As a small business owner considering group health insurance, you may be wondering whether you should provide additional employee benefits in addition to health insurance. You may also be wondering how many small businesses provide employee benefits other than health insurance, as well as what types of benefits are most commonly provided by employers. Continue reading to learn more about employee benefits for small businesses.

What are Employee Benefits?

Benefits are perks or compensation that employees receive in addition to their basic wages. Some businesses regard them as an intangible business asset, similar to a company’s reputation or industry expertise, that can define an entire corporate culture, influence an employer brand, and drive overall business success. Others see benefits as a difficult HR and administrative challenge, but with the right strategy, they can be transformed into a powerful recruitment and engagement tool.

Employee Benefits for Small Businesses

Is it necessary for small businesses to provide healthcare, family leave, or paid sick time? Learn what benefits employers must provide when the laws apply, as well as what happens if benefits are not provided.

If you want to attract and retain top talent, you must offer an appealing benefits package. You must also manage benefit costs to ensure that they are driving the desired results in your hiring and talent management efforts.

Because some employee benefits are mandated by law, another critical human resource (HR) task for small businesses is ensuring that their benefits meet applicable requirements and are properly managed.

This article discusses employee benefits for small businesses across the country, as well as costs for benchmarking your performance. In general, requirements apply only to full-time employees and not to part-time or other types of employees.

Mandatory Benefits Small Businesses Must Offer Employee

According to the U.S. Bureau of Labor Statistics (BLS), employee compensation and benefits cost employers an average of $34.73 per hour worked, with wages of $24.36 and benefit costs of $10.37.

Legally mandated benefits account for only $2.66 per hour or 7.7% of total costs. Extra pay, such as bonuses and overtime, costs an extra $1.14 per hour.

The following employee benefits for small businesses are mandatory for all employers, regardless of size.

#1. Medicare and Social Security

Businesses are required to withhold FICA taxes of 1.45% for Medicare and 6.2% on the first $137,700 of earnings for Social Security for each employee. Employers must also make an equal contribution to the funds.

These taxes cost employers an average of $2.05 per hour worked, or 5.9% of total compensation.

#2. Unemployment insurance (UI)

Employers must also pay federal and state unemployment taxes under the Federal Unemployment Tax Act (FUTA). Also, Employers in Alaska, New Jersey, and Pennsylvania are also required to withhold employee taxes for UI. Employers pay an average of $0.17 per employee hour in UI taxes.

#3. Workers’ compensation

While it is not required by federal law, every state has a workers’ compensation fund to care for employees who are injured on the job. State labor departments are in charge of administering the funds. Workers’ compensation costs businesses an average of $0.45 per hour or 1.3% of their total compensation.

#4. Overtime pay

Overtime pay for hours worked beyond 40 in a work week is required under the FLSA for employees earning less than $684 per week or $35,568 per year. Furthermore, Overtime pay is set at one and a half times the employee’s regular hourly wage. The FLSA does not require you to pay a premium for working at night or on weekends.

#5. Jury duty leave

Employees called to jury duty must be granted unpaid leave by all employers. Jury duty leave must be paid in some states.

#6. Coronavirus leave

At the time of writing, the Families First Coronavirus Response Act (FFCRA) requires certain employers to provide up to 80 hours of sick leave to employees who have been infected with COVID-19, are in quarantine, are caring for someone who is in quarantine, or are caring for a child during COVID-19-related school closure.

The law also allows for up to ten weeks of paid family and medical leave for COVID-19-related childcare needs. Small businesses may request an exemption from the FFCRA’s provisions if complying with them would jeopardize their operations significantly.

Voluntary Benefits Small Businesses Can Extend to Employee

As you can see, federally mandated employee benefits for small businesses are fairly basic, but they account for nearly 8% of wages. Adding voluntary benefits to your offerings makes your company more appealing to job seekers.

#1. Paid leave

Paid holiday, vacation, personal, and sick leave are among the most valued employee benefits, although they are not mandated by the federal government. Giving employees a chance to recharge is also beneficial to businesses.

According to the most recent BLS benefit survey, the percentage of small business employees who have access to paid leave is as follows:

  • Vacation: 70%
  • Vacation time: 69%
  • Sick pay: 64%
  • Jury service: 42%
  • Bereavement leave: 39%
  • Individual: 33%
  • Family leave: 14%

Small businesses that participate provide an average of 7 paid holidays and 10 vacation days, with additional vacation tied to tenure.

While there is no federal requirement for paid leave, many states and municipalities have enacted their own. For example, paid sick leave laws exist in 11 states and at least 18 cities, and paid family and medical leave laws exist in eight states.

Remember to consult state and local laws in addition to federal requirements when managing leave. Paid leave averages $2.53 per hour worked, or 7.3% of total compensation.

#2. Unpaid leave

Surprisingly, 80% of small business employees have access to unpaid family leave, even though the Family Medical Leave Act does not require it until a business has 50 employees. Allowing employees to take time off to care for a new baby or a sick family member is a low-cost, high-impact benefit.

#3. Health insurance

Although small businesses are not required to provide medical benefits or prescription drug coverage to their employees, roughly half of them do. Dental care is available to 29% of small business employees, while vision care is available to 18%.

If you do provide healthcare insurance, the Affordable Care Act (ACA) requires you to provide it to all eligible employees. You must also comply with the ACA’s employee notification requirements. The average cost of healthcare benefits is $2.61 per hour worked.

