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employee benefit plans for small business

Small business employee benefits

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Wide-ranging benefit packages provide a competitive advantage in the quest to attract and retain talent. That’s why it’s never too early for small business owners  and startups to explore employee benefits, especially if they plan on growing their team in the near future. This guide serves to help employers better understand the options available to them, as well as some of the requirements.

Small business benefits

What are employee benefits?

Benefits are perks or compensation beyond what employees earn in basic wages. Some organizations view them as an intangible business asset, much like a company’s reputation or industry expertise, that can define an entire corporate culture, impact employer brand and drive overall business success. Others find benefits to be an HR and administrative challenge, but with the right strategy, they can be turned into a powerful recruitment  and engagement tool.

Types of employee benefits

Health insurance is the most basic type of employee benefit, but it has largely become table stakes by today’s standards. Employers that want to appeal to generational workforces, may need to offer a broad range of perks , such as:

Financial benefits

Employees who are worried about their finances tend to be less engaged at work. Employers can help alleviate their stress and improve their productivity by considering these financial benefits:

  • Pay raises When wages become stagnant, workers may start to look elsewhere for employment . Employers can help prevent this turnover by increasing salaries and hourly pay by a fixed percentage each year. Another option is to reward employees based on their performance with cash bonuses and non-monetary incentives, like more vacation days or flexible work schedules.
  • Employee stock options (ESOs) Allowing employees to purchase a portion of company shares at a discounted rate within a specific time frame is often win-win. Employees get to enjoy financial gains when profit margins improve, while employers may experience greater loyalty from workers who have some ownership in the company. This benefit was once reserved for executives at large organizations, but it has since become available to a wider pool of employees at small businesses that are publicly traded.
  • Financial wellness programs Workers that live paycheck to paycheck usually have real concerns about covering their monthly expenses. By the time they pay their bills, there’s little left to put aside for a child’s education or retirement. Financial education and counseling services can help employees make better decisions about how they spend their money, reduce their debt and save for the future.
  • Loan repayment plans Student loans are one of the most common sources of employee debt. Employers can differentiate themselves from competitors by offering student loan repayment programs and loan consolidation opportunities. Some businesses also provide tuition reimbursement programs for employees who want to pursue a degree in a related field while on the job.

Fringe benefits

Fringe or ancillary benefits that supplement traditional health insurance might seem like an added expense, but proactively improving employee wellness may actually lower health care costs in the long term. Some examples include:

  • Dental care Routine dental exams can help spot not only periodontal disease, but also chronic health issues, like heart disease. Employers typically can choose from traditional plans where employees can see any dentist who accepts insurance or a preferred provider plan with in-network and out-of-network coverage.
  • Eye care Uncorrected eyesight problems can lead to lost productivity at work, so it often pays to provide a vision plan that includes comprehensive eye exams. Package plans or discount programs help make this insurance coverage more affordable.
  • Prescription drug coverage Another way to maintain a healthy workforce is to offer prescription drug coverage. Plans with tiered pricing are often more advantageous for employees because they can purchase various prescriptions with a co-pay. Employers may also want to provide a list of the covered drugs so that those who are managing chronic conditions can easily review their available options.
  • Life insurance Many people worry about the financial well-being of their dependents if they were no longer there to provide for them. Group life insurance, in which the employer owns a single policy that covers all workers, can provide much peace of mind. Another option is to offer term life or yearly renewable coverage. To keep administration simple, life insurance can be set up as a one-time payment.

Additional insurance options

In a world where most employers provide health benefits, employers can stand out by offering additional plans, such as these, for employees to save on their insurance premiums:

  • Flexible spending accounts (FSA) With an FSA, employees withhold money from their pay on a pre-tax basis up to a limit preset by the IRS. They can then use these funds to cover eligible out-of-pocket health expenses, such as insurance copayments, deductibles, some prescription drugs and medical devices. If any money remains in the FSA at year’s end, employees may sometimes have an additional two-and-a-half months to spend the balance, otherwise the funds are lost.
  • Health reimbursement arrangement (HRA) Businesses that offer group health insurance and participate in HRAs reimburse employees tax free for qualified medical expenses up to a limit they determine each year. If employers don’t offer group health insurance, they may choose to partake in an individual coverage HRA, which helps employees offset some of the costs of plans they purchase themselves through the marketplace or elsewhere.
  • Health savings account (HSA) HSAs allow employees enrolled in high deductible plans (HDHPs) to set aside their own money on a pre-tax basis to cover qualified medical expenses. Unused funds carry over to subsequent years and any individuals that leave to pursue another opportunity, can take their HSA with them to their new employer.
  • Premium only plans (POP) Employees in these plans pay their share of insurance premiums – including health, dental, vision, disability and life insurance – with pre-tax dollars. Because a POP reduces employees’ taxable income, employer contributions to payroll taxes and unemployment insurance may also be lower.

Unique employee benefits

Providing more than the traditional medical benefits that employees have come to expect from their employers can help attract and retain talented individuals. The key, however, is to pay close attention to workplace trends and anticipate changing needs as much as possible. Some examples of unique benefits in demand with employees today are:

  • Backup care Employees caring for young children or older family members appreciate having reliable alternatives when their regular arrangements break down. With some backup care plans, individuals have 24/7 access to live representatives who can help them secure the childcare or senior care most suitable to their unique needs. This benefit can help employers reduce absenteeism, boost productivity and improve employee loyalty.
  • Employee assistance programs (EAP) EAPs help employees and their immediate family members deal with a host of personal issues, including mental health, substance abuse, work-life balance, identify theft and more. Due to the sensitive nature of this subject matter, employees are sometimes hesitant to use the services available to them. Employers may have to communicate the benefits of EAPs and explain that they are confidential to encourage participation.
  • Pet insurance Chances are at least some of employees at any business are pet lovers and know the financial and emotional toll of caring for a furry friend. Providing pet insurance as a voluntary benefit can help manage the costs of vaccinations and wellness care, as well as chronic conditions, injuries and surgeries.

These perks may further increase your employee engagement:

  • Yoga classes
  • Pet-friendly environments
  • Onsite health care
  • Wedding reimbursement

Flex benefits

The “one-size-fits-all” benefits model is a thing of the past. Employees today want a broad range of self-service options that can be mixed, matched or adjusted to suit individual preferences as they evolve. Some benefits carriers even allow employees to make changes online, virtually at any time, as opposed to only during an open enrollment period. This type of empowerment sends the message to employees that they’re a valued partner and frees HR departments from the burden of complex administration .

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Benefits required for small business

Not all employer-sponsored benefits are optional. Some, such as the following, are required by law and tightly regulated by government agencies:

Workers’ compensation

Workers’ compensation is insurance that protects employers and employees if a workplace accident or illness occurs. It covers the cost of medical care and rehabilitation, as well as a partial replacement of lost income due to disability. The spouse and minor children of employees who die in work-related accidents may also receive a monetary benefit.

Most states require employers to purchase workers’ compensation before hiring their first employee. Failing to do so can result in disciplinary actions, including civil fines and criminal penalties. Some authorities may even prevent a business from bidding on future contracts or shut a job site down entirely. To prevent a lapse in coverage that puts employers at risk, carriers typically renew their insurance policies automatically.

Unemployment insurance

Unemployment programs provide financial assistance to workers who temporarily lose their job because of eligible reasons, such as downsizing, that would not be considered their fault. This benefit is mandated by federal and state governments and typically funded only by employers. The specific tax rates and regulations vary by state, so it helps for employers to familiarize themselves with the laws everywhere they do business.

In most cases, when a former employee files an unemployment claim with a government agency, a representative will contact the business to verify the eligibility of the request. Employers must respond within a certain amount of time or their ability to appeal wrongful claims may be limited.

Challenging an unemployment claim typically requires evidence of worker misconduct, such as prior warnings, witness statements and records of workplace incidents. Even if an employee leaves on good terms, employers usually conduct an exit interview or ask for a formal resignation letter to help safeguard against fraudulent claims.

Disability insurance

Disability isn’t covered by basic health insurance, so if an employee suffers a long-term illness or injury, they will be forced to use sick days or take a leave of absence. Individuals who find themselves in these situations may feel stressed and their job performance can suffer. In some cases, they may never return to work.

Employers can retain valued employees and give them peace of mind by offering disability insurance, of which there are two options:

  • Short-term disability typically provides coverage for two to six months and comes close to matching the employee’s current income. In a state where short-term disability is required, employers must abide by the specific regulations governing eligibility, payments and length of time.
  • Long-term disability generally pays about 50 to 70 percent of monthly income and can last for years or decades. Only full-time employees are usually eligible for this benefit.

For optimal coverage, employers can choose to offer their employees a combination of short-term and long-term disability.

Health insurance

Employee wellness is essential to business productivity and a great way to maintain that is through a health insurance plan. If that’s not enough of a reason to offer medical benefits, employers may be required to do so by the Affordable Care Act. It states that businesses with 50 or more full-time or full-time-equivalent (FTE) employees must provide ACA-approved health insurance or face penalties. An FTE is someone who works 30 hours per week or 130 hours per month.

Types of health insurance plans:

  • Fully insured plans Employers pay the insurance carrier a fixed premium rate based on the number of employees enrolled in the plan.
  • Partially self-funded plans Businesses share the financial risk of paying claims with an insurance carrier. This type of plan offers more control and flexibility than a fully insured option.
  • High deductible plans As the name implies, these plans have higher deductibles than traditional options, but generally have lower premiums. They are advantageous for employees who don’t anticipate many medical expenses and can be combined with HSAs and HRAs.
  • Physician-hospital organization A PHO is an alliance of physicians and hospitals who sell their services directly to managed care companies or to employers.
  • Managed care Preferred provider organizations (PPO) and health maintenance organizations (HMO) provide incentives for employees to use in-network physicians and hospitals.

What is open enrollment?

Open enrollment is when employees who are benefits-eligible choose the plans that best meet their needs for the upcoming year. It usually takes place 30 to 60 days before the current year’s benefits are scheduled to renew. Prior to open enrollment, employers customarily notify their workforce about any new features or plan changes.

How do businesses purchase health coverage?

Employers shop around for group health coverage just as they would for any other business purchase by asking questions and comparing pricing. Plans can generally be purchased from one of three places:

  • Brokers and agents Licensed representatives sell insurance products from a variety of insurance carriers.
  • Insurance carriers The companies that issue the policies and underwrite the coverage often sell their insurance directly to businesses.
  • Health insurance marketplace or exchange The federal government operates a website where employers can shop for medical plans approved by the ACA. Part of this marketplace is the Small Business Health Options Program, which offers flexible, affordable plans designed for organizations with one to 50 employees. By purchasing through SHOP, employers may also be eligible for a health care tax credit.

How to choose the right coverage

Finding the right health insurance coverage typically requires careful consideration of the cost of the product vs. the needs of the workforce. When evaluating plans, employers may follow these general steps:

  • Determine the types of coverage preferred by employees
  • Estimate premium costs for both the organization and individuals enrolled in the plan
  • Find out if the plan includes medical providers and hospitals that employees would use
  • Assess the level of support that can be expected from the carrier
  • Make sure coverage meets ACA standards

Cobra benefits

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides continued health coverage to individuals after employment ends or a qualified event occurs, such as death or divorce. Those eligible under the plan include covered employees, former employees, spouses, former spouses and dependent children. COBRA benefits are usually identical to the health insurance that the beneficiary had previously, but they are not provided indefinitely. Coverage can last between 18 to 36 months, depending on the qualifying event.

Employers that have 20 or more employees are required to comply with COBRA. Some states also have their own health coverage continuation laws, which may apply to businesses with less than 20 workers, so it’s important to check with local authorities to ensure compliance.

Family and medical leave

Under the Family and Medical Leave Act (FMLA) , employees may be entitled to 12 weeks of unpaid, job-protected leave if they:

  • Give birth to a newborn
  • Adopt or foster a child
  • Are caring for an immediate family member with a serious health condition
  • Have a serious medical condition of their own that limits their ability to work

To be eligible for one of these qualifying events, employees generally must work for an employer for at least 12 months and at least 1,250 hours in the previous 12 months. Additionally, the place where they work must employ 50 or more individuals within 75 miles.

Some states also have paid leave programs with different rules and requirements. In some places, benefits are paid for with an employee payroll tax, and in others, they’re funded by both the employer and the employee.

These variations make it important for employers to understand not just the requirements of the FMLA and all state and local laws that apply, but also their HR responsibilities. To help manage compliance, they typically need to track the total hours worked and the amount of paid leave accrued and taken for every employee, among other records.

Taxable benefits

Any fringe benefits that businesses offer to employees could be considered a source of income and thus, may be taxable, unless they meet certain exclusion criteria. Examples include:

  • Moving expenses
  • Business-related driving reimbursements that exceed the IRS mileage limits
  • Reimbursement for education that’s not job-related or is more than IRS tuition limits
  • Personal use of working condition benefits, such as cell phones and company cars

To calculate the tax on these benefits, the IRS uses the general valuation rule or fair market value (FMV), which is the amount a third party vendor would have charged the employee for the particular benefit. FMVs generally must be reported on Form W-2.

Benefits of retirement savings for employees and employers

Many workers today are extending employment into their senior years, largely for two reasons. Either they’ve been unable to meet their savings goals or they don’t fully understand their expenses to decide when it’s a good time to retire. This is a risky strategy because leaves of absence, layoffs or caregiver issues can arise unexpectedly and limit income.

Employers can help their workforce members avoid such a scenario by offering a retirement savings plan . In addition to improving financial security for employees and alleviating their stress, retirement plans can help businesses reduce health care costs, improve workplace productivity and retain talent.

Retirement plan options for small businesses

While providing retirement plans to employees has its benefits, it also requires serious planning. Employers may need to consider the size of their workforce, their type of work, an employee’s years until retirement and whether to offer a company match. With those key points in mind, small businesses have three common plan options 1 available to them:

  • Simplified employee pension plan (SEP-IRA) Employer contribution limits are high, but you can deduct your payments as a business expense.
  • Simple IRA Employer contribution limits are lower than those of a SEP-IRA, but employee limits are higher.
  • 401(k) This plan offers all the tax and retirement benefits of a typical 401(k) with high contribution limits for both the employer and employees.

The Department of Labor’s Employee Benefits Security Administration and the IRS provide a list of benefits and eligibilities that can help employers make an informed choice or they can speak with a small business banker or financial advisor.

Importance of employee benefits

Benefits are a vital strategic tool that small businesses can’t afford to ignore, particularly as their operation expands and they try to compete for top talent. Many workers today are looking for flexible rewards and if an employer doesn’t offer options that meets their needs, they run the risk of them leaving for a company that does. In addition to recruitment and retention, competitive benefits packages can help improve employee productivity, engagement and financial security, as well as the public image of the business.

Yet, simply offering great benefits isn’t enough for businesses to reap the advantages. Employers have to make sure their workforce understands what services are available and how to use them. Only through consistent communication and support can they help employees make the most of their benefits plans. Short messages that highlight key action items and use more visuals than text tend to be most effective.

Cost of employee benefits

The cost of benefits has been rising in recent years, but employers can take steps, such as the following, to manage their expenses:

  • Maximize unused benefits Businesses may already be paying for benefits that they’re not aware of or that their employees aren’t using. Some life insurance plans, for instance, include mental health services. Before purchasing additional benefits, carefully read the details of current plans or ask an insurance agent to identify any underutilized services.
  • Combine lines of insurance Employers who purchase multiple lines of coverage from a single carrier may be eligible for discounts. A health and dental insurance bundle, for example, may save enough money to pay for other benefits.
  • Leverage voluntary wellness benefits Many voluntary benefits , like employee assistance programs, empower people to stay well, which can help save on health insurance claims in the long term.
  • Offer employee-funded premiums Having employees partially or fully pay for some ancillary benefits can help businesses offer a wider range of benefits that otherwise would be unaffordable. And because insurance companies charge lower rates to groups than individuals, employees will still save money compared to what it would cost them to buy the service on their own.
  • Purchase only what is needed Before buying any plans, survey employees to find out what they expect from their benefits and tailor packages accordingly.
  • Work with an insurance professional Licensed insurance brokers or agents can help employers find the benefits that will best suit their workforce, while staying within your budget.

Frequently asked questions about small business employee benefits

Do employers have to offer health insurance.

Employers that have 50 or more full-time or full-time equivalent (FTE) employees are required to provide health insurance under the Affordable Care Act. Plans must offer minimal essential coverage that meets ACA standards and pay at least 60% of a participant’s medical expenses. Non-compliance with this law results in expensive penalties that are not tax deductible.

Do part-time employees get benefits?

Depending on their length of service and total hours worked, part-time employees may be entitled to retirement savings plans in accordance with federal laws. They are also generally eligible for unemployment insurance, workers’ compensation and other benefits mandated by individual state governments. If employers choose to offer part-time workers benefits beyond what is required, it’s usually best practice to establish eligibility criteria in an employee handbook or official company policy .

