Guide to Benefits for Small Businesses

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Guide Benefits Small Business Insurance

You can’t afford a video arcade in the break room. We get it. You probably also can’t afford on-site yoga instruction, catered lunches from Michael Mina, and all the other unworldly benefits companies like Google and Facebook offer. But that doesn’t mean you can’t do something. According to MetLife’s 13th annual Employee Benefit Trends Study, employees who like their benefits packages are four times more likely to like their job. Which means even if you can’t pay a lot, your employees are more likely to stick around if your business provides good benefits. The world of small business benefits can be confusing, and employees want choices. And while it’s definitely worth consulting with a benefits coordinator on this matter, here’s a quick guide to benefits for small businesses focusing on what you can offer, and what you should expect. Simply put, small business benefits can be broken down into three primary categories: Healthcare, Retirement, and Optional Benefits.

Health Insurance

While you don’t need to offer health insurance, it’s still something that’s almost expected with a full-time job in 2015. And if you don’t offer health insurance, the caliber of employee you attract may be considerably lower The options for health insurance might seem overwhelming but, as a small business owner, there are really only a few that will make sense for you.

    • Offering a small group health plan

This can be done more cheaply than you think. The Affordable Care Act (or Obamacare) has stipulations that allow tax credits for small businesses if you purchase insurance through the Marketplace, making it much easier for you to offer this benefit. But a small group plan comes with some complex choices. First, you’ll need to decide whether to choose an HMO or PPO insurance plan. In a typical HMO insurance plan, employees choose a primary doctor and that person makes referrals within the network. While far cheaper, it also limits patients’ options and can sometimes take longer to see certain specialists. A PPO plan, however, lets patients choose from a much wider array of doctors. This is a far more expensive option, and may not be the wisest for a small business. Similarly, you’ll need to play around with deductible/copay combinations to see what works best for your employees. A younger workforce may opt for higher deductibles since they may use their insurance far less frequently.

    • Giving employees a healthcare allowance

With the advent of Obamacare, the popularity of the healthcare allowance option has soared. Essentially, you set aside money to give your employees as a healthcare allowance. Then they shop for insurance on their own. For employees who need very little in terms of coverage, this allows them to select high-deductible plans with lower copays while other employees may need different coverage. It also allows you to control your healthcare costs, as it will be a fixed amount of your budget and not subject to increased premiums for more at-risk employees. Finally, this option can allow your employees to take advantage of federal subsidies, provided they quality. You may want to discuss with them their salary and how it fits into the criteria for assistance, and figure what makes the most sense for both employees and your business.

    • Offering no health insurance

In today’s market, this is always a viable option. But remember, with the majority of small firms offering health insurance, a job with no health insurance won’t be very attractive to the top candidates. No matter what you select for health insurance, assume it will cost between 7.5% and 15% of your payroll.

Retirement Benefits

If you read the news, it seems that everyone working today will be leaving their jobs feet first, and retirement is a pipe dream reserved for baby boomers and their parents. But in reality, it’s not that bad. And you should help your employees plan for it. The world of retirement accounts is complicated, especially if you’re not one who’s well versed in finance. So we’ll make this as simple as possible. For small businesses, there are really only two categories of retirement accounts to consider: 401Ks and IRAs (or Individual Retirement Arrangements). And under each category there are also a few different types.

  • IRAs While there are many different types of IRAs the two most common for small business are SEP IRAs and SIMPLE IRAs. The major advantage of these is that they are primarily administered by financial services companies, and are simple to set up.Simple IRAs are for firms with less than 100 employees and are easy to get going; they require just four pages of paperwork and can be done in about ten minutes. They allow employees to donate up to $12,500 a year of their salary, and allow for employer matching up to 3% of total compensation. This is ideal if you’d like to help fund employees’ retirement, but are not putting forth a full-on pension. SEP IRAs (or Simplified Employee Pension Individual Retirement Arrangements) make sense if you are self-employed, are a sole proprietor or have a business that consists only of you and a spouse. This IRA is for employer contributions only, and all contributions are a tax-deductible business expense.
  • 401Ks These are voluntary contribution programs administered by the business where employees can contribute pre-tax earnings and borrow against the account for a fee. Again, there are many 401K plans out there, but the most common for small businesses are the simple 401K, the self-employed 401K, and the full 401K.The simple 401K, much like the simple IRA, requires only a couple of pages of paperwork plus $350 and $25 per participant. They allow total combined contributions (which is employee contribution + employer matching) of up to $11,500 per year and are typically the best choice for small businesses with employees who are not shareholders of the company. The self-employed 401K plan makes the most sense if you are a sole proprietor, as it allows for the highest tax-free contributions. Finally, a full 401K is generally suggested for companies with payroll over $500,000. When figuring out how much of an employee’s contribution to match, obviously the first thing to look at is your budget. But a fairly regular level is matching 3% of compensation for up to 6% annual contribution by the employee. And perhaps consider reserving this for employees who have been with you more than a year or longer.

Optional Benefits

While all benefits are optional, many require higher withholdings from paychecks and may not be things employees are interested in. This might include vision and dental insurance, disability insurance, life insurance, and other fringe benefits you creatively come up with. Vision and dental insurance typically offer three options: Employer-funded insurance, where the business pays everything, employee-funded insurance where your employees pay, and partially-funded employer plans where you’ll typically pick up 80% of the cost. Remember, even employee-funded plans are still cheaper for employees to get than if they bought them on their own, so it’s essentially a benefit that costs you nothing. Life insurance isn’t as crucial a benefit as it may have been in previous years. But if you’re going to offer it, it should cover at least $20,000 and funeral expenses. Otherwise, employees won’t see much value in having it. Disability insurance will typically run you 0.5% to 1% of total compensation, and should cover at least 60% of an employee’s salary. There are both long-term (LTD) and short-term (STD) disability benefits; STD should pay around $1,000 a week for 13-26 weeks, LTD should pay $6,000 a month for up to two years. Finally, you may want to consider other benefits that make your company stand out, like flexible scheduling, extended family and maternity medical leave, tuition reimbursement and longer vacations. But those are far more relative concepts that we will cover in future posts. Benefits for your small business can be costly, and you’ll need to offer your employees options if you want them to work their best. If your small business has a strong benefits package, you will help keep your workforce healthy and content while attracting and retaining talented employees.

Matt Meltzer

Matt Meltzer is a professor of business communication at the University of Miami. He is a veteran of the United States Marine Corps and holds a bachelors degree in business administration from UM, as well as a Masters of Mass Communication from the University of Florida.