Key Takeaways
Independent franchise owners may be surprised to learn their workforce is eligible to receive retirement benefits
The SECURE Act was designed to extend retirement benefits and included eligibility changes for “long-term, part-time workers”
While many franchises often run on tight margins, an easy-to-use, affordable 401(k) may be a feasible option
Can independent franchise owners offer their employees a 401(k)?
Independent franchise owners may be surprised to learn this fact: Their workforce is eligible to receive retirement benefits. This can be a huge benefit to employees (and it may not always be common knowledge). Maybe this misconception is a holdover from the past. Perhaps, given all of the complexities of running this type of business, this nugget of wisdom has simply been overlooked.
How the SECURE Act benefits part-time employees
A recent piece of legislation has drawn attention to the relationship between employers and their part-time workers. The SECURE (Setting Every Community Up for Retirement Enhancement) Act was originally signed into legislation by the Senate in December 2019.
The SECURE Act includes major eligibility changes for “long-term, part-time workers”, who, under old provisions, may have had to complete one year of employment (not to exceed 1,000 hours in a 12 month period) to participate in a 401(k) plan. SECURE now requires that these employees be offered a chance to participate without the 1,000 hour requirement, whereby the employee would be eligible to participate after three consecutive years of employment in which they worked at least 500 hours.
New retirement reform legislation—often called SECURE Act 2.0—was proposed in October 2020 and includes 45 provisions designed to reform retirement savings. New provisions would reduce the three-year eligibility rule for part time employees to two years, expanding overall access to 401(k) plans.
401(k) plans offer substantial benefits to part-time employees, especially women
In May 2022, there were around 25.79 million part-time employees in the U.S. (this value is not seasonally adjusted, and is in line with the definition outlined by the Bureau of Labor Statistics, who considers part-time workers as persons who usually work less than 35 hours per week). That’s about 21% of the US workforce. A 401(k) offers much-needed retirement stability to all part-time workers—but the impact is felt even more so by women.
Women, whose lifetime earnings are already substantially less than their male counterparts due, in part, to taking more time off for parental leave or other types of unpaid caregiving, make up more than half of these part-time workers. Human Interest data from 2020 found that while men and women contribute to their 401(k) at similar rates—7.9% and 7.5%, respectively—this difference can compound over the course of a lifetime. Below are some of the advantages of a 401(k) plan:
Tax benefits are one of the most attractive 401(k) advantages. Plans are generally funded by pretax contributions, which means employees don’t have to pay federal income tax up front for contributions up to the $23,000 or $30,500 limit in 2024. Additionally, earnings accumulate in a 401(k) account on a tax-deferred basis, which means retirement funds aren’t subject to taxation until a participant takes a distribution.
Employers may match employees’ 401(k) contributions, or can offer a profit-sharing feature that contributes a non-elective contribution to employees’ 401(k) accounts. If franchise employers decide to offer one or more of these features, employees are receiving additional retirement benefits in addition to what they defer into the 401(k) plan.
Why franchise owners should consider offering a 401(k) to their employees
Offering an easy-to-use, high-impact retirement benefit may help boost retention and morale. Franchisees can benefit from 401(k) plans that enable them to stand out from others competing for the same talent. In fact, Human Interest recently found that a 401(k) plan may lower turnover rates for small to medium-sized businesses*. This revelation may be especially encouraging for franchise businesses such as restaurants, who already witness high turnover rates, and see low access to 401(k) plans in their industry (just 18% of restaurant employers offer a 401(k) plan!).
The reality is that many franchises often run on tight margins, and franchise owners may believe they cannot afford to offer a retirement plan to part-time employees. Others may think they lack the time and knowledge to administer a plan. But consider this:
Offering a 401(k) results in substantial tax benefits: Every dollar an employer spends to match an employee contribution is tax-deductible. Some small businesses may even be eligible for a tax credit of up to $5,000, for three years, to cover the costs of starting a retirement plan.
Administering a 401(k) can be easy: Gone are the days of arduous record-keeping and staff dedicated to managing the books. Many 401(k) plans can be seamlessly integrated into payroll administration, which can help sync essential employee data and automatically process their contributions.
Get to know Human Interest’s 401(k) plan
Still have questions or want to learn more about 401(k) plans for independent franchises? Whether you’re new to the world of 401(k)s, or simply want a refresher on the benefits of offering a plan to your franchise employees, reach out to Human Interest by clicking here. And click below for additional resources on part-time employees and retirement plans:
*Alison Hunter is an independent contractor commissioned by Human Interest to help contribute to this article.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