What benefits should a small business offer?

While many benefits are not required, small businesses should consider offering the strongest packages possible. Doing so can mean the difference between attracting and retaining top employees or losing them to competitors. Every business, however, is unique, which is why employers who need help deciding which benefits are right for them should consult a licensed insurance professional or broker.

What are standard employee benefits?

Standard benefits consist of health, dental, vision and retirement plans. In order to appeal to a generational workforce, however, employers may need to also offer voluntary benefits that can be customized to meet employee needs at different life stages. Examples include flexible work schedules, financial wellness counseling and student loan assistance.

What percentage of an employee’s salary is benefits?

As of September 2020, benefits accounted for nearly 30% of an employer’s costs for individuals working in the private sector. 2 This is a national average and benefit costs tend to vary by the size of the business, its location and its specific industry.

This guide is intended to be used as a starting point in analyzing employer benefits and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal, retirement, tax advice or other professional services. Should you have questions regarding your particular situation, consult a professional advisor.

All insurance products will be offered and sold only through Automatic Data Processing Insurance Agency, Inc., (ADPIA) or its licensed insurance partners, 1 ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. All services may not be available in all states. ADPIA is an affiliate of ADP,Inc.

1 SIMPLE IRA and SEP are offered through ADP Broker-Dealer, Inc. (ADPBD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068. Only registered representatives of ADPBD may offer and sell such retirement products and services or speak to retirement plan features and/or investment options available in any ADP retirement product. American Century Investments Inc. (ACI), ADP, Inc. and ADP Broker-Dealer, Inc. (ADP) have a distribution and administration agreement with ACI to maintain a program under which ACI provides investment options to participants in adopting employers’ SEP and SIMPLE IRAs marketed by ADP (for which ADP receives reasonable fees); and ADP and ACI share administrative responsibilities to support the best interests of SEP and SIMPLE IRA plan participants in adopting such plans. Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies .

2 Bureau of Labor Statistics

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Small Business Guide to Employee Benefits Packages

Learn about types of employee benefits, factors to consider when choosing benefits packages, and how to get started with implementing benefits administration.

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mployee benefits are often the key to attracting and retaining top talent. The benefits you provide beyond paid wages, such as health insurance, retirement plans, and paid vacation, can give you a competitive edge in today’s business environment.

Providing your employees with a comprehensive benefits package can also improve their satisfaction, engagement, and productivity. Additionally, you can take advantage of tax breaks, such as deducting the cost of providing health insurance .

Keep reading to get our guide to employee benefits, including factors to consider when choosing the best benefits for your employees.

Types of employee benefits

In recent years, some high-profile companies have started offering trendy perks, like taco trucks at lunch and on-site massages. However, for most employees, basic benefits are the most important to them , such as healthcare, retirement, and paid family and medical leave. In the U.S., the onus is typically on the employer to provide these benefits.

Health insurance

You can offer various types of health insurance plans for your employees and their families including:

  • Fee-for-service plans, in which healthcare providers are paid based on services. While these plans used to be very popular, they’re now the fifth-most popular type of health insurance policy .
  • Health maintenance organizations (HMO), in which healthcare is provided for a fixed monthly fee.
  • Preferred provider organizations (PPO), in which healthcare is provided for a discounted fee.
  • High-deductible health plans coupled with healthcare savings accounts, which require patients to pay a high deductible but allow them to use a tax-deferred savings account to pay for healthcare expenses.

Retirement plans

While company-provided pensions are still a perk in some industries, most companies provide access to retirement plans such as 401(k)s, which allow your employees to save for retirement. You can increase the incentive for employees to save by matching a certain percentage of their contributions.

Paid time off

Paid time off (PTO) includes vacation, sick days, holiday pay, parental leave, and any other type of paid absence. Although it’s still fairly rare, some companies offer unlimited PTO, providing that vacation time doesn’t interfere with an employee’s ability to get their job done. Other companies offer accrued PTO, which is PTO that employees earn over time.

Other benefits

Other benefits include life insurance, disability insurance, and wellness programs like health coaching and mental health support. 

Employees value being able to work from home and work flexible hours. According to a survey by SHRM, 70% of companies now offer at least some form of flexible working conditions. Offering flexibility can save you money by cutting your overhead costs.

Factors to consider when choosing employee benefits

Although employee benefits can significantly add to your hiring budget, a competitive benefits package will help you attract the best candidates. Consider this a talent acquisition expense!

Budget constraints

This is often the top consideration when choosing employee benefits. Doing some research can help you set a realistic budget .

Look into what benefits your competitors are offering workers in similar roles. For an accurate assessment, remember that those competing businesses should be parallel to yours in size and be located in your area. Additionally, research general benefits trends for your industry to get a comprehensive picture of standard benefits packages.

Employee needs

Consider what benefits your employees need and want the most before you choose a package. As the workplace evolves, employees’ benefits preferences shift .  You may need to offer on-site and remote workers different benefits.

While some benefits, such as insurance and retirement benefits, will serve both types of workers, remote workers can’t take advantage of benefits only available at physical office locations. If you run a hybrid or remote-first company, aim to craft a benefits package that works for all of your employees.

Compliance with laws and regulations

The benefits you offer your employees must comply with applicable labor laws. In this age of remote work, there’s an extra layer of complexity since your employees may not live in the same jurisdiction in which your business is located. Generally, you must follow the labor laws of the geographical area where your employees live, even if they differ from the laws where your business is based.

Business goals

Finally, consider your business goals. Do you want to improve employee morale? Offering flexible work hours or half-days on Fridays may help. If you run a tech business, you’ll want to attract the best tech candidates by offering a competitive package with benefits like unlimited PTO and remote work options.

Focusing on strategic business goals when developing and communicating your benefits package can help improve overall performance, employee retention and satisfaction, and recruitment. Start by considering how your benefits can further your business and workforce objectives.

Determining the best employee benefits for your small business

Deciding what benefits to offer your employees can be a complex process. However, it doesn’t have to be overwhelming if you break it into manageable steps.

Analyzing the needs of your employees

Start by researching what your employees need the most. Get informed on the standards in your industry to ensure you’re offering the right mix of benefits. In addition to collecting data on industry trends and what your competitors are offering, you can analyze the following data for more information:

  • Questions employees have asked in the past year about benefits
  • Candidate questions about benefits
  • Exit interview comments related to benefits
  • Usage rates for current benefits
  • Workforce demographics—for instance, if your employees are older, they may place more value on retirement plan options than parental leave

Comparing the cost and ROI of different benefits

Some benefits will provide a better return on your investment than others. For instance, health wellness benefits have been found to provide a 600% ROI compared to a 129% ROI for tuition reimbursement.

Consider the cost over time, not just the initial investment. In addition, determine how the expense will affect other business aspects, such as recruiting new employees. Cost savings from higher employee recruitment and retention rates may offset the expense of providing better benefits.

Getting input from employees

Employee surveys and focus groups are a great starting point for finding out what benefits are valuable to your workforce. But don’t overlook other methods for soliciting feedback, such as:

  • Digital suggestion boxes
  • Performance reviews
  • One-on-one meetings
  • Third-party surveys

Consulting a benefits advisor or benefits broker

A professional advisor can give you insights into trends and best practices for developing small business employee benefits packages, helping you stay competitive and attractive to new candidates. They’ll also tell you if a proposed package is a good deal, negotiate with insurance providers, and find the best plans for your budget.

Implementing and communicating employee benefits

Once you’ve procured employee benefits, you need to implement a signup process and let employees know how to access them.

Ensuring compliance with relevant regulations

Ensure your benefits packages comply with all applicable laws and regulations, such as the Affordable Care Act, to avoid legal issues such as fines and penalties . You may need to work with legal counsel and other experts to maintain compliance.

Communicating benefits to employees

To get the most strategic advantage from your benefits messaging, relate it back to your company culture and values. While the most effective type of communication will depend on factors such as your staff size and employee demographics, consider the following options:

  • Benefits fair
  • Lunch-and-learns
  • Newsletters
  • Internal email blasts
  • All-hands meetings
  • Employee portals

Tracking usage and evaluating the package’s success

After your benefits programs are in place, tracking usage will help you determine their success and make improvements for future iterations. Some metrics used to measure the success of your benefits package include:

  • Utilization rates
  • Employee performance indicators, such as task completion rate or profit per employee
  • Staff turnover rates
  • Employee satisfaction survey

Providing competitive employee benefits for your employees that help you achieve your strategic business goals doesn’t have to be overwhelming. Consider what you want to accomplish with your benefits program and evaluate your employees’ needs to determine what you should offer.

Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.

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Examples of common small business employee benefits

Small Business • December 27, 2023 at 9:00 AM • Written by: Chase Charaba

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When job seekers are looking for a new position, you might think the most attractive feature about a new position would be a higher salary. However, studies show this isn't always the case.

Our 2022 Employee Benefits Survey Report found that if an organization had an extra $200 to give each employee per month, 42% of employees would rather have a new employee benefit than a wage increase.

Employee benefits are any form of indirect compensation paid to employees over and above regular salaries or wages. This can include health insurance plans, retirement benefits, child care assistance, and paid time off, for example.

Employee benefit plans come in many forms and are an essential part of the overall compensation package offered to employees—especially for small and medium-sized organizations that oftentimes can't afford to offer higher salaries.

This article will outline common examples of small business employee benefits that business owners should work into their employee benefits package to better attract and retain top talent .

Looking for a personalized benefit that your employees will love? Learn more about offering employee stipends with our free guide

Employee benefit examples

If it's your first time offering employee benefits, offering the perks your employees want is vital. While ping pong tables and bean bag chairs are fun, they may not be the kind of things your employees care about most.

According to our 2022 Employee Benefits Survey Report, the most popular employee benefits are:

  • Health insurance
  • Paid time off (PTO), which includes sick time and vacation days
  • Retirement plan benefits
  • Flexible work schedule
  • Dental coverage
  • Vision plans
  • Life insurance plans
  • Paid family leave
  • Mental health benefits
  • Professional development and education benefits
  • Disability coverage
  • Commuter benefits

Other popular company benefits you can offer your employees include pet insurance, tuition assistance, financial wellness benefits, education assistance, employee assistance programs, employee stock options, and daycare services.

Part two of our Benefits Survey Report found that the types of benefits your employees value vary by age, gender, and work location (such as remote work). It's important to keep these differences in mind as you develop your benefit plans so your company can maintain a competitive edge.

Example of employee benefits structures

Once you choose your employee benefit offerings, you're ready to decide how you want to structure them.

In general, employers have two different ways to structure, contribute, and offer benefits for employees :

Organizational-oriented benefits

Consumer-oriented benefits.

Depending on the type of benefits you're hoping to offer, you can offer all organizational-oriented benefits, all consumer-oriented, or a mix of both. Let's go over each in more detail.

Organizational-oriented benefits are the kind of benefits that are employer-owned and employer-selected. You offer your employees a specific or defined benefit of your choosing, and employees simply choose whether they want to opt in or out. Employees don't get any choice in the type of plan or benefit.

Examples of organizational-oriented benefits include:

  • A traditional group health plan
  • A retirement pension or retirement savings plan like a 401(k)
  • A formal wellness program

Consumer-oriented benefits are the kind of benefits that are employer-funded but employee-selected. Here, you'll offer employees a set dollar amount to spend on their own (also known as an employer contribution), allowing them to customize their benefits to what they want and need. This empowers employees to make their own medical care decisions that make sense for them and their families.

Common types of consumer-oriented benefits include:

  • A medical expense reimbursement plan (MERP), such as a health reimbursement arrangement (HRA)
  • A health savings accoun t (HSA)
  • A flexible spending account (FSA)
  • Employee stipends for fringe benefits like wellness expenses or education

Personalized consumer-oriented benefits

In recent years, personalized benefits have become increasingly popular options for offering employees a wide array of perks. Every worker is different and has unique wants and needs. Instead of offering traditional one-size-fits-all benefits, your employees are empowered to use their monthly allowances on the things that matter most to them. This makes them highly attractive benefits to both job applicants and current employees.

Personalized health benefits

While medical insurance is traditionally offered as an organizational-oriented benefit, more employers are putting healthcare decisions back into the hands of their employees by offering HRAs to cover their medical expenses.

Through an HRA, you can reimburse your employees for their individual health insurance premiums and more than 200 qualifying healthcare costs with pre-tax dollars. 

Three of the most popular types of HRAs are:

  • The qualified small employer HRA (QSEHRA)
  • The individual coverage HRA (ICHRA)
  • The group coverage HRA (GCHRA), also known as an integrated HRA

With an HRA, your employees can reduce the financial burden or costly medical bills and keep themselves and their families healthy and happy.

Employee stipends

If you want to create attractive benefits packages that appeal to highly skilled workers and retain current employees, you need to offer a wide range of benefit offerings. A comprehensive benefits package full of traditional perks and wellness benefits can be costly. Thankfully, there's an easier way to offer different kinds of common employee benefits.

With employee stipends, you can give your workers a monthly allowance to cover the costs of expenses such as remote work, gym memberships, tuition, and other perks. With PeopleKeep, you can create custom perks for any expense categories you'd like, such as health or wellness , or offer one allowance for all eligible expenses.

For example, let's say you decide to offer eligible employees a $400 monthly allowance for health, wellness, and lifestyle expenses. Your employees can decide how they want to split their allowance. They could decide to get reimbursed for personal gym memberships, therapy, a spa day, or any other expenses that you allow under your benefits plan that can improve their work-life balance or overall well-being.

This empowers your employees to use their monthly allowance on what matters most to them while you retain complete cost control.

While most reimbursements with a stipend will be considered taxable income, some fringe benefits, such as tuition reimbursement, and certain commuter benefits, like mileage reimbursement , are tax-free. You'll want to consult with a tax professional to determine your tax liability based on the benefits you choose to offer.

While organizational-oriented benefits are more traditional structures for benefits, many small employers are finding personalized, consumer-oriented benefits are of greater value to employees, are typically more flexible, and are also more affordable.

By building out your employee benefits package with the popular benefits listed in this article, you'll be well on your way to recruiting and retaining happy employees.

If you're ready to offer personalized mandatory and voluntary benefits to your staff, PeopleKeep can help. Our benefits administration software makes it easy to set up and manage HRAs and employee stipends in just minutes each month.

Schedule a call with a personalized benefits advisor today to see how personalized benefits can help you attract and retain top talent

This post was originally published on November 8, 2018. It was last updated on December 27, 2023.

Ready to enhance your employee benefits with PeopleKeep?

employee benefit plans for small business

Chase Charaba

Chase Charaba is the content marketing manager at PeopleKeep. He started with the company as a content marketing specialist in early 2022. Chase has written more than 350 blog posts for various companies and personal projects throughout his career. He’s worked for digital marketing agencies, in-house marketing teams, and as the editor for national award-winning high school and college newspapers. He’s also a YouTuber, landscape photographer, and small business owner.

How to Build a Great Employee Benefits Package

Table of contents.

employee benefit plans for small business

When employers talk about their “compensation packages,” they don’t mean just salary. In addition to employees’ pay, these packages typically include a number of other perks, like health insurance, retirement plans and paid time off (PTO). If you want to build a truly desirable benefits package to keep your employees happy and attract top talent, this guide is for you.

What is an employee benefits package?

An employee benefits package is a set of perks given to employees in addition to their salary or wages. Often called “nonwage benefits,” they encompass many tools employees can use to take care of themselves and their families, establish a healthy work-life balance, save money and more.

Some benefits are mandated by law in certain instances, such as health insurance, while others, such as PTO , are offered to attract top-level employees to work for a particular company.

Editor’s note: Looking to outsource your human resources department for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

A truly impactful employee benefits program goes well beyond medical coverage, said Alex Shubat, CEO and co-founder of work-life-balance platform Espresa.

“I believe that benefits are all about employee recruitment and retention, which comes from people feeling valued,” Shubat said. “They want to know that their employers care about their well-being and respect their time.” [See related article: Quitting Your Day Job? The Basics on Benefits Coverage for Entrepreneurs ]

Interested in outsourcing your benefits management? Learn more about how to choose a professional employer organization (PEO) partner and the difference between a PEO and an employer of record .

What to include in your employee benefits package

Here are some employee benefits that PEOs and insurance brokers can help you offer, as well as a few perks that many employers add as they expand their benefits packages.

