Everything You Need to Know About Employee Benefits

Everything You Need to Know About Employee Benefits

Over the years, the definition of employee benefits has changed. Benefits such as PTO (paid time off), insurance (including life, medical, dental, and disability) and a 401K are probably most familiar to you. These are the benefits we’ve come to accept as ‘the norm.’ But the list of all the options you can choose from these days is much, much longer. Just this year, the Society for Human Resource Management (SHRM) added thirteen new benefits to its yearly report.

While some benefits are legally-mandated, many others have been introduced into American businesses with an important intent: to improve employee retention. Enter a whole range of new ‘perks’ you could offer your employees: from profit sharing and student loan contributions to catered lunches and home cleaning services.

In this article, we’ll cover the basics and the nuances of everything you need to know about employee benefits: what factors to consider when exploring your options, which benefits can make you a more competitive employer, how much you can expect to spend, and ways you can design a benefits package that will help you attract and retain top talent for years to come.

Legally required benefits

As an employer, you’re legally required to offer your employees certain benefits. So before you can start exploring your options for wellness programs and electric car charging stations, be sure that you’re — at the very minimum — staying compliant.

Here are the benefits you have to offer your employees by law (source: U.S. Small Business Administration):

  1. Social Security taxes. As an employer, you are responsible for producing W-2 forms from your employees and paying Social Security taxes. FICA (or the Federal Insurance Contributions Act) is a federal tax that requires you to withhold income allotted toward Social Security, Medicare, and a Medicare surtax for employees who earn over $200,000 per year. Virtually every income-earning American is required to pay these taxes, which contribute to these social programs, and both the employer and employee must pay into these programs. You can find information about how to register your business and stay compliant by visiting the Social Security website.
  2. Unemployment Insurance. Depending on your business, you may be required to pay unemployment insurance, which is funded by state and federal payroll taxes and offers protection to workers who involuntarily lose their jobs (not those who electively leave). Because tax laws vary state by state, you’ll want to visit the Department of Labor’s website to determine if you are required to pay into this insurance and consult with a knowledgeable advisor.
  3. Workers Compensation. Every business is “required by law to carry Workers’ Compensation Insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers’ Compensation Insurance program” according to the U.S. Small Business Administration.
  4. Disability Insurance. If your business is based in California, Hawaii, New Jersey, New York, Puerto Rico, or Rhode Island, you must provide partial wage replacement insurance coverage to eligible employees. This insurance covers sickness or injury unrelated to work. Some states, like New York and California, have their own short term disability. You’ll want to look into your state’s laws to determine what you’re responsible for providing.
  5. Family and Medical Leave. FMLA or Family and Medical Leave Act is a law that applies to all public employers and private employers with 50 or more employees. It stipulates that eligible employees can take up to 12 weeks of job-protected, unpaid leave during any 12-month period for:
    • Childbirth and care of a new baby, as well as placement for adoption or foster care.
    • Time off to take care of a spouse, child, or parent with a serious health condition.
    • Time off for the eligible employee to take care of their own serious health condition.

Now that you know what benefits you have to provide your employees by law, let’s dive into what sorts of non-legally mandated benefits are most commonly offered by businesses like yours.

6 most common types of employee benefits

The difference between legally-mandated and optional benefits is largely dependent on your headcount. Once your company passes the 50 employee threshold, you’ll be on the hook for providing health care insurance to your employees, whether you like it or not. Similarly, whether or not you’re responsible for offering certain other types of insurance, such as disability, is mandated by state laws, which vary state by state.

Legally-mandated or not, here are the six most common types of employee benefits you’re probably at least somewhat familiar with:

  1. Health Insurance
  2. Disability Insurance
  3. Life Insurance
  4. Retirement Plan
  5. Flexible Compensation
  6. Paid Leave

According to the U.S. Bureau of Labor Statistics and the U.S. Department of Labor, Paid Leave is the most common employee benefit, followed by health care and retirement (though, over 10% of employees offered this option didn’t take advantage of it when surveyed). According to another study conducted by the Bureau of Labor Statistics in July 2013, Unpaid Family Leave was the most commonly-offered workplace benefit. Interestingly, what many people consider to be ‘core’ benefits such as health care, retirement planning, and employee assistance programs have remained unchanged since 1996.

Which benefits are on the rise?

According to a recent study by the Society for Human Resource Management, the fastest growing benefit is — unsurprisingly — telecommuting. With 37% of Gallop poll respondents saying that they’ve worked remotely and the average worker telecommuting twice a month, more and more companies are finding that to be competitive and retain their best talent, offering more flexible work options is a must.

Download our guide to managing a remote team

Telecommuting isn’t an entirely new concept, and with plenty of affordable cloud-based services, video conferencing tools, and coworking spaces, offering this ‘perk’ to employees seems like a no brainer. But there are factors you should consider when exploring how to structure this benefit, if you choose to offer it.

Some questions you might ask yourself when exploring this benefit option include:

  1. Do we have multiple offices that could accommodate workers moving freely?
  2. Will all employees be offered the option to work remotely, or only certain groups?
  3. What sorts of check-ins will we have and how will we ensure that remote workers stay accountable?
  4. Will remote workers be offered different benefits when it comes to PTO?
  5. Will location of the remote worker affect salary?
  6. How will we treat holidays for workers who are in a different country?
  7. How will we treat health care benefits for workers in a country other than your own?
  8. How will we foster a sense of belonging, accountability, and team camaraderie among teammates who don’t benefit from a lot of everyday interactions?

