Required Employee Benefits: A Guide for Employers

When deciding which employee benefits programs to offer, it’s a good idea to understand the relevant state and federal laws. Meeting with an employment law attorney​ can provide peace of mind about legal compliance. This article discusses the different benefits and benefit requirements for small businesses.

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

What Benefits Must Employers Provide Under Federal Law?

When determining required employee benefits, it’s important to understand what the federal government considers a “small business.” Although the Small Business Administration (SBA) considers any business with fewer than 500 employees small, some federal laws apply to businesses with as few as 50 workers.

Benefits Required for All Employers

Benefits Required for Mid-Sized and Larger Employers

If you’re a qualified employer, you’re required to provide these benefits to all full-time employees. Independent contractors, part-time workers, and volunteers are generally not covered by any benefit plans. However, long-term part-time employees may be able to participate in employer retirement plans.

What Benefits Must Employers Provide Under State Law?

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 to workers who cannot work because of a non-work-related injury.

About half of the states have passed state-mandated retirement plans. Employers must offer workers the option to join a state-sponsored Roth IRA or similar retirement savings. Six states have penalties for failing to offer or enroll employees in these retirement benefit plans.

Sixteen 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.

Offering Optional Employee Benefits: The Pros and Cons

Beyond what employers are legally required to offer, they may want to provide competitive benefits to attract and retain talented employees. Small business employee benefits are a balancing act. They help you attract and retain top workers, but they cost money that a smaller company may not have. Let’s take a closer look at potential positive and negative aspects.

The Pros of Offering Employee Benefits

• Health insurance plans are often cheaper for employers to obtain, especially under ACA programs. Businesses can deduct premiums from their taxes.
• Benefits packages are a common enticement. They decrease absenteeism, improve morale, and reduce turnover.
• Money talks. 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 low net cost to the employer. Keeping workers healthy and engaged is often a boon for businesses.

Other pros may apply.

The Cons of Offering Employee Benefits

• They can be expensive. Retirement plans and health insurance come with administrative costs that can be a major consideration for your company.
• Insurance rates can continue to rise. Some health benefits, such as dental insurance and vision insurance, add additional costs to your insurance premiums. Healthcare costs change annually, so what is affordable this year may be too expensive next year.
• Some benefit plans change periodically. Keeping employees up to date can be a headache.

Depending on your particular situation, you may have other issues to deal with as well.

Common Types of Optional Benefits

Some popular benefits may not be required in certain industries, but potential employees often expect them. These are the most common.

Health Care Benefits

Even if not required by the ACA, many smaller businesses choose to offer health benefits. The ACA Small Business Health Options Program (SHOP) helps small-business owners find affordable health insurance plans and provides tax credits for businesses with fewer than 25 employees. Employers who cannot afford full coverage may consider a health savings account (HSA), which lets workers deduct pre-tax sums for medical expenses.

Retirement Benefits

Federal law does not require retirement benefits. However, under the Employee Retirement Income Security Act (ERISA) “1,000-hour rule,” part-time and seasonal workers who work 1,000 hours within 12 months must have the option to participate in any existing company retirement plan.

Financial and Leave Benefits

Few things make a loyal employee happier than regular pay raises or annual bonuses. Paid time off (PTO) that accrues during the year is also a key part of a competitive benefits package. You can also offer disability insurance beyond what your state requires. Short-term disability provides partial wages for non-work-related injuries, while long-term disability can take over when workers’ compensation expires.

Mental Health Benefits

Employers increasingly realize that employee burnout is a major cause of turnover. Some things you can offer as mental health incentives include:

• Group health insurance with a mental health benefit
• Mental health days off
• Subscription to virtual mental health platforms

Keeping employees happy and making them feel cared for often shows up in their work effort.

Fringe Benefits and Low-Cost Options

Employers that can’t offer a full suite of traditional benefits can use fringe benefits and perks as incentives for new hires and to support employee retention. Some possibilities include:

• Flexible work schedules: Employees with childcare issues may appreciate the chance to arrange their hours so they can pick up a child from school. This benefit costs nothing to offer.
• Remote work options: Remote work has become increasingly attractive to many job-seekers. It can be an alternative to paid sick leave.
• Employee assistance programs: These work-based programs help employees having issues affecting their work. These can range from mental health and substance abuse problems to financial difficulties.

Each business is different, so the best employee perks will vary.

Get Legal Advice About Employee Benefits

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