  • Medical: Health benefits are among the leading reasons an employee chooses to work at a company. Offer plans or options that help employees and their families access the ongoing and preventive care they need to lead healthy lives.
  • Dental: Annual cleanings, cavity fillings and emergency dental work can be expensive. A good plan helps employees and their families access preventive and vital care at an affordable price.
  • Vision: Vision insurance helps people who wear glasses access discounted or free corrective eyewear. This can lift a significant financial burden off your employees’ shoulders.
  • Flexible spending accounts: This benefit helps employees save pretax dollars for medical expenses.
  • College (529) savings plans: Help your employees set aside funds for their children’s education with a 529 savings option.
  • Retirement savings plans, such as a 401(k) : Offer employees an easy way to save for retirement by automatically depositing money into a retirement account each pay period. Your company also may elect to match contributions up to a certain amount or after a certain number of years of service to the company.
  • Additional insurance (e.g., life and disability): Life and disability insurance can help your employees and their families during difficult times.
  • Time off for vacation, sick days and personal days: Offering ample time off for employees to take care of themselves and loved ones is an excellent way to demonstrate your commitment to their well-being and work-life balance.
  • A pretax commuter benefits program: This is especially helpful if your company is in a major city. For example, New York City requires all employers with 20 or more full-time, nonunion employees to offer this type of program. Even if you’re not required to offer it, employees will appreciate knowing you’re dedicated to making the daily grind a little easier.
  • Flexible and/or remote work options: Today, many businesses offer a work-from-home model at least part of the time, and some have fully remote positions. This option helps employees save on commuting costs and achieve a better work-life balance.
  • Stock options: Common in startups, stock options are equity compensation given to employees in exchange for their years of service or for getting in with a company on the ground level. This benefit allows employees to purchase stock at a preferred price for a predefined period if the company were to go public.

Of course, these are just the basics. To stand out and make your company more attractive to employees, you’ll need to go above and beyond, within your small business budget.

“All companies wish they could spend more on benefits, but it is a balancing act,” said Jeff Yaniga, former chief channel officer of Maestro Health. “It’s been hard for smaller employers to offer choice. Voluntary benefits continue to improve and evolve. Employers must budget benefits with the same rigor by which they budget payroll, innovation, and building great products and services.”

Benefits don’t have to eat up your whole budget, though. Small perks, like free food or discounted services, can go a long way in keeping employees happy.

“Something as simple as free drinks in the kitchen may only cost a few hundred dollars a year, but it’s amazing how much the ‘little things’ affect morale and performance,” Shubat said. For example, a soda machine or on-site dry cleaning “isn’t going to break the bank, and the value they generate in terms of retention is unbelievable,” he said.

Some wellness-related perks might include gym memberships or discounts, smoking cessation programs, subsidized health food markets and child care benefits. Other low-cost perks include employee-recognition programs (with small rewards or prizes); points-based programs that let employees earn discounts, cash and gift cards; and drawings or raffles.

Employee benefits packages can include a wide range of programs and perks, from large benefits, such as medical and dental insurance, to small perks, like free lunch. What you decide to offer depends on your company’s budget and overall goals.

Why offering competitive benefits is good for employers

You know that attractive benefits packages help employees, but you should also understand the advantages for employers. Here are a few reasons you should offer a competitive benefits package:

  • It attracts top talent. The best employees in your field know that they are in demand, and they have choices for where to work. An appealing employee benefits package can help attract and retain these employees.
  • It keeps employees healthy. Without health insurance, the flexibility to work from home or ample time off, employees may experience burnout. That hurts your bottom line in the long run, as employees are less productive when they’re overworked than when they are well rested.
  • It’s good for public relations. More customers want to conduct business with companies that have strong values, including good treatment of employees.

Tips for creating an employee benefits package

Our sources offered the following advice for building an employee benefits package that works for your company.

Offer choices.

Employees may seek different offerings in their benefits packages. For example, younger employees may want help saving money to buy a house, while older workers may be more focused on saving money for their retirement. Allowing employees to personalize their package to meet their own goals is a big part of increasing satisfaction with your benefits plan.

High-deductible health plans can be supplemented with voluntary benefits, such as low-cost loans, Yaniga said. “Empowering employers with the best benefits options will put them on a path toward higher retention rates , greater employee engagement and a more thriving workplace,” he said.

Other popular voluntary benefits include wellness plans, telemedicine, pet insurance and financial advisory tools.

Use technology to your advantage.

Finding an intuitive online portal that’s easy for your employees to access and navigate is important to help them understand what they can do with their benefits package. If it’s easy to enroll and make changes down the line, employees will feel in control of their benefits.

“Most traditional benefits, like medical and retirement plans, can be viewed and managed through online portals,” Shubat said. “The next wave is making all benefits and services available through digital platforms. Most companies don’t have those tools in place right now, but it’s becoming more and more common every day.”

Technology can help employers, too. By using the analytics provided by these tools, you can gain a better understanding of your employees’ needs and what’s working.

Ask employees what they want.

Yaniga emphasized the importance of knowing your employees and finding out what benefits they really want.

“The more we understand about the benefit priorities of our employees, the more we can meet them at their priorities,” Yaniga said. “Best-in-class companies build a great culture by applying all they know about their employees’ priorities to their benefit structures.”

Benefits should be flexible, easy to access and desirable for your employees.

Best HR software for employee benefits

If you’re looking for HR software that can help you devise and manage a great employee benefits package, consider these platforms:

  • Rippling: Rippling is well-rounded HR software that offers all of the most important features we looked for. It also includes highly effective onboarding tools, so you’ll be able to get new hires acquainted with their benefits package quickly and easily. Check out our Rippling review to learn more.
  • Paycor: Paycor is especially useful for analyzing your data, which can help you choose employee benefits that your team actually wants.
  • Gusto: Gusto is a leading name in HR, and for good reason. We especially like its tools for managing payroll and ensuring your team is compensated accurately and on time. This can also play into how you structure your employee benefits plan. To learn more about this platform, check out our Gusto review .

These are just a few great options. See our picks for the best HR software to learn more about our favorite solutions.

Build the benefits package your employees want

While a good wage or salary is important for any employee who’s considering whether to accept a job or stay with a company, the strength of the employer’s benefits package can often play a large role in their decision as well. By bundling the retirement, healthcare, time-off and other benefits your employees really want, you can help improve employee retention and enhance your recruitment efforts. Follow the advice above to start building a benefits plan that truly makes a difference for your employees and your business.

Nicole Fallon-Peek and Tejas Vemparala contributed to this article. Source interviews were conducted for a previous version of this article.

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Human Resources | How To

Setting Up an Employee Benefits Program in 5 Steps

Published January 24, 2023

Published Jan 24, 2023

Charlette Beasley

REVIEWED BY: Charlette Beasley

Jennifer Soper

WRITTEN BY: Jennifer Soper

  • 1 Step 1. Set Up a Budget
  • 2 Step 2. Decide Which Benefits to Include
  • 3 Step 3. Consider External Resources
  • 4 Step 4. Finalize Your Benefits Program
  • 5 Step 5. Roll Out the Plan
  • 8 Bottom Line

A robust and dynamic employee benefits program can help you attract and retain top talent within your industry. To set up a strong program you need to establish your budget, identify the benefits you want to include, and consider how you want the benefits managed (i.e., through a professional employer organization) before finalizing and rolling out the plan. You do not have to spend a fortune to create an enticing employee benefits package—you only need to make thoughtful, strategic decisions.

For most small businesses, trying to piece together the confusing selection of benefits programs into one package can be daunting. Rippling brings all benefits—health insurance, 401(k), commuter, and more—into one system and automates the busy work, like enrolling new hires, updating deductions, and administering COBRA.

Visit Rippling

Step 1. Set Up a Budget

Now that you have decided to build an employee benefits program, you need to create a budget. Regardless of the types of benefits you provide, you’ll need to determine how much your small business can contribute toward a comprehensive employee benefits package. The least expensive are one-time items such as a company T-shirt or a lunch-and-learn series. The most expensive (and frequently most valuable to employees) are health-related benefits, like medical insurance, and long-term savings plans, like a 401(k).

Essentially, this is a needs assessment—based on what the company can afford and the standard benefit offerings from employers. Many benefits are available as pretax options, lowering an employee’s overall taxable income. You can download our employee benefits program budget template and customize it to meet your benefits needs.

FILE TO DOWNLOAD OR INTEGRATE

Employee Benefits Program Budget Template

Employee benefits program budget template.

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Cost analysis per benefit (employer vs employee).

It’s important to do a cost analysis per benefit when determining your budget. Recently released data from the Bureau of Labor Statistics shows the various amounts that employers pay for different kinds of employee benefits. The percentage that employers spend is around 38% of each employee’s total compensation. For example, for an employee making $35 per hour, the average employer pays an additional $13 per hour in employee benefits.

Employee Benefit Costs by Type

Step 2. decide which benefits to include in your program.

At this stage in planning, small businesses should decide which benefits to include in their employee benefits package. There are many different benefits employers can offer to their employees. Below is a list of popular options:

  • Medical/Dental/Vision – Many employers contribute to the medical portion of this program (for instance, 50/50) while keeping dental and vision employee-paid only. Keeping the program affordable will likely increase employee participation.
  • Paid Time Off (vacation days, sick days, and holidays) – Having a robust PTO policy creates a good work/life balance. Employees need time to disconnect from work and focus on their personal life. A progressive PTO package can produce a better-quality work environment and increase production.
  • Retirement Savings Options, e.g., 401(k) or 403(b) – More and more individuals are looking for ways to save money for the future. 401(k) plans are a good option as the employee can save a certain amount per year. Many companies also have 401(k) matching, meaning the company will match employee contributions up to a certain percentage (usually a 5% cap).
  • Flexible or Health Savings Accounts (FSAs or HSAs) – FSA and HSA accounts help employees with out-of-pocket medical expenses. The employee contributes a certain amount per year, and typically the company will also contribute.
  • Life Insurance/Disability Insurance – This is a good option for employees to help with expenses (medical, funeral, etc.). It can be company-sponsored and/or employee-contributed.
  • Additional Work/Life Balance Perks – Options can include flexible work schedules, remote work, professional development, employee clubs/activities/gifts, food/beverage, etc.

Consider Unique Employee Benefits

Although not all businesses offer the benefits noted below, there is competition among companies to be creative, dynamic, and flexible with employee benefits packages. Not all companies want “dog-friendly” workplaces or can offer free lunches every day, but there are creative ideas your employees will love that may fit with your benefits philosophy.

Some less common benefits (or perks) that you may want to consider are:

  • Free snacks or beverages in the workplace
  • Free gym memberships or on-site gym
  • Student loan or tuition assistance
  • Company-wide retreats
  • Free or low-cost daycare services
  • Company-paid stipend to use for vacation
  • Paid maternity and paternity leave
  • Remote work options
  • Unlimited PTO
  • Team bonding events
  • Pet-friendly workplaces

REMINDER : Certain benefits may be required by law and include:

  • Social Security
  • Unemployment insurance
  • Workers’ compensation
  • Short-term disability insurance (required in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico)
  • Leaves of absence (paid FMLA required in California, Colorado, Connecticut, Delaware, Massachusetts, Maryland, New Jersey, New York, Oregon, Rhode Island, Washington, and Washington D.C.)
  • Disability leave

Analyze Total Compensation

When deciding what benefits you want to offer, it is important to consider how they fit with your employees’ total compensation. Total compensation includes all forms of pay and monetized benefits, including those mentioned above as well as the examples listed below:

  • Commissions
  • Profit-sharing distributions
  • Tuition assistance
  • Child care assistance
  • Public transit credits or reimbursements (commuter benefits)
  • IT reimbursements (home Wi-Fi, cellphone, personal computer, etc.)
  • Gym or club memberships
  • Employee assistance programs (EAP)

Step 3. Consider External Resources

Creating a comprehensive employee benefits package can be stressful. To help alleviate some of the headaches and make sure HR laws are followed, consider using an external resource for your benefits program.

Professional employer organizations (PEOs) manage all aspects of HR administration and provide access to group benefit rates small businesses wouldn’t otherwise qualify for. To find out which PEO would be suitable for your company, take our PEO quiz below.

Which PEO Provider Is Best for You?

Answer a few questions about your business, and we'll give you a personalized product match.

Which statement describes you best?

Question 1 of 4

1 minute approx

Do you have workers in small remote towns?

Question 2 of 4

How many employees do you have?

Question 3 of 4

What are you trying to accomplish by using a PEO? (choose the highest priority)

Question 4 of 4

Step 4. Finalize Your Benefits Program

Now that you have created your budget and identified which benefits to include in your package, it is time to finalize your plan before rolling it out to employees. You will need to talk with healthcare providers to determine the best plan for your company. Be advised, however, that benefits plans can be complex, and there are many different options to consider.

Table showing sample benefits plans.

Sample benefits plans with cost analysis.

Once you decide which plan you will offer to your employees, you will need to gather the paperwork required by the provider, sign them, and determine the start date of your plan. This step should be followed for each type of benefit you provide to your employees.

This can be a very time-consuming process. We recommend that you use an all-inclusive company, like Rippling , for your benefits. It will contact providers for you and compare plan benefits and associated costs.

Step 5. Roll Out the Plan to Employees

Once your program is established, paperwork has been signed, and you are ready to incorporate your benefits package into the employee experience, communicating what has been developed, as well as how and why, is essential.

Our tips for implementing an effective communication campaign for your employee benefits program will help you cover the most important aspects of your employees’ experience as they absorb this news.

Chart showing summary of benefits.

Sample summary of benefits and coverage information to provide for each type of benefit.

Follow these steps to deliver critical information to your employees:

  • Notify your employees. Hold a group discussion meeting to deliver the details of the benefits program to your employees and answer any questions. Be enthusiastic about your program, and your employees will be as well.
  • Provide details of the plan. You should provide your employees with physical or digital copies of each benefit available, including the cost to the employee and the amount the company will contribute.
  • Double-check for understanding. Once the news has been shared, ensure an adequate follow-up to see if everyone understands their benefits, coverages, how dependents may be covered, etc.
  • Utilize a portal or online resource. Once you have shared the news and launched your benefits program, publish it. Make sure that employees have a place to return to get additional questions answered and independently learn more about what and how their benefits can enhance their quality of life.
  • Update your company’s Career Page. Potential employees are becoming savvier as they research companies online. As job candidates and casual job seekers check out your Careers Page , you will want to ensure that your top benefits are listed and easy to understand.
  • Mention benefits in your job advertisements. Although job advertisements are primarily about the job you want to fill, always include a brief yet informative blurb about your benefits. It is what attracts job seekers.

Tips to Follow When Developing Your Employee Benefits Program

When developing your employee benefits package, it is essential to consider how employees (and job candidates) look at benefits. Equally important is how other employers see benefits. Take a look at our breakdown below:

(Source: Justworks.com )

There can be a divide between what employees and employers think about benefits—as you can see from the table above. As you work to narrow this gap in your workplace, keep these three guiding principles in mind:

  • Start slow; there is no going back. Once you offer new benefits, taking them away (due to expense or other factors) is not an enjoyable endeavor. Employees do not like having access to a benefit one minute and then losing it, regardless of the reason, the next.
  • Assess the actual cost of each benefit. Many employers will cling to an idea for a new benefit and expose employees to it without first knowing the true costs of the benefit. That is, how much will this benefit cost the company if all eligible employees sign up? Will there be administrative upkeep for the benefit?
  • Don’t just look at what others are doing. Although this is a wise action to take, do not let this be your only vetting method. Ensure that your benefits are supported by your team so they serve your employees’ unique needs and desires in the best way possible.

Research Data on Your Employee Demographics

There are countless ways to determine how and what employee benefits you want to offer to your team members. Although we help you look at this topic from a few different angles, the most straightforward numbers to view are the ones that point to the most popular benefits for employees.

  • Employee Benefits by Gender
  • Generational Employee Groups

There are endless comparisons of what benefits men and women prefer. A Gallup survey reported some differences, with women placing more value on work-life balance and better well-being over other benefits. Alternatively, men found increased income preferable.

The greatest factor candidates look for when considering a job is whether the organization is diverse and inclusive. In addition, there was a survey issued by the International Foundation of Employee Benefit Plans that lists non-binary/transgender-inclusive benefits:

  • 90% request mental health benefits
  • 86% request gender reassignment or affirmation surgery benefits
  • 14% request cosmetic surgery benefits

Across the generations of working groups there are plenty of commonalities in the most desired benefits, such as health and wellness, PTO or vacation time, and paid holidays—all employees generally want those benefits. However, beyond those, some generations value certain benefits over others. For instance, work-life balance is one of the more valued benefits for millennials, while financial wellness ranks highly for Gen Z.

Survey Employees for Benefits Ideas

Surveying your employees is the quickest way to clearly understand what they are excited about in terms of employee benefits and their total compensation. Surveys can be shared in several ways, but their true attraction is the fact that employers receive valuable feedback from employees about what they want to see more of, and employees can share their honest thoughts, feelings, and ideas anonymously.