Selecting your employee benefits strategy and package is, at the end of the day, a very personal decision that should take into account your company’s culture, values, and ability to deliver on your promises. While there’s no magic formula, there are some very tactical ways to help you determine what will and won’t work for you.

What types of benefits should you offer?

The types of benefits you’ll want to offer will largely be dependent on two things:

  • Your employee demographics
  • Your budget

We all want to be Oprah, handing out cars and dishwashers tied up in a red bow. But the benefits your employees want and those that you can afford to give will likely diverge a bit. One thing that every well-managed company does well is understand their employees’ needs and tailoring a benefits package that matches these needs within the company’s budget, of course.

When you’re asking yourself the question, “What benefits should I offer?” consider these additional questions:

  • How big is my company?
  • What percentage of our employees are contractors who don’t qualify for benefits?
  • What is my ultimate budget? How much flexibility do I have in my budget?
  • How much do I stand to lose if we see x% turnover rate year-over-year?
  • What does our workforce look like? Do we have a lot of millennials? Are there many employees with families?
  • What values are important to our employees? Do they value flexibility? Do they value travel?
  • Do they value peace of mind when it comes to family and health care?
  • What unique value can we provide (ie: profit sharing, travel)?

The benefits you choose to offer should by and large help your employees live happier lives and ensure that they enjoy coming to work for your company. Sometimes, small changes can produce big results, so don’t just splurge on a benefit because it ‘sounds good’ — really try to match your employees’ needs.

Small business benefits every company needs

Of course every small business knows that when it comes to budget, it simply can’t compete with the Microsofts and Nikes of the world. But as a small business, you’re able to offer things that a bigger company can’t: greater ownership of work and flexibility (for even more ideas about how to build an employee-first culture, check out this post).

At the same time, the effect of losing even one employee can affect your business’s bottom line much more dramatically than it would a larger company. So keeping your employees happy and “in it for the long haul” with your team is of utmost importance.

Like your bigger counterparts, you’ll need to ensure that you’re staying compliant by offering your employees legally-mandated benefits, but you’ll also want to go back to the ‘match their needs’ strategy for figure out which voluntary benefits you’ll want to offer.

According to Employee Benefit Advisor, offering more choices to employees can help you save money on benefits while giving your employees a valuable option to select those perks that are most important to them. As a smaller company, you can ‘test’ out a variety of benefits and really customize plans to your employees’ needs.

More, you’ll likely have great insight into your team’s demographics to figure out which benefits you can cut loose or maintain (ie: stop offering child care benefits if your company is largely comprised of non-parents, or reconsider ‘grandfathered’ benefits in lieu of a wider buffet of options that might better suit your team). MetLife’s U.S. Employee Benefit Trends Study found that there are many generational differences when it comes to value placed in various benefits. For example, younger workers are interested in financial security for themselves while middle-aged workers are primarily concerned with their families. So think about your business both in present and future terms when you’re evaluating benefits:

  • By what percentage do we expect our workforce to grow?
  • How can we anticipate changing demographics (such as more parents who will be taking time away from work)?
  • How can we protect our business to survive during tough times and thrive when there is more work that can be handled by our current workforce?

These questions and more can help you zero in on the types of benefits you absolutely can’t miss in your package.

Average cost of benefits

Unfortunately, when it comes to the cost of benefits, the news is not good. Benefit costs are going up every year and many companies are struggling to find affordable solutions. Many more are lost at sea without proper guidance. According to the Bureau of Labor Statistics, employee benefits cost employers $10.70 per hour in March 2016 compared to $9.71 in 2015.

Keeping this in mind, you’ll want to consider working with an experienced advisor to help you weed through your options, identify the plan or plans that will best suit your organization, and ultimately, save you both time and money. When it comes to funding strategies, you have a number of options, including level-funded insurance and captive insurance. We cover both in a blog post that can help you get started.

Coming up with an attractive employee benefits package

Creating a compelling employee benefits package comes down to understanding your employees and which benefits will have the biggest impact on their happiness, morale, and your overall company culture. Offering benefits shouldn’t be about handing your employees a packet of forms to sign but about educating your people about their retirement options, opportunities to advance in their career through training, flexibility, and further education. This is why, we’ve argued, employee benefits shouldn’t be DIY.

Forbes recommends beginning your benefits selection process by bucketing benefits into 3 categories: health care, retirement, and “specialty benefits.” While most small businesses tend to choose high-deductible plans, health care costs vary greatly state by state. Only an experienced broker can help you avoid making costly mistakes. He or she can also help you devise your funding strategy.

Figuring out employee benefits for your team is a complex process with many stakeholders. Dedicate a good amount of time to understanding your team and company’s needs, values, and budget before making any decisions. The right plan design can really make or break your team. Remember that a solution like Allay can help you streamline this process, and connect you with a trusted advisor who’ll be able to help you navigate the process with ease.

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Source: Julien Emery

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My name is Julien Emery and I’m the founder of Allay, an all-in-one HR and benefits management solution that’s trying to modernize how companies approach their benefits. We’re on a mission to help employers with 1-500 employees get better at selecting and managing health care and benefits, onboarding and offboarding employees, and ultimately, creating a better workplace for their teams (here’s a bit about why we’re doing what we’re doing).

Julien Emery

My name is Julien Emery and I’m the founder of Allay, an all-in-one HR and benefits management solution that’s trying to modernize how companies approach their benefits. We’re on a mission to help employers with 1-500 employees get better at selecting and managing health care and benefits, onboarding and offboarding employees, and ultimately, creating a better workplace for their teams (here’s a bit about why we’re doing what we’re doing).

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