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Pros and Cons: Offering Employee Benefits

Today, small businesses need every edge they can find when hiring new employees. This means weighing the pros and cons of offering employee benefits. In a perfect world, all employers would shower top talent with perks and benefits. In reality, payroll is the most expensive line item on your accounting sheet already. Are employee benefits packages worth it for a small company?

Only small-business owners can answer those questions. A benefit must return more to the company than it costs. Federal law requires some benefits, like workers' compensation and unemployment insurance. Other benefits, such as health insurance coverage, pension plans, and paid vacations, are optional under federal law. Some state laws require small businesses to offer benefits.

When deciding which employee benefits programs are best for your business, it's a good idea to consider the pros and cons of each alternative. Consider negotiating some benefits with employees when you hire them. This article discusses the different options available to small businesses.

See FindLaw's Wages and Benefits section for additional articles and resources.

Federal Benefits: What You Must Provide

You may consider yourself a "small business" exempt from laws requiring employee benefits, but it may surprise you to learn what the federal government considers a "small business." Although the Small Business Administration (SBA) considers any business with fewer than 500 employees small, federal laws apply to businesses with as few as 50 workers.

All employers must provide these benefits for their employees:

Name of Benefit

Type of Benefit

Employees Required

Social Security




Retirement health insurance


Worker's Compensation

Job-related injuries

One or more

Unemployment insurance

Involuntary unemployment

One or more

Family and Medical Leave Act

Unpaid medical leave

50 or more. Applies to all full-time employees

Affordable Care Act (Obamacare)

Provide health care coverage

Generally 50 or more. Applies to all full-time employees


If you are a qualified employer, you must provide benefits to all full-time employees. Employers may offer FMLA benefits to part-time workers if they choose.

Offering Employee Benefits: The Pros

Small business employee benefits are a balancing act. They help you attract and retain top workers. However, they cost money that a smaller company may not have. You must compare how much the benefit will cost versus how much the employee will bring in. Sometimes, employees want things that are not cost-effective. Some benefits may cost nothing but give employees a tremendous morale boost.

  • Health insurance plans are often cheaper for employers to obtain, especially under ACA programs. Businesses can deduct premiums from their taxes. Benefits such as health savings accounts (HSA) are available for smaller businesses that cannot afford complete coverage.
  • Benefits packages decrease absenteeism, improve morale, and reduce turnover.
  • Employees may be willing to trade long-term benefits, such as life insurance, pension plans, and extended health benefits, for higher starting salaries.
  • Some benefits, such as paid time off, employee wellness programs, and sick days, have a zero net cost to the employer. Encouraging workers to stay home when they're sick means keeping other employees healthy. That means fewer expensive sick days.

Offering Employee Benefits: The Cons

Retirement plans and health insurance come with administrative costs. These hidden expenses are what keep many small businesses from offering employee benefits. Benefits administration and legal requirements are major considerations for your company. If it will cost more to manage the paperwork and filing each month than you'll get back, you should look into other options for your employees.

  • Some health benefits, such as dental insurance, add additional costs to your insurance premiums.
  • Health care costs change annually, so what is affordable this year may be too expensive next year. The ACA has relieved this burden somewhat.
  • Some benefits, such as pensions and 401(k) plans, must follow a worker to a new job. These requirements can create legal headaches for smaller companies.

State Laws on Employee Benefits

Five states (California, Hawaii, Rhode Island, New Jersey, and New York) and Puerto Rico require employers to provide short-term disability insurance for their workers. Disability insurance provides partial wages for workers who cannot work due to a non-work-related injury.

About half of the states have passed state-mandated retirement plans. Employers must offer workers the option of joining a state-sponsored Roth 401(k) or similar retirement savings. All but five states are considering such legislation. Six states have penalties for failing to offer or enroll employees in these retirement benefit plans.

Thirteen states and the District of Columbia have mandated paid family leave. Eight states allow employers to use private insurance to cover family leave and maternity care.

The size of the businesses affected by these laws varies in each state. Business owners should consult their attorneys when developing their employee benefit packages.

Fringe Benefits and Low-Cost Solutions

Employers who cannot offer good workers all the benefits they would like can sometimes find alternatives to the traditional employee benefit programs. Fringe benefits and perks outside the usual "benefits" can still provide incentives for new hires and aid with employee retention. Some possibilities include:

  • Flexible Work Schedules: Employees with child care issues may appreciate the chance to arrange their hours so they can pick up a child from school. If your workplace can accommodate flexible scheduling, this benefit costs nothing to offer.
  • Remote Work Options: Since the 2020 pandemic, remote work has become increasingly attractive to many job-seekers. You can also suggest remote work for employees with children or as an alternative to paid sick leave.
  • Employee Assistance Programs: These work-based programs exist in businesses of all sizes. Human resources agencies help employees having issues affecting their work. These can range from mental health and substance abuse problems to financial difficulties. A small business might provide referrals to local agencies and professionals.

Get Legal Advice About Employee Benefits

Employers who offer health coverage and other benefits may attract better workers and keep them longer. Benefits cost money and have hidden requirements. Before starting your benefits program, consult an employment law attorney and learn what benefits your state requires you to provide.

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