The two most common ways of surveying employees we found to be effective are:

  • Hosting employee surveys in-house, often led by HR.
  • Utilizing a third-party surveyor such as SurveyMonkey  to execute the survey for your organization. You can customize your survey questions and then launch them online for employees to participate anonymously.

Employee Benefits Frequently Asked Questions (FAQs)

Why are employee benefits important for the employer.

Employers who invest in their employees’ well-being have happier, more productive workers. Adequate health coverage, retirement plans, and vacation time can help create a better work-life balance for employees, leading to improved mental health and overall job satisfaction. This could result in better morale amongst team members, which helps maintain a positive working environment for everyone involved.

Additionally, offering competitive benefits packages is important for employers because it helps keep staff engaged with their work and encourages them to stay longer with the company instead of looking elsewhere for better opportunities.

Can I deduct employee benefits on my business tax return?

The simple answer is yes. Employee benefit deductions are subtracted before tax withholdings and are calculated on the employee’s paycheck (reducing the company’s payroll tax liability).

If your business has employees and you pay health insurance premiums for them, these amounts are deducted on the applicable tax form and line for employee benefit program expenses. For example, if your business is a sole proprietorship, you deduct premiums paid to provide health coverage to employees on Schedule C.

Bottom Line

There are a number of ways to approach putting together and then maintaining an employee benefits package that current employees will love and job candidates will be attracted to. Many companies have solid, creative, and engaging employee benefits packages, and they all look a little different.

Your organization’s goal should be to create your own sustainable version of an inclusive and dynamic employee benefits program that speaks to your employee base while maintaining your company’s budget.

About the Author

Jennifer Soper

Find Jennifer On LinkedIn

Jennifer Soper

Jennifer Soper has 25+ years of writing and content design experience, working with small businesses and Fortune 100 companies. For over a decade, Jennifer worked as an HR generalist, providing expertise in accounting, payroll, and HR by implementing payroll and benefits best practices and creating onboarding and employee-relations documentation.

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Table of Contents

Best overall: Blue Cross Blue Shield

Best for low-cost plan options: kaiser permanente, best for transparency: unitedhealthcare, best for customer service: humana, best for health expense funds: aetna (cvs health).

As a small-business owner, the decision to offer health insurance to your employees is a personal one. If you have fewer than 50 employees, you are not required by law to offer a group health insurance plan. But you may still want to consider it as a tool to hire and retain workers and to claim tax benefits for your business.

Choosing the right group health insurance plan for your employees depends on your budget and also factors like the number of employees you have, how old they are and where they live. You can purchase insurance through the federal government’s Small Business Health Options marketplace, directly from an insurance provider or using an insurance broker.

» MORE: How much does small business health insurance cost?

Here are our picks for the top small-business group health insurance providers to consider.

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Largest provider network in the country.

Limited plan details available online; must talk to a sales representative.

Why we like it: Blue Cross Blue Shield is an association of 35 locally operated insurance companies throughout the country. Together, the association provides access to 93% of doctors and 96% of hospitals nationwide. This means finding in-network doctors should not be a problem for your employees anywhere in the country.

Blue Cross Blue Shield provides a variety of plan options for your employees, including preferred provider organizations, health maintenance organizations and high-deductible health plans, as well as group dental and vision plans. The company ranks well in J.D. Power’s 2021 Commercial Member Health Plan Study, which measures member satisfaction. Blue Cross Blue Shield wins the top spot in eight U.S. regions.

For 2019, the average rating for Blue Cross Blue Shield plans on the National Committee for Quality Assurance website was 3.5 on a scale of 1 to 5. The NCQA rates plans on factors such as clinical quality and member satisfaction.

Low-cost HMO plans.

Small-business plan comparisons available online.

Available only in California, Colorado, Georgia, Hawaii, Maryland, Oregon, Virginia, Washington and Washington, D.C.

Why we like it: Kaiser Permanente is only available in a handful of states but it is well-rated in those regions, according to the J.D. Power study. Its average rating on the NCQA website is also high, at 4.3. Kaiser is best known for its HMO plans, which it offers at a low cost because patients are generally required to see providers within a small network. As a small-business owner, you can easily view the details of all of Kaiser's group offerings, including pricing information, on its website.

Comparison tool for small-business plans available online.

Available in all 50 states.

Does not rank in J.D. Power’s Commercial Member Health Plan Study of top insurers.

Why we like it: UnitedHealthcare is the largest insurance company in the country by market share; it works with more than 1.3 million physicians and care professionals, and 6,500 hospitals. Its small-business plan comparison tool makes it stand out from the competition. You can enter some basic information about your business and compare plan costs and features easily on UnitedHealthcare’s website. On average, the company’s NCQA rating is 3.4.

Plan details available online.

Smaller provider network than other insurers.

Why we like it: Humana is ranked well for customer service according to the J.D. Power study. The company’s customer service was also rated the best in the health insurance category of Newsweek’s annual Best Customer Service report two years in a row, for 2019 and 2020. On average, its plans had an NCQA rating of 3.4. Humana offers five types of plans geared toward small businesses and lists the features of each on its website.

Large network of providers.

Limited plan details available online.

Why we like it: Aetna has a comprehensive set of health expense funds that you can offer employees for pre-tax savings, such as health savings accounts and flexible savings accounts, as well as health and retirement reimbursement arrangements. (Note: Aetna’s HSA option is paired only with its high-deductible health plans.) Aetna ranks high on J.D. Power’s Commercial Member Health Plan Study and has an average NCQA rating of 3.3.

On a similar note...

Small Business Employee Benefits: How to Stay Competitive

Small Business Employee Benefits: How to Stay Competitive

TriNet Team

In the fiercely competitive modern job market, offering employee benefits is more of a necessity for small businesses than a strategic advantage. Employee benefits play a crucial role in attracting and retaining top talent.

Small businesses are finding ways to provide health insurance as well as dental and vision coverage and other fringe benefits. It’s become increasingly common to offer options like:

  • 401(k) plans
  • Paid family leave
  • Flexible or remote working options
  • Fitness or healthy lifestyle incentives
  • Childcare benefits
  • Student loan repayment aid

Small business employee benefits have become more accessible, in part because of the development of HR outsourcing . In this article, we’ll look at:

  • Mandatory employee benefits

Dental and vision insurance

Retirement plans, disability and life insurance.

  • Work-life balance benefits

Tuition reimbursement

  • Strategic approaches to offering benefits

employee benefit plans for small business

Top tips for employee retention

Employee Retention Strategies: An HR Checklist gives you the strategies and structure you need. 

Types of Employee Benefits Small Businesses Can Offer

Small business owners can consider a long list of options when it comes to employee benefits. While companies can pick and choose what benefits they’d like to offer, some may be mandatory . These can include:

  • Medical insurance, for companies with 50 or more full-time equivalent employees, to avoid potential Affordable Care Act penalties.
  • Unemployment insurance, which supports employees who lose their jobs through no fault of their own
  • Workers’ compensation, which helps employees unable to work due to a workplace injury or illness
  • State disability insurance, which supports an employee who cannot work due to disability

Many small businesses elect to go beyond these requirements and offer benefits that cater to a wider range of needs. Here's a look at some of those benefits:

Medical insurance

Medical insurance is the foundation of any comprehensive benefits package. It provides employees with some protection against high medical expenses and helps them access quality healthcare. Small businesses may offer group health insurance plans. These generally are affordable health insurance plans that safeguard employee well-being and strengthen their financial security.

Dental and vision insurance have become essential components of employee benefits packages. They help cover routine check-ups and procedures as well as serious problems, promoting overall health and wellness . Including dental insurance and vision insurance in a benefits package demonstrates a commitment to employee well-being.

Offering retirement benefits , such as a 401(k) plan , is a powerful tool for attracting and retaining employees. It allows workers to save for their retirement years and secure their futures. Small business owners can choose to match employee contributions. Not only does this support employees' financial security, but it also aids in long-term workforce retention.

Disability insurance ensures that employees are financially supported in case of unexpected problems that hinder their ability to work. Life insurance, on the other hand, provides financial security to the beneficiaries of an employee in the event of their passing. Both offer peace of mind to employees, helping them secure their loved ones' futures.

Work-life balance

In today's hybrid working world, work-life balance is a crucial consideration for all employees. Small businesses can offer flexible work schedules to help employees manage their professional and personal lives effectively. This flexibility helps reduce stress and promote overall well-being.

Including benefits like paid time off (PTO) , sick days, and vacation days is routine. It’s important to consider your industry and your employee’s workload when determining the appropriate amount of time for PTO.

Additionally, employee assistance programs can be offered to address mental health concerns, offering counseling services and support when needed.

Tuition reimbursement programs are an investment in employee development . Small businesses empower their employees to improve their skills and knowledge by offering to cover a portion of their educational expenses. This benefits the individual while building the company's skill set and competitiveness. It also instills a sense of loyalty among employees who appreciate the support in advancing their education and careers.

A strategic approach to small business employee benefits

To create a comprehensive benefits package that aligns with the changing trends in the industry, small business owners should follow a strategic approach.

First, consider surveying employees on their needs and wants as you develop a small business benefits package. Then see if you can go a bit beyond that. The more well-rounded the benefits package you create, the better you’ll be able to attract and retain satisfied employees.

It’s also possible to limit costs when assembling and administering an employee benefits program. Here are four things to look into:

  • High deductible health insurance coverage, where employees have more responsibility for medical expenses, can help balance affordability with quality coverage.
  • Health savings accounts give employees a way to save money tax-free for medical expenses. They also require enrollment in a high deductible health plan.
  • Telehealth options give employees a more convenient, less-expensive way to obtain care.
  • Business owners can factor in the payroll tax implications of health coverage as they try to optimize the overall cost structure.

Benefits and the bottom line

In today's competitive job market, employees actively seek out employers who offer comprehensive benefits packages. An investment in employee benefits can translate into a healthier bottom line for small businesses.

As you consider offering employee benefits, check out the exceptional health and retirement coverage options a small business can offer through TriNet. As a professional employer organization ( PEO ), TriNet's scale means your size no longer limits your benefits. Access top insurance carriers with great options for employees, their spouses and even their pets, plus perks.

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Employee benefit plans for small businesses

PrestigePEO HR Consulting

Since SMBs have fewer employees, they tend to have less purchasing power than large enterprises, which leads to higher health insurance rates per employee. A PEO company combines the purchasing power of all its clients to offer the best possible rates on top-tier plans, enabling SMBs to provide employee benefit plans for small businesses while reducing overall costs.

Top-Tier PEO Health Insurance Options for Your Employees

Employee benefits play an integral role in employee satisfaction and retention. A Hierl Insurance study from 2018 indicated that health insurance is “very or extremely important” for over 80% of employees when changing jobs. Amid current public health concerns, benefits like medical, life, disability, and supplemental insurance are even more crucial in employment decisions.

By partnering with a PEO, SMBs can give their employees access to a wide range of medical, dental, vision, life, disability, and supplemental insurance plans from leading insurance providers. A PEO also enables SMBs to offer additional employee benefits like commuter benefits, travel discounts, and exclusive access to local entertainment.

Nationwide medical coverage through Oxford, UnitedHealthcare, and Aetna

  • Numerous health plan options: HMO, EPO, PPO, POS, and HDHP’s
  • MetLife and Sun Life dental plans with multiple options
  • MetLife and UnitedHealthcare in and out-of-network vision plans
  • Extensive networks of participating physicians, specialists, and hospitals
  • Global travel plans
  • Transparent cost comparisons for competing plans

PEO Employee Benefits For Business

Health insurance is “very or extremely important” for 83% of employees when deciding to stay in or change jobs*.

* Hierl Insurance study 2018

Disability, Life, and Supplemental Insurance Plans

Help your employees plan ahead for life’s unexpected turns. Life insurance, disability insurance, and supplemental insurance options provide your employees and their beneficiaries with the protection they need in the event of a highly impactful or tragic life event.

Available plans cover just about any situation, offering you and your employees greater peace of mind.

  • MetLife basic term life/AD&D and supplemental term life
  • MassMutual whole life insurance
  • MetLife short-term and long-term disability insurance
  • UnitedHealthcare accident, critical illness, hospital insurance
  • Aflac group accident, critical illness, hospital and short-term disability insurance
  • Employee Assistance Program

PEO Life Insurance Provided For Businesses

Optional Employee Perks & Discounts

A PEO enables SMBs to offer additional employee benefits like commuter benefits, travel discounts, and exclusive access to local entertainment. Your employees also get access to exclusive programs to enrich their financial wellness, boost their physical health, and protect their devices from cybersecurity threats.

  • Flexible Spending Accounts (FSA)
  • MetLife legal plans
  • Farmers Home & Auto program
  • FinFit financial wellness program
  • LifeLock with Norton identity theft protection
  • MetLife Aura identity & fraud protection
  • MetLife pet wellness insurance
  • HealthEquity commuter benefits
  • Entertainment benefits

Group Discussing PEO Employee Benefit Plans

Employee Benefits Administration and Support

Beyond simply reducing the costs for various employee benefits , a PEO also helps SMBs manage the administrative processes associated with them.

From online enrollment to ensuring proper compliance and educating employees on their PEO health insurance , PrestigePEO provides valuable support in making sure your employees are covered and aware of all the great perks available to them.

As technology becomes more deeply integrated into your employees’ daily routines, they’ll also expect innovative ways to digitally connect and manage their benefits. A PEO equips SMBs with all the technology platforms their employees need for digital self-service, making it easy for them to view their benefits and instantly connect with their providers. We also keep track of hire dates, enrollment dates, renewal periods, claims management, and ACA compliance.

  • Onsite benefits review and open enrollment
  • 24/7 employee benefits hotline
  • Expert claims assistance and employee advocacy
  • COBRA, HIPAA, and ACA administration and compliance
  • New hire benefits review and enrollment support
  • PrestigePRO online platform and PrestigeGO mobile app

PEO Insurance Provided For Groups

Strengthening Your Workforce

Your employees are your top asset, especially in such uncertain times. Now more than ever, you need top talent to successfully steer your business to the next decade and beyond.

According to SHRM, over 60% of employees consider medical, dental, and other benefits to be important factors contributing to their overall job satisfaction. Further research indicates strong positive correlations between employee satisfaction and overall business growth, as long-term employee retention rates are associated with greater profits over time.

If you’re ready to get help contact a member of our team to tailor employee benefit plans for small business that fits your needs and attract the kind of workforce you need to successfully steer your business through the next decade.

PEO Employee Benefits Plans Available

Morey Creative, Syosset, NY

employee benefit plans for small business

We saw a 30% decrease in health insurance rates as the buying power of a PEO is so much stronger than what you can get on the open market as a small business.

Contact PrestigePEO to Learn More about Employee Benefit Plans For Small Business

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We take the employee benefits administrative paperwork off your desk and put it in the hands of our specialists of peo medical plans who are licensed peo health insurance agents and ACA certified. They have the knowledge and experience to handle your peo health insurance claims efficiently.

You know that offering coverage above and beyond a solid peo medical plan is what will set you apart from your competitors, but access to additional employee benefits may seem just out of reach.

Our flexible plans help small business owners provide full-time employee benefits , and even part-time employee benefits , that tell your team you’re on their side. No one wants to believe the worst will happen, but everyone wants to be prepared in case it does. We have peo group health insurance that covers just about every situation, giving you and your employees peace of mind.

Peo insurance plans for employers are designed to provide a benefits package that enables you to attract and retain high-performing employees. A company that invests in its employee’s benefit plans is seen as a credible, long-term partner with its employees and external parties. Better care of employees with peo insurance plans increases productivity and pride in the company.

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Health insurance for businesses, group health insurance coverage.

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  • How the Affordable Care Act (ACA) affects small businesses

Health reimbursement arrangements

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  • Individual coverage, such as Marketplace plans
  • Additional health benefits (when offered with a traditional group plan)

Health Savings Accounts and other tax-favored health plans

A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.

Refer to glossary for more details.

Health Reimbursement Arrangements (HRAs) are employer-funded group health plans from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts may be rolled over to be used in subsequent years. The employer funds and owns the arrangement. Health Reimbursement Arrangements are sometimes called Health Reimbursement Accounts.

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401(k) Plans For Small Businesses

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Why 401(k) Plans?

401(k) plans can be a powerful tool to promote financial security in retirement. They are a valuable option for businesses considering a retirement plan, as they provide benefits to both employees and their employers.

A 401(k) plan:

  • Helps attract and keep talented employees.
  • Allows participants to decide how much to contribute to their accounts.
  • Benefits a mix of rank-and-file employees and owners/managers.
  • Helps money grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • Offers significant tax advantages (including deduction of employer contributions and deferred taxation on contributions and earnings until distribution).
  • Allows participants to take their benefits with them when they leave the company, easing administrative responsibilities.

This publication provides an overview of 401(k) plans. For more information, resources for both you and your employees are listed at the end of this booklet.

