Small Business Employee Benefits

9 MIN READEditorial Policy

When you own a small business, employee benefits can go a long way toward showing that you care about your workers. Small business employees often want company benefits such as medical insurance coverage, retirement plans, paid sick leave and holidays, and disability insurance. Keep reading for more information about how your business can offer distinctive employee benefits.

The Benefits Required for Small Business Employees 

The government requires employers to:

  • Give employees time off for voting, jury duty, and military service.

  • Comply with workers’ compensation requirements by enrolling in state, self-insured, or commercial workers’ compensation insurance.

  • Withhold taxes from paychecks and pay some of the taxes themselves to help provide disability, Social Security, and Medicare benefits.

  • Pay federal and state unemployment insurance taxes to give benefits to unemployed workers.

  • Comply with the Family and Medical Leave Act (FMLA) if operating a private business with 50 or more employees. FMLA gives employees up to 12 weeks of unpaid leave within a 12-month period for the adoption or birth of a baby, a serious health issue, or a sick family member. Some states require companies with as few as five workers to follow these regulations.

Some states also require businesses to give workers disability insurance in addition to Social Security disability coverage. Eligible employees must receive partial wage replacement if they suffer from an injury or illness that didn’t happen at work. While other benefits aren’t required by law, many employers give their workers paid vacation time for holidays such as Memorial Day, New Year’s Day, Independence Day, Thanksgiving Day, Labor Day, and Christmas Day. Other small business benefits include allowing employees to take unpaid time off or use vacation days during these times. Some employers may allow people to work from home.

The Affordable Care Act

The Affordable Care Act (ACA) requires businesses with more than 50 full-time employees to provide health insurance. If you don’t offer health insurance for your employees, you’ll have to pay a fee for every employee when you file your taxes. However, recent changes to the law have removed the requirement for individuals to carry health insurance. If your employees don’t sign up for your plan, you won’t have to pay any penalties or fees. 

As of early 2020, the ACA requires plans to cover the following:

  • Prescription drugs.

  • Emergency services.

  • Hospitalization.

  • Laboratory services.

  • Doctor visits.

  • Maternity and newborn care.

  • Rehabilitation.

  • Pediatrics, including dental and vision care.

  • Treatment for mental health and substance abuse.

Businesses with fewer than 50 full-time employees aren’t subject to the employer mandate, but the ACA still makes offering health insurance easier and more affordable for small businesses. 

As of 2020, you can use the Small Business Health Options Program Marketplace (SHOP) to choose affordable health insurance options for your employees when putting together an employee benefits package. Some states allow companies with up to 100 employees to take advantage of SHOP. SHOP is available through private insurance companies or a SHOP-registered broker or agent. SHOP can also allow you to qualify for lower premiums through the Small Business Health Care Tax Credit.

According to, if you select health insurance through SHOP for at least two years, you could qualify for a credit of up to 50%. You must have 25 or fewer employees who earn less than $50,000 per year on average, and you must pay for at least half of their premiums. The tax credit is highest for small businesses with 10 or fewer workers who make an average of $25,000 or less per year.

Traditional Group Health Insurance

With a traditional group health insurance plan, employees choose their doctors. Under this model, the insurance company pays the provider or reimburses employees for their spending. Many plans keep costs down with managed care Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs). 

In an HMO, employees must use doctors employed by the HMO or under contract with them. The HMO must approve hospitals as well. With a PPO, the insurance company negotiates with doctors and hospitals for discounts. Individuals choose their doctors from an approved list, and they pay a copay for each visit. The insurance company typically pays the rest.

High-Deductible Health Plans (HDHPs) 

An HDHP has lower premiums for employees, and it’s less costly for businesses. Before an HDHP pays for medical care, employees must contribute a deductible. For example, a plan with a $10,000 deductible won’t pay for hospitalizations, doctor visits, or other care unless you have already spent more than $10,000 on health care, not including premiums, during the same year. A Health Savings Account (HSA) helps fill this gap. Automatic pre-tax deductions fund HSAs, which lower your employees’ taxes while helping them pay for medical expenses.

Health Reimbursement Arrangements (HRAs)

A Health Reimbursement Arrangement is similar to a Health Savings Account , but employers fund an HRA instead of employees. As a business owner, you won’t need to make tax payments on the money you contribute to these funds, and employees can use the money for insurance premiums as well as medical expenses. With a Qualified Small Employer HRA (QSEHRA), businesses with 50 or fewer full-time employees can pay or reimburse workers for individual insurance plans.

Retirement Plans

Federal tax breaks make setting up a retirement plan for your employees more affordable than ever. Companies with 100 or fewer workers can deduct half of the startup costs for a new workplace plan, up to $15,000 per year for the first three years.

A Saving Incentive Match Plan for Employees (SIMPLE) has little paperwork or reporting requirements, and you can use it to offer a 401(k) or an Individual Retirement Account (IRA).  A 401(k) invests in stocks and bonds, and an IRA works like a savings account. They both use pre-tax funds, so your workers won’t need to pay taxes on their earnings until they start making withdrawals. While employers need to establish a 401(k) for their employees, individuals can choose to create their own IRAs.

You can also offer a Simplified Employee Pension (SEP IRA). This offering works like a traditional IRA, and you can decide how much money to contribute to the plan. You’re not required to add money every year, but many employers contribute a fixed percentage of workers’ pay. You can choose to add whatever percentage you prefer for your company.

For more information about offering benefits for employees, contact us at Human Interest to learn more about an employee benefit package. Let us help your small business invest in your employees’ financial futures.

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