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Wages and Benefits

Good wages and a good employee benefits package help attract and keep top talent for your business. Wages are an employee's salary or hourly pay. Benefits include health insurance coverage, retirement plans, and other worker incentives.

Some of these benefits are mandatory, such as Social Security, Medicare, and workers' compensation insurance. Others are voluntary benefits, like retirement savings plans. Some states require particular benefits. For instance, California requires employers to offer disability insurance to employees. But this is optional in other states.

Small business employee benefits can be costly. At the same time, retention is always an issue for small business owners. Weighing the cost of benefit plans against the constant hiring and retraining of new workers is an important consideration when reviewing your compensation package.

Get more information at FindLaw's section on Wages and Benefits.

Federal and State Wage Laws

Wages and hours are set by the federal Fair Labor Standards Act (FLSA). The FLSA sets the national minimum wage, maximum work hours per week for full-time employees, and overtime pay for hourly workers. Salaried ("exempt") employees aren't entitled to overtime pay.

Federal law also regulates pay for tipped employees. Employers may take a "tip credit." That is, they may pay their workers less than the federal minimum wage as long as the employee's total tips plus wages equal the federal wage.

Many states have abolished the tip credit. In these states, employers must pay employees a flat wage and allow them to keep 100% of their tips.

State Wage Laws

Under the FLSA, states may set their own minimum wage as long as it isn't less than the federal wage. In many states, it's now much higher. Some states require paid lunch and break periods. These are requirements, not perks or benefits.

Workers' Compensation Insurance

Every state except Texas requires employers to carry workers' compensation coverage for their employees. In some states, there is no minimum number of employees for coverage. Workers' compensation pays the medical expenses for workers injured on the job. It's not considered a health insurance plan.

Workers' compensation is not considered part of an employee's pay. It is part of the employer's responsibility to their workers.

Employee Benefits

Most people think of healthcare when thinking of employee benefits. Health benefits are probably the number one thing employees ask about when they're hired. Because of the demand, states and some cities now require employers to offer health insurance. The Affordable Care Act (ACA) has made small business compliance possible.

Fringe benefits, like life insurance, retirement plans, and paid time off, help attract and keep employees. In a few states, benefits programs are becoming requirements.

Health Insurance Plans

Under the ACA, businesses with 50 or more employees must provide affordable health insurance for at least 95% of their full-time employees. Other provisions of the ACA include:

  • Small business tax credits for qualifying businesses
  • Reduction in costs for enrollment in workplace wellness programs
  • Coverage for mental health and preexisting conditions

Small businesses may be eligible for group health insurance programs. These plans enable small companies that otherwise wouldn't qualify for low-cost health plans to reduce costs by pooling their expenses.

Other alternatives for small businesses include health savings accounts (HSAs). HSAs allow employees to deduct small amounts from their pre-tax paycheck and set it aside for health-related expenses. If you can't afford health insurance premiums but want to provide health care for your workers, the ACA website has several alternatives to consider.

Sick Leave and Time Off

Businesses with over 50 employees must comply with the Family and Medical Leave Act (FMLA). This federal law gives qualified employees up to 12 weeks of unpaid leave every 12 months to care for sick or injured family members, to recover from their own illness or injury, or following the birth or adoption of a child.

Employees may take FMLA time intermittently or as a single block. They may also take the time subsequently or concurrently with any paid leave offered by the employer. Workers may use FMLA along with other time off following a workplace injury.

States have their own laws regarding family leave, sick leave, and paid time off. A few states, such as California, have started mandating paid time off (PTO). California's paid sick leave and paid family leave are more restrictive than the federal requirements. When developing your employee benefit plan, your human resources department should contact the state labor board.

Additional Employee Benefits

Small businesses can't always afford the extensive employee benefits that large companies offer their workers. But business owners should think outside the box when looking for employee benefits and perks.

  • Flexible work schedules – Since the pandemic, workers have pushed for flex time, remote work, and other unorthodox scheduling options. If your business can accommodate nontraditional work schedules, consider offering this benefit.
  • Retirement benefits – Most workers appreciate a pre-tax retirement plan, such as a 401(k). Look for a plan that can follow workers to a new job.
  • Disability insurance – Five states (California, Hawaii, New Jersey, New York, Rhode Island) and Puerto Rico mandate short-term disability insurance for employees. This coverage protects workers out of work due to a serious work-related injury or illness. Long-term disability insurance can cover workers for years or even the rest of their lives.

Employees today want a good work-life balance. They expect their job to be a part of their life, not all of it. A good employer can help employees achieve this balance and have happier and more focused workers.

Hiring an Attorney

Wages and benefits are important factors for employees when looking for work. If you have any questions or concerns about your wage and benefit policies, consult an employment law attorney near you.

Learn About Wages and Benefits

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