Establishing a 401(k) Plan

When you establish a 401(k) plan, you must take certain basic actions. One of your first decisions will be whether to set up the plan yourself or to consult a professional or financial institution – such as a bank, mutual fund provider, or insurance company – to help you establish and maintain the plan. In addition, there are four initial steps for setting up a 401(k) plan:

  • Adopt a written plan document,
  • Arrange a trust for the plan's assets,
  • Develop a recordkeeping system, and
  • Provide plan information to eligible employees.

Adopt a written plan document – Plans begin with a written document that serves as the foundation for day-to-day plan operations. If you hired someone to help with your plan, they will likely provide the document. If not, consider getting assistance from a financial institution or retirement plan professional. In either case, you will be bound by the terms of the plan document.

Once you have decided on a 401(k) plan, you will need to choose the type of plan best for you – a traditional 401(k) plan, a safe harbor 401(k) plan, or an automatic enrollment 401(k) plan. In all the plans, participants can contribute through salary deductions.

A traditional 401(k) plan offers the most flexibility. Employers can decide whether to contribute for all participants, to match employees' deferrals, to do both, or to do neither. These contributions can be subject to a vesting schedule, which means an employee only has a right to employer contributions after a certain amount of time. Annual testing ensures that benefits for rank-and-file employees are proportional to benefits for owners/managers.

Safe harbor 401(k) plans are not subject to the annual contributions testing that traditional 401(k) plans require. In exchange for avoiding annual testing, employees in these plans must receive a certain level of employer contributions. Under the most popular safe harbor 401(k) plan, employees are immediately vested in employer contributions.

An automatic enrollment 401(k) plan allows you to automatically enroll employees and place their salary deductions in certain default investments unless the employee elects otherwise. This is an effective way for employers to increase participation in their 401(k) plans.

The traditional, safe harbor, and automatic enrollment plans are for employers of any size.

This booklet addresses traditional and safe harbor 401(k) plans. For more information on automatic enrollment 401(k) plans, see Automatic Enrollment 401(k) Plans for Small Businesses (Publication 4674).

Once you have decided on the type of plan for your company, you have flexibility in choosing some of the plan's features, such as which employees can contribute to the plan and how much. Other features are required by law. For instance, the plan document must describe certain key processes, such as how contributions are deposited in the plan.

Arrange a trust for the plan's assets – A plan's assets must be held in trust to assure that the assets are used solely to benefit the participants and their beneficiaries. The trust must have at least one trustee to handle contributions, plan investments, and distributions. Because the financial integrity of the plan depends on the trustee, selecting a trustee is one of the most important decisions you will make in establishing a 401(k) plan. If you set up your plan through insurance contracts, the contracts do not need to be held in trust.

Develop a recordkeeping system – An accurate recordkeeping system will track and properly attribute contributions, earnings, losses, plan investments, expenses, and benefit distributions. If a contract administrator or financial institution assists in managing the plan, that entity typically will help keep the required records. In addition, a recordkeeping system will help you, your plan administrator, or your financial provider prepare the plan's annual return/report that must be filed with the Federal Government.

Provide plan information to employees eligible to participate – You must notify employees who are eligible to participate in the plan about certain benefits, rights, and features.

In addition, a summary plan description (SPD) must be provided to all participants. The SPD is the primary way to inform participants and beneficiaries about the plan and how it operates. It typically is created with the plan document. (For more information on the required contents of the SPD, see Disclosing Plan Information to Participants .)

You also may want to provide your employees with information that discusses the advantages of your 401(k) plan. The benefits to employees – such as pretax contributions to a 401(k) plan (or tax-free distributions in the case of Roth contributions), employer contributions (if you choose to make them), and compounded tax-deferred earnings – help highlight the advantages of participating in the plan.

A 401(k) plan may be established as late as the due date (including extensions) of the company's income tax return for the year you want to establish the plan.

For example, if your business's fiscal year ends on December 31, 2022, and you filed for the automatic 6-month extension, the company's tax return would be due on October 15, 2023. You could adopt a plan in 2023 as late as October 15 and make it effective on December 31, 2022. You're not allowed to have 401(k) salary deferrals prior to the date you adopt a 401(k) plan. However, you could make an initial profit sharing contribution to the 401(k) plan for 2022, no later than October 15, 2023.

Operating a 401(k) Plan

Once you establish a 401(k) plan, you assume certain responsibilities in operating it. If you hired someone to help set up your plan, that arrangement also may include help in operating the plan. If not, you'll need to decide whether to manage the plan yourself or to hire a professional or financial institution to take care of some or most aspects of operating the plan.

Elements of operating 401(k) plans include:

Participation

Contributions, nondiscrimination.

  • Investing the contributions
  • Fiduciary responsibilities
  • Disclosing plan information to participants
  • Reporting to government agencies
  • Distributing plan benefits

Typically, a plan includes a mix of rank-and-file employees and owners/managers. However, a 401(k) plan may exclude some employees if they:

  • Are younger than 21,
  • Have completed less than 1 year of service,
  • Are covered by a collective bargaining agreement, if retirement benefits were the subject of good faith bargaining, or
  • Are certain nonresident aliens.

In all 401(k) plans, participants can contribute through salary deductions. You can decide how much your business contributes to participants' accounts in the plan.

Traditional 401(k) Plan

If you decide to contribute to your 401(k) plan, you have options. You can contribute a percentage of each employee's compensation (a nonelective contribution), you can match the amount your employees contribute (a matching contribution), or you can do both.

For example, you may decide to add a matching contribution – say, 50 percent – to an employee's contribution, which results in a 50-cent increase for every dollar the employee sets aside.

Using a matching contribution formula will provide employer contributions only to employees who contribute to the 401(k) plan. If you choose to make nonelective contributions, the employer contribution goes to each eligible participant, whether or not the participant decides to contribute to their 401(k) plan account.

Under a traditional 401(k) plan, you have the flexibility of changing the amount of employer contributions each year, according to business conditions.

Safe Harbor 401(k) Plan

Under a safe harbor plan, you can match each eligible employee's contribution, dollar for dollar, up to 3 percent of the employee's compensation, and 50 cents on the dollar for the employee's contribution that exceeds 3 percent, but not 5 percent, of the employee's compensation.

Alternatively, you can make a nonelective contribution equal to 3 percent of compensation to each eligible employee's account.

Each year you must make either the matching contributions or the nonelective contributions. The plan document will specify which contributions will be made, and this information must be provided to employees before the beginning of each year.

Roth Contributions

401(k) plans may permit employees to make after-tax contributions through salary deduction. These designated Roth contributions, as well as gains and losses, are accounted for separately from pretax contributions. However, designated Roth contributions are treated the same as pretax contributions for most aspects of plan operations, such as contribution limits.

A 401(k) plan may allow participants to transfer certain amounts in the plan to their designated Roth account in the plan.

Contribution Limits

Employer and employee contributions and forfeitures (nonvested employer contributions of terminated participants) are subject to a per-employee overall annual limit. This limit is the lesser of:

  • 100 percent of the employee's compensation, or
  • $61,000 for 2022 and $66,000 for 2023.

In addition, the amount employees can contribute under any 401(k) plan is limited to $20,500 for 2022 and $22,500 for 2023. This includes both pre-tax employee salary deferrals and after-tax designated Roth contributions (if permitted under the plan).

All 401(k) plans may allow catch-up contributions of $6,500 for 2022 and $7,500 for 2023 for employees 50 and older.

Employee salary deferrals are immediately 100 percent vested – that is, the money that an employee has contributed to the plan cannot be forfeited. When an employee leaves employment, they are entitled to that money, plus any investment gains (or minus losses).

In safe harbor 401(k) plans, all required employer contributions are always 100 percent vested. In traditional 401(k) plans, you can design your plan so that employer contributions vest over time, according to a vesting schedule.

To preserve the tax benefits of a 401(k) plan, the plan must provide substantive benefits for rank-and-file employees, not just business owners and managers. These requirements are called nondiscrimination rules and compare both plan participation and contributions of rank-and-file employees to owners/managers.

Traditional 401(k) plans are subject to annual testing to ensure that the contributions made for rank-and-file employees are proportional to contributions made for owners and managers. In most cases, safe harbor 401(k) plans are not subject to annual nondiscrimination testing.

Investing the Contributions

After you decide on the type of 401(k) plan, you can consider the variety of investment options. In designing a plan, you will need to decide whether you will permit your employees to direct the investment of their accounts or if you will manage the monies on their behalf.

If you allow participants to direct their investments, you must decide what investment options to make available. Depending on the plan design you choose, you may want to hire someone either to determine the investment options or to manage the plan's investments. Continually monitoring the investment options ensures that your selections remain in the best interests of your plan and its participants.

Fiduciary Responsibilities

Many of the actions needed to operate a 401(k) plan involve fiduciary decisions. This is true whether you hire someone to manage the plan for you or do some or all of the plan management yourself. Controlling the assets of the plan or using discretion in administering and managing the plan makes you and the entity you hire a plan fiduciary. Providing investment advice for a fee also makes someone a fiduciary. Hiring someone to perform fiduciary functions is itself a fiduciary act. Fiduciary status is based on the functions performed for the plan, not a title.

Some decisions for a plan are business decisions, rather than fiduciary decisions. For instance, the decisions to establish a plan, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions. When making these decisions, you are acting on behalf of your business, not the plan, and therefore, you would not be a fiduciary. However, when you take steps to implement these decisions, you (or those you hire) are acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.

Basic Responsibilities

Fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. The fiduciary's responsibilities include:

  • Acting solely in the interest of the participants and their beneficiaries;
  • Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries;
  • Paying only reasonable plan expenses;
  • Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;
  • Following the plan documents; and
  • Diversifying plan investments.

These are the responsibilities that fiduciaries need to keep in mind. The responsibility to be prudent covers a wide range of functions needed to operate a plan. Because all these functions must be carried out in the same way a prudent person would, you may want to consult experts in investments, accounting, and other fields, as appropriate.

In addition, for some functions, there are specific rules that help guide the fiduciary. For example, the deductions from employees' paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you must do so.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

For all contributions — employee and employer (if any) — the plan must designate a fiduciary, typically the trustee, to make sure that contributions due to the plan are transmitted. If the plan and other documents are not clear on this, the trustee generally has this responsibility. In addition, you (or those you hire) will need to update the plan document for changes in the law.

Limiting Liability

With these responsibilities, there is also some potential liability. However, you can take actions to limit your liability and demonstrate that you carried out your responsibilities properly.

The fiduciary responsibilities cover the process used to carry out the plan functions rather than simply the results. For example, if you or someone you hire makes the investment decisions for the plan, an investment does not have to be a “winner” if it was part of a prudent overall diversified investment portfolio for the plan. Because a fiduciary needs to carry out activities through a prudent process, you should document the decision-making process to demonstrate the rationale at the time a decision was made.

In addition to the steps above, there are other ways to limit potential liability. The plan can be set up to give participants control of investments in their accounts. For participants to have control, they must have sufficient information on the specifics of their investment options. If properly executed, this type of plan limits your liability for participants' investment decisions. You can also hire a service provider or providers to handle some or most of the fiduciary functions, setting up the agreement so that the person or entity then assumes liability.

Hiring a Service Provider

Even if you do hire a financial institution or retirement plan professional to manage the plan, you retain some fiduciary responsibility for the decision to select and keep that person or entity as the plan's service provider. So, you should document your selection process and monitor the services provided to determine if you need to make a change.

For a service contract or arrangement to be reasonable, service providers must give you certain information about the services they will provide to your plan and all of the compensation they will receive. This information will assist you in understanding the services, assessing the reasonableness of the compensation (direct and indirect), and determining any conflicts of interest that may impact the service provider's performance.

Some additional items to consider in selecting a plan service provider:

  • Information about the firm itself: affiliations, financial condition, experience with 401(k) plans, and assets under its control
  • A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled
  • Information about the quality of prospective providers: the identity, experience, and qualifications of the professionals who will be handling the plan's account; any recent litigation or enforcement action that has been taken against the firm; the firm's experience or performance record; if the firm plans to work with any of its affiliates in handling the plan's account; and whether the firm has fiduciary liability insurance

If your service provider is responsible for maintaining plan records and keeping participant data confidential and plan accounts secure, use a service provider who follows strong cybersecurity practices. To prudently select and monitor such a service provider, ask for:

  • Information about a firm's business practices: its information security standards, practices, policies, and annual audit results available to plan clients; how it validates its practices; and whether it has insurance policies that cover losses caused by cybersecurity and identity theft breaches (whether caused by internal or external threats)
  • Information about the quality of the firm's services: its track record in the industry, including security incidents, other litigation, and legal proceedings related to its services; and for prior security breaches, what happened and how it responded

For more tips for hiring a service provider with strong cybersecurity practices, including terms and provisions recommended for inclusion in service provider contracts, visit DOL's cybersecurity website .

For information on cybersecurity best practices that service providers should follow, see DOL's website .

Once hired, you should continue to monitor your service provider.

  • Evaluate any notices the service provider furnishes about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);
  • Review the service provider's performance;
  • Read any reports they provide;
  • Check actual fees charged;
  • Ask about policies and practices (such as trading, investment turnover, and proxy voting); and
  • Follow up on participant complaints.

For more information, see Understanding Retirement Plan Fees and Expenses .

Providing Information in Participant-Directed Plans

When plans allow participants to direct their investments, fiduciaries need to take steps regularly to make participants aware of their related rights and responsibilities. This includes providing plan- and investment-related information, including information about fees and expenses that participants need to make informed decisions about the management of their individual accounts.

You (or those you hire) must provide that information to participants before they can first direct their investment in the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows for comparison of the plan's investment options. A model chart is available.

If you use information provided by a service provider that you rely on reasonably and in good faith, you will be protected from liability for the completeness and accuracy of the information.

Prohibited Transactions and Exemptions

Some transactions are prohibited under the law to prevent dealings with parties that have certain connections to the plan, self-dealing, or conflicts of interest that could harm the plan. However, there are several exceptions under the law, and additional exemptions may be granted by the U.S. Department of Labor if protections for the plan are in place in conducting the transactions.

One exemption allows fiduciary investment advisers to provide investment advice to participants who direct the investments in their accounts. The exemption applies to buying, selling, or holding an investment related to the advice, as well as to receiving related fees and other compensation by a fiduciary adviser. Please see DOL's website for more information.

Another exemption in the law permits you to offer loans to participants through your plan. If you do, the loan program must be carried out in a way that protects the plan and all other participants. Each loan request decision is treated as a plan investment and considered accordingly.

Anyone handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty by those covered by the bond.

Disclosing Plan Information to Participants

Plan disclosure documents keep participants informed about how the plan operates, alert them to changes in the plan's structure and operations, and give them a chance to make decisions and take timely action on their accounts.

The summary plan description (SPD) is a plain-language explanation of the plan and must be comprehensive enough to inform participants of their rights and responsibilities. It also informs participants about the plan features and what to expect of the plan.

Among other things, the SPD must include information about:

  • When and how employees become eligible to participate in the 401(k) plan,
  • The contributions to the plan,
  • How long it takes to become vested,
  • When employees are eligible to receive their benefits,
  • How to file a claim for those benefits, and
  • Participants' basic rights and responsibilities under the Employee Retirement Income Security Act (ERISA).

The SPD should include an explanation about the administrative expenses that will be paid by the plan. The plan administrator must give this document to participants when they join the plan and to beneficiaries when they first receive benefits. SPDs must also be redistributed periodically during the life of the plan.

A summary of material modifications (SMM) informs participants of changes made to the plan or to the information in the SPD. When such changes occur, all participants must automatically receive either an SMM or an updated SPD within a specified number of days after the change.

An individual benefit statement shows:

  • The total plan benefits earned by a participant,
  • Vested benefits,
  • The value of each investment in the account,
  • Information describing the ability to direct investments, and
  • For plans with participant direction, an explanation of the importance of a diversified portfolio.

Plans that provide for participant-directed accounts must furnish quarterly individual benefit statements. Plans that do not provide for participant direction must furnish statements annually.

As noted above, plans that allow participants to direct the investments in their accounts must provide participants with plan and investment information, including information about fees and expenses, before they can first direct investments and annually thereafter. At least quarterly, they also must provide participants with information on the fees and expenses actually paid. The initial plan-related information may be distributed as part of the SPD provided when a participant joins the plan as long as it is provided before the participant can first direct investments. The information provided quarterly may be included with the individual benefit statement.

A summary annual report is a narrative of the plan's annual return/report, the Form 5500, filed with the Federal Government (see Reporting to Government Agencies for more information). The plan administrator must furnish it to participants annually.

A blackout period notice gives employees advance notice when a blackout period occurs, typically when plans change recordkeepers or investment options, or when plans add participants because of corporate mergers or acquisitions. During a blackout period, participants' rights to direct investments, take loans, or obtain distributions are suspended.

