perspective: if you had a job offer from a company that offered health insurance and a similar offer from a company that did not, you would probably choose the job that came with benefits. As a result, small businesses that don’t offer benefits can lose out on talent.

Do You Need to Increase Compensation While Controlling Costs?

Cost containment is another issue to consider when deciding whether to offer employee benefits. Some small businesses assume that adding benefits will cause overall costs to increase substantially. In fact, offering employee benefits can be a smart way to increase total compensation while keeping your costs under control.

• Benefits can be tax advantaged. Taxes can be a burden for small businesses. Therefore, anything that helps you reduce your taxes is useful. According to the U.S. Chamber of Commerce, small business owners can deduct certain employee-related expenses, including health plans, health reimbursement arrangements (HRAs), and Section 125 benefits. As workers are also interested in reducing their tax burden, they may be happy to receive some of their compensation in the form of pre-tax benefits.
• Employers don’t have to foot all the costs associated with health insurance. Although many workers expect employers to offer health insurance, they don’t necessarily expect employers to cover all of the costs. When employers offer benefits, they typically split the premium costs with the workers. After the employer pays for a portion of the premium, the employee pays for the remainder using payroll deductions. This allows employers to adjust their costs to fit their budgets. According to the KFF 2022 Employer Health Benefits Survey, only 13% of covered workers are in a plan where the employer covers the entire premium for single coverage and a mere 5% are in a plan where the employer pays for the entire premium for family coverage.
• With voluntary benefits, employers don’t have to pay any of the premiums. Don’t assume that offering dental, vision, critical illness, disability, and life insurance and other supplementary benefits would be too expensive. If you want to round out your employee benefits package without increasing your costs, voluntary benefits are the way to go. Just as with health insurance, employers don’t have to pay all of the premiums. In fact, employers can opt to pay 0% of the premiums! Employers can decide whether they want to enroll. If they do elect to enroll, they enjoy convenient payroll deductions, little to no underwriting, and group rates.

When you consider all the above, it’s clear that offering employee benefits can make financial sense for small and midsize businesses.

Do You Need to Boost Retention?

High employee turnover has been a problem for many businesses recently. Every time a worker quits, you spend resources looking for new candidates, interviewing, hiring the right person for the job, and then training the new worker. The entire process eats up a lot of time and money. Plus, there’s always a risk the new worker will quit and send you back to square one.

Employee benefits can help. According to LIMRA, around 40% of workers say that having employee benefits makes them considerably more likely to stay in their current jobs. This should be unsurprising. Employee benefits can help workers tackle many of the financial stressors that keep them up at night – workers don’t want to lose these benefits. Furthermore, since switching benefits is a hassle and may lead to gaps in coverage, many workers may prefer to stick with their current employer than risk facing issues.

Is Offering Benefits a Requirement?

Although offering employee benefits is often optional, there are some state and federal requirements, and new laws are always being passed.
For example, federal law states that employers with 50 or more full-time or full-time-equivalent employees have to either offer health insurance or make an employer shared responsibility payment to the IRS. If your small business grows, you may no longer be exempt from this requirement.

In addition, some states have been passing rules for long-term care, family and medical leave, and retirement programs. Read this article for more information on the required benefits.

How to Start Offering Employee Benefits

Once you’ve decided to start offering employee benefits, you need to:

• Determine which benefits to offer. You may be tempted to start small, but this isn’t necessarily the best option. As mentioned above, you can use voluntary benefits to create a comprehensive package without increasing your costs significantly. Besides, a more robust benefits package will likely have greater appeal to workers. LIMRA found that only about 30% of employees with access to between one and three benefits were satisfied with their benefits, whereas 61% of employees with access to more than six benefits said they were satisfied.
• Learn your compliance requirements. When you offer employee benefits, you need to make sure you’re complying with all state and federal laws, including COBRA, the ACA, and ERISA. For example, if you offer a health plan, you may also need to offer COBRA continuation coverage after an employee, spouse, or dependent loses coverage. To avoid any legal issues down the road, you should review these laws before you start offering benefits.
• Enlist the help of an experienced employee benefits broker. You need to make sure you’re selecting the best benefits for your workforce at the best rates available. You also want to avoid any problems. If you have no experience with employee benefits, you might be unaware of what the potential challenges are. An employee benefits broker can guide you through the process.

Need employee benefits guidance? Altura Benefits can help you put together an employee benefits package. We also offer HR support, compliance, and payroll consulting services. Contact us to learn more.