#4. Disability and life insurance

Only 37% of employees with smaller benefits have life insurance. Short- and long-term disability benefits are even more difficult to obtain, with access rates of 30% and 23%, respectively.

That could be a missed opportunity, given that the hourly costs for these employee benefits for small businesses are only $0.04 for life insurance, $0.07 for short-term disability, and $0.04 for long-term disability.

#5. Retirement

Approximately half of the small business employees receive retirement benefits, the vast majority of which are defined contribution plans like 401(k)s. These benefits average $1.22 per hour worked, or 3.5% of pay.

#6. Fringe benefits

Because employees bear the majority of the costs, fringe benefits are benefits that can be provided at a low or no cost. Daycare, tuition assistance, employee discounts, and gym memberships are some examples.

#7. Complimentary benefits

Many employee benefits that employees value are cost-neutral for you. Inviting workspaces, casual dress, remote work options, flexible schedules, and even pet-friendly policies can help your small business stand out in the marketplace.

The types of employee benefits that make sense for your business will be determined by your needs, but being creative with benefits can pay off in terms of recruitment and employee engagement.

Benefits administration has many moving parts, many of which are governed by federal and state laws. The guidelines below should be followed when managing benefits.

#1. On-time and accurate payroll

A critical HR function is accurately managing taxes and payroll deductions. Federal law also requires employers to pay their employees on time. HR software is an excellent way to ensure accuracy and promote compliance while significantly reducing benefits administration work.

#2. Federal and state regulations

As previously stated, many states and cities have enacted benefit laws that significantly expand your business’s requirements. Check benefit laws at the federal, state, and local levels to ensure you’re meeting all requirements.

Your local small business district office and your state labor department are both excellent resources.

#3. Benefit benchmarks

As your business expands, it is subject to new labor laws and benefit requirements. When you reach 50 employees, for example, the FMLA and ACA provisions kick in. Make sure to review your benefit offerings regularly to ensure continuous compliance as your business grows.

#4. Privacy

It is critical to protect your employees’ privacy when it comes to benefits. This includes secure online data storage, secure paper file storage, and appropriate communication protocols to protect sensitive employee information.

Importance of Employee Benefits for Small Businesses

Benefits are a critical strategic tool that small businesses cannot afford to overlook, especially as their operations grow and they compete for top talent. Many workers today are looking for flexible rewards, and if an employer does not provide options that meet their needs, they risk losing them to a competitor who does. Aside from recruitment and retention, competitive benefits packages can improve employee productivity, engagement, and financial security, as well as the business’s public image.

However, simply providing great benefits is insufficient for businesses to reap the benefits. Employers must ensure that their employees understand what services are available and how to use them. Employees can only benefit from their benefits plans if they receive consistent communication and support. Short messages with more visuals than text that highlight key action items are the most effective.

What is a good employee benefits package?

While this depends on who you ask, most industries provide health insurance, dental insurance, flexible spending accounts, retirement savings plans, vacation time, and additional paid time off for events such as family medical leave, maternity leave, and sabbaticals.

How do companies pay for employee benefits?

Employers usually cover at least some of the costs. Employees frequently contribute a percentage of the monthly premium to cover themselves and their dependents. Dental and vision coverage are included in some medical plans. Others provide them separately at a cost to the employee.

What are the 4 major types of employee benefits?

Medical insurance, life insurance, disability insurance, and retirement plans are the four major types of employee benefits provided by many employers.

What benefits should a small business provide?

While many benefits aren’t required, small businesses should think about offering the most comprehensive packages possible. This can mean the difference between attracting and retaining top talent or losing it to competitors. Every business, however, is different, which is why employers who need assistance deciding which benefits are best for them should speak with a licensed insurance professional or broker.

Paid Vacation

Many companies that offer this benefit have found it to be the most popular among their employees. Employees also take nearly the same number of vacation days as they did previously.

How do I create an employee benefits package?

Follow these steps to begin developing a low-cost employee benefits program.

  • Examine your objectives and budget.
  • Understand the necessary employee benefits.
  • Choose optional benefits.
  • Highlight special benefits.
  • Create a total compensation diagram.

How do I find employee benefits?

Calculating the benefit load—the ratio of perks to an employee’s salary—allows a business to plan more effectively. To calculate the benefit load, add the total annual cost of all employees’ perks and divide it by the total annual salary of all employees to get a ratio; that ratio is your company’s benefits load.


While organizational-oriented benefits are more traditional benefit structures, many small benefits are discovering that consumer-oriented benefits are equally valuable to employees, are more flexible, and are more affordable. You’ll be well on your way to recruiting and retaining your best employees if you build out your employee benefits package for small businesses with the popular benefits listed in this article.

Frequently Asked Questions

What are 3 examples of employee benefits?

The following are the most common types of employee benefits available today:

  • Medical insurance.
  • Life insurance.
  • Disability insurance.
  • Retirement contributions and pension plans.

What benefits do employees value most 2022?

Healthcare emerged as the most important type of benefit that an organization can offer its workers, according to employers, followed by retirement and leave benefits, which tied for second place. In 2020/21, retirement benefits were at 55%, rising to 82% in 2022.

How much does it cost to offer benefits to employees?

Employer costs for civilian workers averaged $38.91 per hour in June 2021, according to the bureau. Wages accounted for approximately 69% of that total, implying that benefits accounted for 31% of total compensation.


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