You can furnish these disclosures in paper or electronically. To provide them electronically, you may either post them on a plan website or email them to plan participants, after notifying participants that disclosures will be furnished electronically. There are a number of protections for participants receiving electronic disclosures, including the right to request paper copies of disclosures or to opt out of electronic delivery. You also need to take reasonable steps to protect the confidentiality of participants' personal information online. For more information, see DOL's website .

Reporting to Government Agencies

In addition to the disclosure documents that provide information to participants, plans must also report certain information to Government entities.

Form 5500 Annual Return/Report of Employee Benefit Plans

Plans must file an annual return/report with the Federal Government, in which information about the plan and its operation is disclosed to the IRS and the U.S. Department of Labor.

Depending on the number and type of participants covered, most 401(k) plans must file one of the following forms:

  • Form 5500 , Annual Return/Report of Employee Benefit Plan
  • Form 5500-SF , Short Form Annual Return/Report of Small Employee Benefit Plan
  • Form 5500-EZ , Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan

Plans file the Form 5500 or Form 5500-SF electronically through a web-based system called EFAST2. These returns/reports are made available to the public. One-participant plans or foreign plans may file Form 5500-EZ electronically on EFAST2 or on paper with the IRS. Form 5500-EZ returns are not made available to the public.

One-participant plans (which cover only sole proprietors – whether incorporated or not — partners, and spouses) with total assets of $250,000 or less at the end of the plan year are exempt from the annual filing requirement. However, you must file a final return/report if you terminate the plan, regardless of the value of the plan's assets.

Form 1099-R

Form 1099-R , Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. is generally used to report distributions (including rollovers) from a retirement plan. It is given to both the IRS and recipients of distributions from the plan during the year.

Form 8955-SSA

Form 8955-SSA , Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits , is used to report separated participants with deferred vested benefits under the plan. It is filed with the IRS. The information is generally given to the Social Security Administration and to each deferred vested participant in an individual statement by the plan administrator.

Distributing Plan Benefits

The amount of benefits in a 401(k) plan is dependent on a participant's account balance at the time of distribution.

When participants are eligible to receive a distribution, 401(k) plans typically allow participants to:

  • Take a lump sum distribution of their account,
  • Roll over their account to an IRA or another employer's retirement plan, or
  • Take periodic distributions.

More employers are offering annuity or other lifetime income distribution options in their defined contribution plans for employees who want to ensure that they do not outlive their retirement savings. You may want to look into what other employers are doing.

Terminating a 401(k) Plan

401(k) plans must be established with the intention of being continued indefinitely. However, business needs may require employers to terminate their plans. For example, you may want to establish another type of retirement plan instead of the 401(k) plan.

Typically, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, and filing a final Form 5500. You must also notify your employees that the plan will be discontinued. Check with your plan's financial institution or a retirement plan professional to see what else you must do to terminate your 401(k) plan.

Even with the best intentions, those operating the plan can still make mistakes. The Department of Labor and IRS have correction programs to help 401(k) plan sponsors correct plan errors, protect participants' interests, and keep the plan's tax benefits. These programs are structured to encourage early correction. Having an ongoing review program makes it easier to spot and correct mistakes in plan operations.

See the Resources section for further information.

A 401(k) Plan Checklist

  • Which type of 401(k) plan best suits your business?
  • Will you hire a financial institution or retirement plan professional to help with setting up and running the plan?
  • Will you make contributions to the plan, and, if so, will you make nonelective and/or matching contributions? (Remember, you may design your plan so that you may change your nonelective contributions if necessary due to business conditions.)
  • Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?
  • Have you notified eligible employees and provided them with information to help in their decision-making?
  • Have you arranged a trust for the plan assets, or will you set up the plan solely with insurance contracts?
  • Have you developed a recordkeeping system?
  • Do you understand your fiduciary responsibilities?
  • How will you monitor the plan's service providers and investments?
  • Do you understand the reporting and disclosure requirements of a 401(k) plan?

For help establishing and operating a 401(k) plan, you may want to talk to a retirement plan professional or a representative of a financial institution offering retirement plans. You should also speak to a qualified tax professional about your particular situation and take advantage of the help available in the Resources section.

To find this publication and more information on retirement plans, visit:

The U.S. Department of Labor's Employee Benefits Security Administration

  • Information for small businesses
  • Retirement saving information for employers and employees

Internal Revenue Service

  • Guidance for maintaining your 401(k) plan
  • Retirement Plans Startup Costs Tax Credit
  • 401(k) Plan Checklist

In addition, the following jointly developed publications are available on the DOL and IRS websites or can be ordered electronically or by calling toll-free 866-444-3272:

  • Choosing a Retirement Solution for Your Small Business , Publication 3998, provides an overview of retirement plans available to small businesses.
  • Automatic Enrollment 401(k) Plans for Small Businesses , Publication 4674, explains a type of retirement plan that allows small businesses to increase plan participation.
  • Adding Automatic Enrollment to Your 401(k) Plan , Publication 4721, explains how to add automatic enrollment to your existing 401(k) plan.
  • Payroll Deduction IRAs for Small Businesses , Publication 4587, describes an arrangement that is an easy way for businesses to give employees an opportunity to save for retirement.
  • Profit Sharing Plans for Small Businesses , Publication 4806, describes a flexible way for businesses to help employees save for retirement.
  • SEP Retirement Plans for Small Businesses , Publication 4333, describes a low-cost retirement savings option for small businesses.
  • SIMPLE IRA Plans for Small Businesses , Publication 4334, describes a type of retirement plan designed especially for small businesses.

For business owners with a plan

  • Retirement Plan Correction Programs , Publication 4224, briefly describes the IRS and DOL voluntary correction programs.

Related materials available from DOL

For small businesses.

  • Meeting Your Fiduciary Responsibilities
  • Understanding Retirement Plan Fees and Expenses
  • Selecting an Auditor for Your Employee Benefit Plan
  • Reporting and Disclosure Guide for Employee Benefit Plans
  • Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan

In addition, DOL's Small Business Retirement Savings Advisor helps small business owners choose the most appropriate retirement plan for their businesses and provides resources on maintaining plans.

For employees

  • A Look at 401(k) Plan Fees
  • What You Should Know about Your Retirement Plan (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Haitian Creole, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
  • Savings Fitness: A Guide to Your Money and Your Financial Future (also in Spanish)
  • Taking the Mystery Out of Retirement Planning (also in Spanish)
  • Top 10 Ways to Prepare for Retirement (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Haitian Creole, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
  • Women and Retirement Savings (also in Spanish)

To view these publications, go to DOL's Saving Matters website . To order publications or request assistance from a benefits advisor, contact EBSA electronically or call toll free 866-444-3272.

Related materials available from the IRS

  • Lots of Benefits , Publication 4118, discusses the benefits of sponsoring and participating in a retirement plan (also available in Spanish, Korean, Vietnamese, Chinese, and Russian).
  • Have you had your Check-up this year? for Retirement Plans , Publication 3066, encourages employers to perform a periodic “check-up” of their retirement plans through the use of a checklist, and how to initiate any necessary corrective action.
  • 401(k) Plan Checklist , Publication 4531, a tool to help you keep your plan in compliance with many of the important tax rules.
  • Designated Roth Accounts under 401(k), 403(b), or governmental 457(b) plans , Publication 4530, discusses this popular feature found in many 401(k), 403(b), and governmental 457(b) plans.
  • Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) , Publication 560, describes types of plans, qualification rules, setting up a qualified plan, the minimum funding requirement, contributions, employer deduction, elective deferrals, the qualified Roth contribution program, distributions, prohibited transactions, and reporting requirements.

To view these related publications, go to the IRS's website .

When Should Your Small Business Offer These Employee Benefits?

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Tiffany Delmore

5 min. read

Updated October 25, 2023

It can be tough for entrepreneurs to attract and retain high-quality employees in the early stages. If they hope to hire a stellar workforce, they need to sweeten the proverbial pot with employee benefits. But that comes at a cost. 

Providing access to the employee benefits applicants seek may mean investing a significant percentage of funds on top of an employee’s salary. According to the U.S. Bureau of Labor Statistics (BLS), in December 2020, approximately 70% of private employee compensation was for wages. The other roughly 30% was spent on benefits. 

Entrepreneurs typically struggle to manage startup costs and anything more than the basic requirements of employee compensation. All hope is not lost, though. In this instance, crossing a few key thresholds before offering the three benefits below can be a make-or-break proposition for your new business venture.

  • 1. Retirement plans

A retirement plan might be the one benefit you don’t think you need to provide employees right away. With so many U.S. workers struggling to save for their post-work years, though, this perk can set your company apart from the pack. 

Many options for retirement plans are going to be too pricey for entrepreneurs because defined benefit plans typically require the employer to bear nearly all the financial burden. More often than not, that cost will put such plans out of reach, but there are more affordable options. 

For example, any entrepreneur can offer a small business 401(k) . These types of plans offer 401(k) products without the massive fees larger businesses typically shell out for plan administration. There are also significant tax advantages for companies that invest in their employee’s retirement plans. 

Make sure you incorporate all the relevant variables into your calculation of the added cost of employee compensation.

When should you offer retirement plans?

Should you cross the business profitability threshold before you offer a 401(k)? Not necessarily. There are plans where employer contributions are not required. Once your new venture does return a profit, you might consider matching employee contributions. 

Alternatively, you could offer a 401(k) profit-sharing plan that rewards employees for helping get you into the black. Such plans might be a secret weapon for employee longevity. The more good employees invest in your business success, the more you invest in them.

You can also set an employee duration threshold for offering retirement plans. Few employers offer immediate participation. Some wait until the employee has worked for the company for six months or one year.

Without a doubt, offering a retirement plan as part of your employee compensation package will put you ahead of companies that don’t. Delaying offering this benefit might hold you back from recruiting the best employees. With affordable options for small and new businesses, however, there’s no need to wait.

  • 2. Health insurance

Health insurance is an expensive benefit that many entrepreneurs may assume is out of reach, yet it’s vitally important to employees . In fact, 56% of employees say healthcare coverage is what keeps them in their current position. The same survey found that 46% say it was a positive aspect — or the deciding factor — when they took their job.

While not required to offer healthcare until you reach 50 employees, many entrepreneurs with fewer employees want to provide the benefit to attract employees. Fortunately, there are options.

The federally-facilitated Health Insurance Marketplace promotes its Small Business Health Options Program (SHOP) plans for businesses with 1 to 50 employees. However, SHOP plans are not available in all states. Some states with their own health insurance exchange offer small business plans for companies with up to 100 employees. Furthermore, many local municipalities and chambers of commerce have started offering group plans to small employers. 

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When should you offer health insurance?

Business owners always have the option of buying into private group plans if they have at least two employees. The cost to the employer for these benefits will vary widely. Businesses can pay the full cost of each employee’s premium or facilitate access to a group plan. Group plans are nearly always less expensive for employees than individual plans.

Keep in mind that there is a legal threshold for enrollment if your business offers health insurance to employees. The IRS mandates a maximum 90-day waiting period for you to provide it to new hires.

Pay attention to your current employee requests and what your job applicants are saying as they interview. You may find that health insurance is a component of your employee compensation package that you can’t afford to do without.

  • 3. Paid leave

Let’s face it. Even unpaid leave is difficult. When an employee takes a vacation or catches the flu, who will be there to cover for them? Nonetheless, every entrepreneur comprehends the value of paid leave as an employee benefit. Hard-working employees should be able to take some time off without sacrificing their income.

Under federal law, paid vacation, holidays, sick, and personal leave are not requirements for any employer. There are, however, legal requirements for paid leave in certain states and municipalities. Entrepreneurs should be aware of any laws that apply to them.

Businesses that do offer paid leave handle it differently. Some define a certain number of days for each type of leave (e.g., vacation vs. sick leave). Others take a consolidated paid time off (PTO) approach, allocating a certain number of days to be used as the employee sees fit. For example, 15 days a year could be used for 10 days of vacation and five days of sick leave.

When should you offer paid leave?

As with health insurance, your business plan might include a threshold of profitability before you’re able to offer a generous leave benefit. Paying an absent employee while also paying a temp to take their place isn’t inexpensive. Your business might need to start with a few paid vacation days and build up as you can afford it.

Another key threshold with paid leave is employee longevity. Many companies don’t offer any — or as much — paid leave during the first year. As employees stay with the business, they may accrue larger chunks of time.

Your business is in the driver’s seat with regard to nearly all its leave policies. However, remember that paid time off represents an attractive part of employee compensation. Happy, rested, and healthy employees are productive employees.

  • Start small and build as you grow

The number of employees you have will affect how generous you can be with paid compensation. It also affects how flexible you can be with benefits.

Start with what your budget can bear and increase benefits from there. As your workforce grows, some economies of scale may come into play. Invest in your employees , and they are far more likely to invest in your business and its success. Consider the number of employees, their longevity, and your profit margins. Keeping all of these factors in sharp focus may just help your small business cross the benefits threshold.

Clarify your ideas and understand how to start your business with LivePlan

Content Author: Tiffany Delmore

Tiffany Delmore is the co-founder and CMO of SchoolSafe, a company helping to develop safer educational environments.

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The Practice Management Knowledge Community (PMKC) identifies and develops information on the business of architecture for use by the profession to maintain and improve the quality of the professional and business environment.  The PMKC initiates programs, provides content and serves as a resource to other knowledge communities, and acts as experts on AIA Institute programs and policies that pertain to a wide variety of business practices and trends.

The Importance of Employee Benefits for Small Business

By Rebecca W. Edmunds AIA posted yesterday

Contributed by The AIA Trust

For small-business owners, the importance of employee benefits is a significant factor when it comes to attracting and retaining talent. The majority of workers prefer attractive types of employee benefits—like insurance, paid time off, and a retirement plan—more than pay raises. Whether you’re competing for talent or keeping the high performers you already have, small-business employee benefits are essential for making your staff feel valued and supported.

To stay competitive through an economic downturn, it’s important to focus your limited resources on the types of employee benefits that matter most to your workers. Free food is a nice perk, but it’s low on the list of what actually influences an employee to join a company. Morale-building activities, like company retreats and outings, have no influence on people’s decisions to work for you. Instead, employees are most interested in benefits that provide protection and flexibility: insurance, time off, and work-from-home options. Insurance requires a significant financial investment for your small business, but of the many examples of employee benefits, it’s the most important.¹

Health insurance

Health insurance is the leading concern and need among prospective employees when they’re evaluating a job’s benefits—and it’s the most commonly offered benefit for that reason. Dental and vision insurance are also common benefits. Around 80% of companies offer some degree of employer-provided medical insurance. Employer- provided insurance is offered by a much lower percentage of small businesses that have less than 10 employees. The reason is the cost; employees typically pay between 10% and 20% of the premiums while the employer covers the rest.² It’s not easy to balance the types of employee benefits that could be offered to reward and retain top talent while ensuring that your business operates sustainably. If medical insurance is too great an expense for your company, you can look for other ways to reward your employees or can build the cost of medical insurance into your future business goals.

Around 80 % offer some degree of employer-provided medical insurance. “If medical insurance is too great an expense for your company, you can look for other ways to reward your employees or can build the cost of medical insurance into your future business goals.”

Life insurance

Life insurance is a less common employer-provided benefit than medical insurance—it’s offered by roughly half of companies—but it’s valued highly by employees. Sixty percent of employees report that life insurance matters to them, so there are many more people who want this benefit than are able to access it.² And life insurance is more than just an attractive offering that employees want—it’s a promise to shield and protect your staff and their loved ones. Like medical coverage, life insurance serves both a practical and symbolic function by showing employees that you want to take care of them and are actually doing it. There are different options available to small businesses looking to take advantage of this benefit’s popularity, and a financial professional can walk you through them.

As with life insurance coverage, there’s a significant gap between employees who want long-term disability insurance and the number of companies that actually offer this type of employee benefit. This is another opportunity for small-business owners to attract top talent and really stand out with what they offer and how they support employees. Short- term disability insurance is slightly more commonly offered by companies, but there’s no limitation that keeps you from providing both types of coverage.

AIA Trust resources

No matter the size of your business, the AIA Trust may have the products to help you provide important benefits to your small firm. Visit the AIA Trust at  SeeMyCost.com/AIA-Life and SeeMyCost.com/AIA-DI available exclusively to AIA members for more information including cost, coverage features, eligibility, renewability, exclusions, and limitations or call the AIA Trust plan Administrator at 1-877-801-3727 and one of their professionals can help guide you in structuring a benefits package that attracts and helps you keep your high performers.

The Group Term Life, Level Term Life, and Group Disability Insurance is underwritten by New York Life Insurance Company NY, NY 10010 on Policy Form GMR.

