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Employee benefits for small businesses

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It doesn’t matter how big or small your business is. If you want to secure the best talent, you need to offer the best employee benefits. Employee benefits for small businesses can support many goals, including retention, recruitment, engagement, workplace culture and even the company’s bottom line.

The Benefits of Employee Benefits

Poor compensation can prompt workers to quit. According to Pew Research Center, 63 percent of U.S. workers who quit in 2021 said that low pay was a reason, and 43 percent said that a lack of good benefits was a reason.

It’s great when workers are passionate about their work, but the simple truth is that most people work because they need to make a living. Workers need to be compensated. This can be done through salary and wages, but it can also be done through benefits, and the latter can be better in some ways. A Glassdoor survey found that 80 percent of employees prefer additional benefits over a pay raise.

If employers don’t provide adequate compensation, they risk losing their workers. Turnover can hurt productivity and company morale. It can be very expensive. Gallup says that the cost of replacing an employee can range from one-and-a-half to two-times the employee’s annual salary. For comparison, the U.S. Bureau of Labor Statistics (BLS) says that total benefits only make up 29.6 percent of the average private industry worker’s total compensation, and that’s including legally required benefits like Social Security, Medicare and workers’ compensation.

Small businesses are competing against bigger businesses for talent. To be competitive, it makes sense to offer employee benefits.

Health Insurance for Small Business

Under the ACA, small employers with fewer than 50 full-time equivalent employees are not required to offer health insurance or subject to the employer shared responsibility provisions. However, many small business owners offer health insurance coverage anyway.

According to the 2021 Employer Health Benefits Survey from KFF, 56 percent of firms with three to 49 workers offer health benefits to at least some of their workers. Larger employers are required to offer health insurance and are therefore more likely to offer health insurance – 92 percent of firms with 50 to 99 workers and 96 percent of firms with 100 or more workers offer health insurance to at least some workers – but even among smaller employers, health insurance is common. Overall, 59 percent of firms offer health insurance.

When offering group health insurance, employers have multiple options to consider, such as: fully-insured plans, including preferred provider organization (PPO), health maintenance organization (HMO), as well as high-deductible (HDHP) health plans; level-funded health plans; self-funded health plans, captives, or even reference-based pricing (RBP) plans. Different health plan types come with both advantages and disadvantages, including differences in cost, risk and employee involvement/education. Depending on the number of your employees and the diversity of their needs, you may decide to offer a single plan option or to provide two or more plans for them to choose from.


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Disability Insurance and Life Insurance

Health insurance is a key element of any employee benefits package, but small business owners should consider offering other benefits as well.

Life insurance is a popular choice. Many workers have family members, often including young children, who depend on their income. Life insurance helps ensure that they will be able to provide for their families even if the worst were to happen. According to BLS, 56 percent of private industry workers have access to life insurance benefits, and the take up rate is 98 percent.

Disability insurance is another popular option. Injuries, pregnancy, cancer diagnoses, heart disease and other health issues can prevent workers from working, and that prevents them from earning an income. Some employers offer paid sick leave, but usually not enough to cover a serious health problem. According to BLS, 71 percent of private industry workers have paid sick leave, and at 20 years of service, they had an average of eight sick leave benefit days. For workers with conditions that last for more than about a week, this can be a serious concern, and while the Family and Medical Leave Act provides guaranteed job protection, it does not guarantee pay.

Disability insurance provides a practical solution. BLS says that 40 percent of civilian workers have access to short-term disability insurance, and 35 percent of civilian workers have access to long-term disability insurance.

Dental and Vision Insurance

Health insurance plans typically do not include coverage for dental care or vision care, although pediatric dental care may be included. This can leave workers with many out-of-pocket costs. According to CareCredit, a root canal can cost up to $2,000, a dental crown can cost up to $3,000 and a tooth extraction can cost up to $4,000. Vision Center says that standard glasses usually cost up to $600, and that’s without name brand frames.

For small businesses, adding dental and vision care benefits can be a good way to take care of employees. BLS says that 40 percent of private industry workers have access to dental care benefits, and 24 percent of non-union workers have access to vision care benefits.

Retirement Plans

Many workers aren’t just earning money to cover their current needs. They’re also trying to save for their future retirement. Retirement benefits can help them achieve their long-term financial goals and give them another reason to stay with your company.

BLS says that 67 percent of private industry workers have access to an employer-provided retirement plan. Most of these were defined contribution plans, such as a 401(k) or 403(b) plan, but 12 percent had access to both defined benefit and defined contribution plans, and 3 percent only had access to a defined benefit retirement plan.

Other Key Benefits

In addition to the basic benefit staples that many employees expect, small business may want to round out their employee benefits package with other options.

For example, employers can offer a flexible spending account, heath reimbursement arrangement, or health savings account along with a high-deductible health plan to help with out-of-pocket costs. Supplemental insurance, such as personal accident insurance, critical illness insurance and cancer insurance, can also help with the unexpected out-of-pocket medical expenses that can come with a medical emergency. Long-term care insurance is another type of benefit to consider offering.

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Putting Together an Employee Benefits Package for Small Business

When putting together an employee benefits package, it’s important to consider the needs of your workers. Are they worried about how a health emergency might impact their finances? Do they have families to support? Of course, different workers may have different needs, so you may need to offer a range of benefits to address these various concerns.

Many benefits can be offered on a voluntary basis. Employees can decide whether they want to enroll in certain benefits, and some or all of the costs can come out of payroll deductions. This is a cost-effective way to give employees access to the benefits they want without wasting money on benefits they don’t need.

Your benefits package is an important part of your company’s competitive strategy. Higginbotham can help your small business put together a benefits package that takes care of your team. Learn more.

Not sure where to start? Talk to someone who wants to listen.

A great plan starts with a conversation. Let’s talk about what you need.

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