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When Is My Small Biz Required to Provide Benefits to Employees?

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By Christopher Coble, Esq. on May 09, 2019 | Last updated on April 07, 2020

As a small business owner, you probably want to take great care of your employees. After all, happy workplaces create happy products and therefore happy clients and customers. On the other hand, budgets can be tight and small business owners need to be especially conscious of their expenses.

So which employee benefits are required by law for small businesses, and which are up to the business owner? And how big of a business do you have to be before the latter becomes the former? Here's a look.

One Size Fits All: Social Security and Unemployment

Some benefits are legally required no matter how small your small business. For example, if you have even one employee (even if that employee is yourself), you need to pay Social Security taxes. In 2019, the tax rate for employees (which employers match) is 6.2 percent, with a cap at $132,900. (There may also be an additional 1.45 percent Medicare portion, depending on where you do business.)

Do small businesses pay unemployment insurance? 

Yes, you're almost certainly on the hook for unemployment insurance. While it is a joint federal-state program and specific requirements may differ from state-to-state, employers normally must contribute both state and federal unemployment taxes if they had at least one employee during any day of a week during 20 weeks in a calendar year or they pay wages to employees totaling $1,500 or more.

Only the Big Biz? Workers' Comp, FMLA, ACA

Workers' compensation benefits almost fall in the earlier category, because the size requirements are so small -- in many states, businesses with as few as three, four, or five employees must contribute to state workers' comp insurance, and in some of them it can be a felony if you fail to do so. But New Jersey and Texas have no workers' comp requirement, and no state requires you to carry workers' comp insurance for only yourself.

You may also be required to provide unpaid time off for employees under the federal Family and Medical Leave Act. The FMLA covers private sector employers who have 50 or more employees for at least 20 workweeks in the current or preceding calendar year. Even under the FMLA, the time off (up to 12 workweeks per year) is unpaid, it just means that you can't fire the employee for taking the time off, and any group health benefits must be maintained during the leave as if employee continued to work.

Speaking of health benefits, does Obamacare require you to provide health insurance for your employees? If you have more than 50 employees, the Affordable Care Act requires you to either provide health insurance that meets certain minimum standards, or be subject to an employer shared responsibility payment. The ACA also established the Small Business Health Options Program (SHOP) for employers with fewer than 50 full-time employees who want to provide them health and dental coverage.

Above and Beyond: Paid Time Off, Stock Options, Loan Assistance, Etc.

Of course, there are also additional benefits that are not specifically required by law that you may want to offer employees to make your small business an attractive place to work. Generally, you don't need to offer paid time off, including personal, vacation, and even some sick days. But many employees have either grown accustomed to such benefits. The same is true for shares in the company to incentivize great work, or student loan or tuition aid to encourage continued education.

As you can see, the requirements for small business owners can include overlapping federal and state statutes, which can vary depending on where you are headquartered or where your employees live and work. To best understand legally mandated benefits for employers, contact a local employment attorney.

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