CA Insurance License # 0H62489; AR Insurance License # 94726

    

*In 2021 New York Life analyzed premiums for up to 31 different carriers in the markets for Annual Renewable Term (ART) and 10-Year Level Term (10YLT) . Premiums were compared using gender, age, face amounts, and rating classes. Any premium credit was applied to the Association results; had the credits not been applied the results would have differed. We interpreted “competitive” results as those in which premiums were equal to or better than more than half the cells analyzed for the given products.

   

Footnotes 

1 https://hbr.org/2017/02/the-most-desirable-employee-benefits

2 https://www.limra.com/en/research/research-abstracts-public/2019/workplace-benefits-resource-guide/

  

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The AIA Trust offers a portfolio of risk management solutions and resources designed to help AIA members grow and prosper. Established in 1952, the AIA Trust works with independent consultants to evaluate, select, and monitor insurance and benefit programs for AIA members and components, and that meet the institute’s high standards of quality, value, financial stability, service, and coverage, adhering to strict criteria.

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What Is a SIMPLE 401(k) Plan?

  • How It Works
  • Rules and Regulations
  • Advantages and Disadvantages

The Bottom Line

  • Retirement Planning

SIMPLE 401(k) Plan: What It Is, How It Works, FAQ

Small business owners should know about this retirement-plan option

employee benefit plans for small business

A SIMPLE 401(k) is a retirement savings account offered by small business employers with 100 or fewer employees. The SIMPLE 401(k) works just like a regular 401(k) plan , combining it with the simplicity of a SIMPLE IRA with a few minor changes. Employees can defer some of their wages to the plan and employers must either make a matching or non-elective contribution of a certain amount of each employee's wages.

Employers who are eligible to set up these plans must meet certain eligibility requirements and the Internal Revenue Service (IRS) sets limits on how much can be contributed each year.

Key Takeaways

  • SIMPLE 401(k) plans are retirement savings plans offered by small business employers or companies with 100 or fewer employees.
  • This kind of plan combines the features of traditional 401(k)s with the simplicity of SIMPLE IRAs.
  • Participants must be at least 21 and have one year of service before they can participate.
  • Contributions to the plan are fully vested immediately and employees are allowed to borrow against their account balances.
  • Employees who provide SIMPLE 401(k)s can't offer their employees any other options and contribution limits are lower than traditional 401(k) plans.

How SIMPLE 401(k) Plans Works

As the name implies, the SIMPLE 401(k) is a simplified, stripped-down version of a regular 401(k) plan that is geared toward self-employed individuals and small business owners. And just like SIMPLE IRA accounts, only employers with a staff of 100 or fewer can establish SIMPLE 401(k) plans. Establishing businesses can be structured in any form, including sole proprietors, corporations, and partnerships.

SIMPLE 401(k)s work just like regular 401(k)s. Employees contribute with pre-tax dollars out of their paychecks, investing the funds in options provided by the plan administrator . The IRS limits annual contribution amounts, which are about two-thirds of those allowed for regular 401(k)s. Employees can contribute a maximum of $15,500 in 2023 and $16,000 in 2024. People 50 and over are allowed to deposit an additional catch-up contribution of $3,500 in 2023 and 2024.

All employer contributions to a SIMPLE 401(k) are subject to an employee compensation cap, which is $330,000 for 2023 and $345,000 for 2024. This is one way the  SIMPLE 401(k) differs from a SIMPLE IRA . Unlike traditional 401(k)s, employers are required to make either a matching contribution to their employees' accounts—up to 3% of each employee's pay or a  nonelective contribution of 2% of each eligible employee's pay.

Companies that offer their employees a SIMPLE 401(k) plan must file Form 5500 every year.

SIMPLE 401(k) Rules and Regulations

Employees who are at least 21 years old and completed at least one year of service must be allowed to participate in their employers' SIMPLE 401(k) plans. They must also receive at least $5,000 in SIMPLE compensation from their employers for the preceding year in order to take part.

Funds in a SIMPLE 401(k) must be held in the account until the employee reaches age 59½. Withdrawals made before that point are subject to an early withdrawal penalty of 10%.

The employer must provide a deferral notice to each eligible employee for the year the plan is established and for each year the employer continues to maintain the plan. This notification must be provided at least 60 days before the employee becomes eligible to participate. It must include a statement of the employee's right to make salary deferral contributions and to terminate their participation in the plan.

The "SIMPLE" in a SIMPLE 401(k) plan is short for Savings Incentive Match Plan for Employees of Small Employers.

Advantages and Disadvantages of SIMPLE 401(k)s

There are a number of different benefits to participating in a SIMPLE 401(k) plan. But there are also several drawbacks. We've noted some of the major ones below.

Contributions to a SIMPLE 401(k) are immediately 100% vested . An employee who meets the requirements to receive distributions from the plan may withdraw their entire account balance whenever they like and won't lose it if they switch jobs after the money is in their account.

One of the simplified features is that SIMPLE 401(k) plans do not require nondiscrimination and top-heavy testing to ensure that the plan operates in compliance with IRS rules. Such testing must generally be done by professionals and can be quite costly.

Although withdrawals before the age of 59½ are subject to a penalty, employees can take out loans against their SIMPLE 401(k) balances. They also have the option of making hardship withdrawals from their plans if they need to do so.

Disadvantages

Unlike other retirement options, employer contributions are mandatory for those who offer SIMPLE 401(k) plans to their employees. As noted above, employers have one of two options available. They can contribute either 3% of each employee's pay or they can make nonelective contributions of 2% of each eligible worker's salary.

IRS rules prohibit a company from offering other types of retirement plans to employees already covered by a SIMPLE 401(k). That said, these companies may choose to maintain a separate retirement plan for other employees not covered by the SIMPLE 401(k).

Contribution caps to SIMPLE 401(k)s are smaller than those for traditional 401(k) plans. As noted earlier, employees can only contribute $15,500 in 2023 to a SIMPLE 401(k) plan with catch-up contributions of $3,500 per year for those 50 and older. Though these amounts increased to $16,000 of contributions with the same catch-up of $3,500 in 2024, these amounts are still lower than other retirement plans. For example, taxpayers can set aside $22,500 to their 401(k)s in 2023 and $23,000 in 2024. Catch-up contributions for these plans are $7,500 in both 2023 and 2024.

Immediate 100% vesting for employees

No discrimination testing for employer

Loans and hardship withdrawals allowed

Mandatory contributions (for employer)

No other plans allowed

Smaller employee contributions than regular 401(k)

Lower employee contribution limits

Who Is Eligible for a SIMPLE 401(k)?

A SIMPLE 401(k) is available for small businesses that have 100 or fewer employees who earn more than $5,000 per year.

What Is the Difference Between a SIMPLE 401(k) and a SIMPLE IRA?

Both SIMPLE IRA and SIMPLE 401(k) plans are options for small business owners to provide retirement benefits to themselves and their employees. The key differences are that SIMPLE 401(k)s allow for loans while SIMPLE IRAs do not, and a SIMPLE 401(k) requires employees to be 21 years or older while SIMPLE IRAs have no age restrictions.

How Much Can You Contribute to a SIMPLE 401(k)?

A SIMPLE 401(k) limits employees to $15,500 in contributions for 2023 and $16,000 in 2024. This is in contrast to a traditional 401(k), which has a $22,500 limit in 2023 and a $23,000 limit in 2024. Individuals may also qualify to make catch-up contributions for both plans.

Can I Have a SIMPLE 401k and a Traditional IRA?

Yes, you can maintain and contribute to an individual retirement account (IRA) while also having and contributing to an employer-sponsored SIMPLE 401(k) plan.

Helping your employees save for retirement is a great way to keep turnover rates down and retention up. It doesn't hurt in attracting talent, either—keeping a small firm competitive with the perks offered by larger corporations.

While SIMPLE 401(k) plans have a lot of benefits, such as easy-to-manage rules, they do have some disadvantages when compared with other savings plans. The mandatory contributions and the paperwork, simplified though it is, can be a burden.

As a result, they're not for every company but then, few options are. Consult with 401(k) plan providers and your team of tax professionals to see if this retirement vehicle is the best suited for you and your staff .

Internal Revenue Service. " Choosing a Retirement Plan: SIMPLE 401(k) Plan ."

Internal Revenue Service. " 401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000 ."

Internal Revenue Service. " 2024 Limitations Adjusted as Provided in Section 415(d), etc.; Notice 2023-75 ." Page 1.

Internal Revenue Service. " 401(k) Plans for Small Businesses ." Page 4.

Internal Revenue Service. " 401(k) Plan Overview ."

Internal Revenue Service. " Publication 560, Retirement Plans for Small Business ." Pages 14, 17.

Internal Revenue Service. " SIMPLE IRA Plan ."

Internal Revenue Service. " Choosing a Retirement Solution for Your Small Business ." Page 4.

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Managing Employee Benefits for Small Business: A Complete Guide

Importance of employee benefits in small businesses, mandatory employee benefits, voluntary employee benefits, costs associated with employee benefits administration, health savings accounts, flexible work arrangements, best practices for managing employee benefits, understanding employee benefits, different types of employee benefits for small businesses, factors to consider in employee benefits for small businesses.

  • Company Size: While some benefits programs are easier to manage across all team sizes due to their flexibility, others might need a larger team size and make it untenable to achieve for small businesses. 
  • Budget Constraints: Budget constraints can play a bigger role in employee benefits for small businesses than for larger organizations. Small business owners need to look for more cost-effective benefits options.
  • Team’s Values: Your team’s values can be a great starting point to identify the non-financial benefits that your team goes with. 
  • Employee Demographics: The needs and wants of your employees can also help you identify the right mix of benefits for your small business team. For instance, a primarily Gen Z workforce would love flexible work options.
  • Social Security and Medicare : In many countries, employers must contribute to the Social Security and Medicare systems on behalf of their employees. These programs provide retirement and healthcare benefits to eligible individuals.
  • Unemployment Insurance : Employers often must pay into an unemployment insurance program to provide financial assistance to employees who lose their jobs through no fault.
  • Workers’ Compensation Insurance : This insurance is typically mandatory to cover medical expenses and lost wages for injured employees.
  • Minimum Wage and Overtime Pay : Small businesses must comply with minimum wage laws and regulations regarding overtime pay for eligible employees. Labor laws often mandate these rules.
  • Health Insurance : While only sometimes mandatory for small businesses, offering health insurance coverage can be a robust recruitment and retention tool. It provides employees with access to medical care and can be partially funded by the employer.
  • Dental and Vision Insurance : These additional insurance options can be offered to employees as voluntary benefits to cover dental and vision care expenses.
  • Retirement Plans : Small businesses can offer retirement plans to help employees save for their retirement. These are often voluntary, but some employers may choose to match employee contributions.
  • Paid Time Off (PTO) : While not mandatory in all countries, providing paid vacation, holidays, and sick leave can enhance employee satisfaction. Small businesses may offer these benefits voluntarily to attract and retain talent.
  • Employee Assistance Programs (EAPs) : EAPs provide employees with counseling, support, and resources for managing personal and work-related issues. They are typically voluntary and can help with employee well-being.
  • Tuition Assistance and Professional Development : Small businesses may offer education and training benefits to help employees improve their skills and advance their careers.
  • Wellness Programs : Wellness programs can include gym memberships, health screenings, and wellness incentives to promote employee health and well-being. They are often voluntary and can lead to healthier, more engaged employees.
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Administering Employee Benefits: A Comprehensive Approach

  • Determine Benefit Offerings: Decide which benefits to offer, such as health insurance, retirement plans, or paid time off.
  • Research and Select Providers: Select appropriate benefit providers or programs that align with your budget and employee needs.
  • Communicate Benefits Package: Communicate the benefits package to employees, including coverage details and any contribution requirements. Employee feedback at this stage can also help you shape the program better.
  • Handle Enrollment and Paperwork: Manage the enrollment process, ensuring employees can access and use their benefits effectively.
  • Ongoing Management: Continuously manage benefits, update employee records, address changes or additions to the benefits package, and promptly respond to employee questions or concerns.
  • Consult with Specialists: Seek guidance from benefits specialists or HR professionals to ensure compliance with relevant laws and regulations and to follow best practices in benefits administration.

What are some affordable alternatives for employee benefits?

  • Align Benefits with Business Goals : Ensure your benefits align with your company’s goals and values. Tailor your benefits package to attract and retain the talent your business needs.
  • Compliance with Laws and Regulations : Stay informed about local, state, and federal employment laws and regulations related to employee benefits. It includes requirements for health insurance, retirement plans, paid leave, and more.
  • Offer a Variety of Benefits : Provide a well-rounded benefits package that includes healthcare, retirement savings, paid time off, and additional perks that cater to your employees’ diverse needs.
  • Employee Education and Engagement : Conduct employee education sessions to explain benefits and answer questions. Encourage employees to take advantage of available benefits and wellness programs. 
  • Consider Voluntary Benefits : Explore voluntary benefit options (e.g., supplemental insurance wellness programs) that allow employees to customize their coverage while minimizing the cost to the company. Consider cost-sharing arrangements with employees, too.
  • Seek Employee Feedback : Encourage employees to provide feedback on their benefit experiences and preferences and use this input to make informed decisions about benefit offerings through employee benefits surveys.

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The best retirement plans of 2024

Maryalene LaPonsie

Hannah Alberstadt

Hannah Alberstadt

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 6:02 p.m. UTC Feb. 13, 2024

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American workers have no shortage of options for selecting the best retirement plan.

  • Most people are eligible for more than one retirement plan.
  • 2024 retirement plans generally offer tax advantages. 

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Retirement is the end goal for most workers, but you can’t quit your job unless you have a source of income. While Social Security will pay for some expenses, the government says these benefits will cover only about 40% of your pre-retirement income.

In the past, many companies offered pensions that provided lifetime income to loyal employees. Now, pensions have all but disappeared, and most workers need to rely on their savings to fill gaps in their budgets.

Fortunately, several retirement plans are available, many of which offer attractive tax incentives or generous employer matches.

Best retirement plans of 2024

“You’re talking about an embarrassment of riches,” says Andrew Meadows, senior vice president of HR, brand and culture for Ubiquity Retirement + Savings, a 401(k) provider.

Plans exist for employees, self-employed individuals and small-business owners. Options within each category allow people to receive immediate tax deductions or set aside money for tax-free withdrawals in the future. The best retirement plans also offer various investment options with low fees. 

Employer-sponsored retirement plans

Employer-sponsored retirement plans are some of the best-known options, and if you are an employee — meaning you receive a W-2 at tax time — you likely have access to one of them.

These accounts can be a convenient way to save for retirement since payroll deductions fund them. Plus, many employers match a portion of employee contributions.

“You want to be sure you put enough in to qualify for whatever your employer is matching,” says Stuart Chamberlin, founder and owner of advisory firm Chamberlin Financial in Boca Raton, Florida.

Traditional 401(k)

Traditional 401(k)s are the most common retirement plans private companies offer employees.

Employee contributions to a traditional 401(k) are tax-deductible. You can access the money without penalty once you reach age 59½, and withdrawals are taxed as regular income. You must start taking required minimum distributions at age 73, meaning you cannot avoid taxes forever.

You can contribute up to $23,000 to a 401(k) plan in 2024. Savers age 50 or older can contribute an additional $7,500.

Roth 401(k)

A Roth 401(k) works like a traditional 401(k), except the tax benefits are different.

Because Roth accounts are funded with after-tax dollars, employee contributions are not tax-deductible. The benefit is that the money grows tax-free and can be withdrawn tax-free in retirement. If you make a withdrawal before age 59½ and before you have held the account for five years, some of it may be subject to income tax and a penalty.

Roth 401(k) contribution limits are the same as traditional 401(k) contribution limits.

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A 403(b) , also known as a tax-sheltered annuity, works like a 401(k) and may be offered in traditional and Roth versions. Typically, 403(b) plans are available to employees of public schools and certain tax-exempt organizations.

One unique provision of 403(b) plans is that workers with at least 15 years of service can make additional catch-up contributions, which may be worth up to $3,000. 

457(b) 

Employees of state and local governments and certain tax-exempt nongovernmental entities may be able to contribute to 457(b) plans. These accounts work like 401(k)s and can be found in traditional and Roth varieties.

Like 403(b)s, 457(b)s have a unique catch-up feature. Workers may be able to contribute up to twice the annual employee limit during the last three years before their normal retirement age. 

Thrift savings plan

The thrift savings plan is a retirement plan for federal government employees and uniformed members of the armed forces. It is comparable to a 401(k) account, with similar provisions and contribution limits. 

Individual retirement plans

Individual retirement arrangements, or IRAs, “have the lowest barrier to entry,” Meadows says.

You generally can open an IRA as long as you have earned income, even if you have a 401(k) plan or another workplace retirement account. But note that income limits may apply to deducting traditional IRA contributions and contributing to Roth IRAs.

Traditional IRA

Like a traditional 401(k), a traditional IRA offers an immediate tax deduction on contributions. Withdrawals after age 59½ are subject to regular income tax. Early withdrawals are subject to income tax and a 10% penalty. Required minimum distributions must begin at age 73.

You can contribute up to $7,000 to IRAs in 2024. Savers age 50 or older may make an additional $1,000 in catch-up contributions.

Your contributions may not be tax-deductible if you or your spouse is covered by a retirement plan at work and you exceed certain income limits. For 2024, the ability to deduct contributions begins to phase out at modified adjusted gross incomes above $77,000 for single filers and $123,000 for married couples filing jointly.

Roth IRAs don’t offer tax deductions on contributions, but withdrawals in retirement are generally tax-free. Further, because you’ve already paid taxes on your Roth IRA contributions, you can withdraw them anytime tax- and penalty-free. Early withdrawals of your earnings may be subject to income tax and a 10% penalty. 

Roth IRAs share the same contribution limits as traditional IRAs, but high earners are excluded from funding these plans. For 2024, the ability to contribute to a Roth IRA begins to phase out at MAGIs of $146,000 for single filers and $230,000 for married couples filing jointly. At incomes of $161,000 and $240,000, respectively, the opportunity to contribute to a Roth IRA is eliminated.  

Spousal IRA

A spousal IRA refers to the ability of a working spouse to open an IRA on behalf of a nonworking spouse. In this way, stay-at-home parents or other spouses without earned income can have their own IRAs with which to save for retirement.

Spousal IRAs can be traditional or Roth accounts and are subject to the same contribution and income limits as other IRAs. To open a spousal IRA, a couple must file their tax return jointly.

Rollover IRA 

A rollover IRA is a way to move money from one retirement account to another. For example, if you leave a job, you can roll over money from your 401(k) to an IRA rather than leave it in place.

You can opt for a direct rollover or an indirect rollover. With a direct rollover, the funds are transferred from the 401(k) administrator to the IRA administrator. With an indirect rollover, you receive a distribution from the 401(k) and then deposit the funds into the IRA. If you fail to deposit the full amount into the IRA within 60 days, it may be subject to both income taxes and a 10% penalty.

There is no limit on how much you can roll over. Note that rolling over into an account with a different tax treatment — from a traditional to a Roth, for instance — counts as a conversion and has tax implications.

Retirement plans for small-business owners and the self-employed 

One drawback of IRAs compared to employer-sponsored retirement plans is the low annual contribution limit. But if you are self-employed or a small-business owner, you have other options with higher limits. Becoming eligible for these plans may be easier than you think.

“If you have a side hustle and self-employment income, you absolutely have the ability to start your own retirement plan,” says Nathan Boxx, director of retirement plan services for financial advisory firm Fort Pitt Capital Group in Pittsburgh.

Whether you work for yourself or have a team of employees, the following accounts could be good options. 

Any self-employed individual or employer can open a SEP IRA , and workers can contribute the lesser of 25% of their annual compensation or $69,000 per year. That puts a SEP IRA in line with a 401(k) plan in terms of contributions. But you can’t make catch-up contributions to a SEP account.

There is no Roth SEP IRA option, so your contributions will be tax-deductible. Withdrawals in retirement will be subject to regular income tax, and you’ll also need to start taking RMDs at age 73.

If you like the idea of having some tax-free money available in retirement, there is no reason you can’t also open a Roth IRA. The IRS allows self-employed workers and business owners to contribute to both.

The SIMPLE IRA is what Boxx calls the “quick and dirty” option for small-business retirement plans. It is available to businesses with fewer than 100 workers and has few filing requirements.

“The trade-off is lack of flexibility,” Boxx says. You may not have the same plan or investment options that other accounts offer. SIMPLE IRAs also have lower contribution limits than 401(k)s.

In 2024, a worker can contribute up to $16,000 to a SIMPLE IRA. Savers age 50 or older can make $3,500 in catch-up contributions. All contributions are tax-deductible, and withdrawals in retirement are taxed as regular income. RMDs must be taken starting at age 73. 

Payroll deduction IRA

Payroll deduction IRAs can be traditional or Roth and have the same contribution limits as those accounts. The main difference is they are funded through payroll deductions.

These accounts can be an attractive option for small-business owners who would like to help their workers save for retirement but don’t want the expense that comes with creating a 401(k) plan. 

Solo 401(k) 

Also known as one-participant 401(k)s, solo 401(k)s allow business owners with no employees or self-employed individuals to open an employer-sponsored plan for themselves and their spouses.

The reporting rules make these accounts more complex than some of the other options. On the other hand, they have significantly higher contribution limits.

As an employee, you can make elective deferrals of up to $23,000 in 2024. Savers age 50 or older can contribute an additional $7,500. In addition, as an employer, you can make a profit-sharing contribution of up to 25% of your compensation from the business. Combined, the maximum solo 401(k) contribution is $69,000 in 2024. 

Solo 401(k)s may be opened as traditional or Roth accounts.

Why is having a retirement plan important?

Most people understand the value of having money set aside for retirement, but it may not be obvious why you should use a retirement plan. After all, you could invest the money in a regular brokerage account , put it in certificates of deposit or leave it in your savings account.

A retirement plan makes more sense for several reasons:

  • Retirement plans offer tax incentives — either deductions for contributions or tax-free withdrawals in retirement.
  • Your employer may match a portion of your contributions. That’s essentially free money to boost your savings.
  • Retirement plans are subject to certain standards and protections by law.

“Retirement money is sheltered from creditors up to a certain threshold,” Boxx says. That is one example of the type of protection your money gets when deposited in a retirement plan.

How to start investing in your retirement

The earlier you begin saving, the more likely you are to be financially secure in retirement. It isn’t hard to open a retirement account either.

If you work somewhere that offers employer-sponsored retirement accounts, contact your human resources office to start making contributions. Most plans let you choose from several investment options, and many now have target-date funds, which make it simple to invest based on your expected retirement date.

IRAs and other plans can be opened online or in person at many banks and brokerage firms. For instance, Ubiquity Retirement + Savings offers solo 401(k) plans, while Chase, Charles Schwab and Fidelity all have IRAs.   

How to choose the best retirement plan for you

If you have an employer-sponsored plan with a match, start there. You want to contribute enough to that plan to get the full match. After that, you can consider other options.

Here are some questions to ask yourself:

  • Do I do any contract work that would make me eligible for a small-business retirement plan?
  • How much do I expect to be able to contribute each year?
  • Do I want a tax deduction now, or would I rather have tax-free money in retirement?

Before you jump into any account, be sure to read the fine print. “What fees are you paying?” Meadows asks. Those fees include the expense ratios for specific investments and the costs to administer the plan.

An accountant or financial advisor can help you weigh your options and select the best retirement plan for your needs. 

Frequently asked questions (FAQs)

That depends on your unique circumstances. While Fidelity Investments suggests you save 10 times your income by age 67, you may need more or less to retire comfortably.

When determining how much money you’ll need, consider the following:

  • Whether you will have debt payments in retirement.
  • The cost of living in your area.
  • Your expected lifestyle.
  • How you will fill your time.
  • Your expected lifespan.

Each account has its pros and cons. IRAs typically offer more investment options, but they may come with more fees. With a 401(k) account, you can contribute significantly more, and your plan administrator is a fiduciary, meaning they are required to work in your best interest. Talk to a trusted financial advisor to decide which is right for you. 

Yes. “The IRS always gets theirs at the end,” Chamberlin says.

The difference is when you pay those taxes. Roth accounts are taxed upfront since you fund them with after-tax dollars. With a traditional account, the money isn’t taxed until you make withdrawals in retirement. If you die with money in a traditional account, your heirs will pay the taxes on the remaining amount.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Maryalene LaPonsie

Maryalene LaPonsie has been writing professionally for nearly 25 years and specializes in personal finance, retirement, investing and education topics. In addition to USA TODAY Blueprint, her work has been featured on Forbes Advisor, U.S. News & World Report, Money Talks News, MSN and elsewhere on the web.

Hannah Alberstadt is the deputy editor of investing and retirement at USA TODAY Blueprint. She was most recently a copy editor at The Hill and previously worked in the online legal and financial content spaces, including at Student Loan Hero and LendingTree. She holds bachelor's and master's degrees in English literature, as well as a J.D. Hannah devotes most of her free time to cat rescue.

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employee benefit plans for small business

Business Groups Bristle at End to Trump Group Health Plan Rule

By Sara Hansard

Sara Hansard

A Department of Labor proposal rescinding a Trump-era rule that made it easier for small businesses and self-employed people to use association health plans has drawn industry group pushback in newly submitted public comments.

The 2018 Trump rule, portions of which were struck down in 2019 by the US District Court for the District of Columbia, expanded the definition of “employer” to allow self-employed individuals and more small employers to buy health insurance through association health plans.

Comments filed on the December 2023 proposal ( RIN 1210-AC16 ) reflect the ongoing debate over the Affordable Care Act, which created new ...

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IMAGES

  1. How to Design an Employee Benefits Plan

    employee benefit plans for small business

  2. Employee Benefits: The Ultimate Guide For Small Business Owners

    employee benefit plans for small business

  3. How to design a benefits package

    employee benefit plans for small business

  4. 10 Steps to Designing Employee Benefits Plans

    employee benefit plans for small business

  5. Are You Ready To Create Your Employee Benefits Program?

    employee benefit plans for small business

  6. 9 Steps to Design a Solid Employee Benefits Strategy

    employee benefit plans for small business

VIDEO

  1. Employee Benefit Plans Audit Virtual Conference

  2. How to Enroll in Employee Benefit Plans With OVD

  3. Small Business Retirement Plans

COMMENTS

  1. Employee Benefits In 2024: The Ultimate Guide

    A study by the International Foundation of Employee Benefit Plans found that employers with high levels of productivity and engagement offer benefits such as paid leave, healthcare,...

  2. Small Business Employee Benefits

    Learn how to offer a wide range of employee benefits to attract and retain talent at your small business. Explore the types, requirements and examples of benefits, such as health insurance, financial benefits, fringe benefits, unique benefits and more. Find out how to plan ahead and manage costs with ADP.

  3. Small business employee benefits guide for 2024

    October 17, 2023 To build a great team, you'll want to attract (and keep) your top employees. One of the most influential factors in keeping employees happy is offering employee benefits . Managing benefits can be tricky and costly for a small business.

  4. Small Business Guide to Employee Benefits Packages

    The benefits you provide beyond paid wages, such as health insurance, retirement plans, and paid vacation, can give you a competitive edge in today's business environment. Providing your employees with a comprehensive benefits package can also improve their satisfaction, engagement, and productivity. Additionally, you can take advantage of ...

  5. How to Set Up a Small Business Employee Benefits Program in 2023

    According to one survey, 88% of respondents said they'd give better health, dental, and vision insurance "some" or "heavy" consideration when choosing between a high-paying job and a lower-paying one with better benefits. Generous benefits also provide peace of mind and security for your existing workforce.

  6. The Small Business Owner's Guide to Employee Benefits

    1. Social Security and Medicare For every employee, businesses must withhold Federal Insurance Contributions Act (FICA) taxes of 1.45% for Medicare and 6.2% on the first $137,700 of earnings...

  7. Examples of common small business employee benefits

    Other popular company benefits you can offer your employees include pet insurance, tuition assistance, financial wellness benefits, education assistance, employee assistance programs, employee stock options, and daycare services.

  8. Small Business Employee Benefits & Why They Matter

    To build and keep a strong labor force, employers must be competitive in their benefits offerings. Small business employee benefits can be personalized to fit corporate culture and workers' needs. Finding a sustainable work-life balance that protects employees' financial, physical, and mental wellness is a top priority for many workers.

  9. How to Create a Great Employee Benefits Plan

    Updated Jan 05, 2024 Table of Contents Andreas Rivera Staff Writer at businessnewsdaily.com When employers talk about their "compensation packages," they don't mean just salary. In addition to...

  10. Setting Up an Employee Benefits Program in 5 Steps

    The most expensive (and frequently most valuable to employees) are health-related benefits, like medical insurance, and long-term savings plans, like a 401 (k). Essentially, this is a needs assessment—based on what the company can afford and the standard benefit offerings from employers.

  11. What Is the Best Employee Benefit Package for Small Businesses?

    The Small Business Administration lists 5 employee benefits that employers usually must provide: Matching Social Security Taxes: Taxes withheld from employees' paychecks are used to fund benefits like retirement, disability, and Medicare. Your business must pay the same rate of Social Security taxes as each employee.

  12. Best Small-Business Group Health Insurance Plans

    Best overall: Blue Cross Blue Shield. Best for low-cost plan options: Kaiser Permanente. Best for customer service: Humana. Best for health expense funds: Aetna (CVS Health) MORE LIKE THIS Small ...

  13. Small Business Health Options Program

    Marketplace for Small Business, 50 employees or fewer. Small Business Health Options Program details ... Offering health benefits is a major decision for businesses. Use HealthCare.gov as a resource to learn more about health insurance products and services for your employees. ... Use this guide to help you compare coverage options, like HRAs ...

  14. Small Business Employee Benefits: How to Stay Competitive

    January 26, 2024 SHARE TriNet Team In the fiercely competitive modern job market, offering employee benefits is more of a necessity for small businesses than a strategic advantage. Employee benefits play a crucial role in attracting and retaining top talent.

  15. Employee Benefit Plans For Small Business

    By partnering with a PEO, SMBs can give their employees access to a wide range of medical, dental, vision, life, disability, and supplemental insurance plans from leading insurance providers. A PEO also enables SMBs to offer additional employee benefits like commuter benefits, travel discounts, and exclusive access to local entertainment.

  16. Health insurance for businesses

    A group health insurance plan, like a plan purchased through the Small Business Health Options Program (SHOP) or otherwise from a private insurance company, provides coverage to eligible employees. Business owners can offer their employees one plan or a selection of plans to choose from. Small employers (generally those with 1-50 employees) may ...

  17. A Small Business Guide to Employee Benefits Packages

    Learn how to benchmark and budget the ideal employee benefit plan for your small business based on your talent goals, budget range, and legal requirements. Find out what benefits are required by law and what benefits and perks are provided by the employer, such as health insurance, retirement plans, and wellness programs.

  18. 401(k) Plans For Small Businesses

    401 (k) plans can be a powerful tool to promote financial security in retirement. They are a valuable option for businesses considering a retirement plan, as they provide benefits to both employees and their employers. A 401 (k) plan: Helps attract and keep talented employees. Allows participants to decide how much to contribute to their accounts.

  19. When Should Your Small Business Offer These Employee Benefits?

    Providing access to the employee benefits applicants seek may mean investing a significant percentage of funds on top of an employee's salary. According to the U.S. Bureau of Labor Statistics (BLS), in December 2020, approximately 70% of private employee compensation was for wages. The other roughly 30% was spent on benefits.

  20. Health benefits help SMBs hire and retain workers despite ongoing

    Offering group health coverage is important to small businesses. More than 9 in 10 said it's important, with 69% calling it "extremely important." ... 2024/02/19/health-benefits-help-smbs-hire-and ...

  21. The Importance of Employee Benefits for Small Business

    For small-business owners, the importance of employee benefits is a significant factor when it comes to attracting and retaining talent. The majority of workers prefer attractive types of employee benefits—like insurance, paid time off, and a retirement plan—more than pay raises.

  22. SIMPLE 401(k) Plan: What It Is, How It Works, FAQ

    SIMPLE 401(k) plans are retirement savings plans offered by small business employers or companies with 100 or fewer employees. This kind of plan combines the features of traditional 401(k)s with ...

  23. Managing Employee Benefits for Small Business: A Complete Guide

    Administering Employee Benefits: A Comprehensive Approach. Administering employee benefits in a small business involves several key steps: Determine Benefit Offerings: Decide which benefits to offer, such as health insurance, retirement plans, or paid time off. Research and Select Providers: Select appropriate benefit providers or programs that align with your budget and employee needs.

  24. Group benefits plans for businesses

    Small business group benefit solutions. For companies with 2 to 50 employees. Help protect your employees, their families and your business with valuable, competitively priced coverage from a group plan that meets your specific business needs. Contact a representative.

  25. ADP vs. Paychex: Which is best in 2024?

    Full-service payroll processing: All of Paychex's plans include full-service payroll processing for W-2 and 1099 employees, and you can deliver funds to employees through direct deposit, check ...

  26. The best retirement plans of 2024

    Retirement plans exist for employees, the self-employed and small-business owners. The best options offer a variety of investment options with low fees.

  27. Business Groups Bristle at End to Trump Group Health Plan Rule

    A Department of Labor proposal rescinding a Trump-era rule that made it easier for small businesses and self-employed people to use association health plans has drawn industry group pushback in newly submitted public comments. The 2018 Trump rule, portions of which were struck down in 2019 by the US ...