What Employee Benefits Should Small Businesses Include?

Small Businesses should include health insurance, a retirement plan, and paid time off in their employee benefits package. Employers should also be aware of the employee benefits that they must include, as required by law, such as workers’ compensation and unemployment insurance.

Are you an employer ready to revise your employee benefits plan? Are you an employer creating one for the very first time?

Pacific Prime is here to help! We have gathered several examples of employee benefits every small business will want you to consider offering to their employees. We also outline some fringe benefits and which benefits are required by federal and state governments.

We also have sections about the most liked employee benefits, an overview of the steps to structuring an employee benefits plan, and Frequently Asked Questions at the end.

Now let’s jump in!

Basic Employee Benefits Package Every Small Business Needs

In a basic employee benefits package, small businesses should include health, dental, and vision insurance, some type of retirement plan, and paid time off. There are also a variety of flexible benefits you can include to appeal to new employees like flexible work hours and gym passes.

Here is an example of a basic employee benefits plan:

• Health Insurance
• Dental and Vision Insurance
• Paid Time Off
• Retirement Plan
• Life Insurance
• Long and Short-Term Disability Coverage
• Unemployment Insurance
• Worker’s Compensation
• Social Security and Medicare

Fringe Benefits For Small Business Employee Benefits Plans

Fringe benefits, or voluntary benefits, are extra benefits you should consider for your small business. Fringe benefits are particularly important if you want to appeal to the rising generation of employees. Some examples are prescription drug coverage, health savings accounts, or daycare support.

Here is a list of fringe benefits your small businesses could have:

• Employee Assistance Program (EAP)
• Pet insurance
• Wellness Programs
• School Loan Repayment Plans
• Pay Raises
• Flexible Spending Accounts (FSA)
• Non-monetary Benefits
• Family Insurance Coverage
• Financial Education
• Social Activities as Colleagues
• Gift Cards
• Medical Flexible Spending Accounts (FSA)

It’ll be well worth your time to consider 25 types of employee benefits that could bring value, retention, and productivity to your workplace.

Employee Benefits Required By Law

There are a number of employee benefits required by law for business owners to provide to their employees. These include health insurance, disability insurance, unemployment insurance, workers’ compensation, family and medical leave, and social security and Medicare.  

     1. Health Insurance

The Affordable Care Act

The Affordable Care Act, also known as Obamacare, created a law that requires businesses with 50 or more full-time employees to provide health insurance to their employees. However, it also offers small businesses some support in the Small Business Options Program (SHOP).

Employers of businesses with 1 – 50 full-time employees can enroll in SHOP plans to help lower their health care premiums for health and dental coverage. They enroll with the help of SHOP-registered agents and brokers.

The COBRA Act

Under the COBRA Act, the Consolidated Omnibus Budget Reconciliation Act, employees, and their dependents can continue to get group health benefits if the family’s worker loses a job, loses work hours, or is transitioning between jobs, death, divorce, or major life changes.

This act requires employers with group health plans for more than 20 employees to continue to offer health coverage for their prior employees for a defined period of time who would otherwise have no health insurance.

     1. Disability Insurance

California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require disability insurance from employers. This insurance covers employees by paying them an income if they become unable to work due to a serious injury or illness.

Short-Term Disability: Covers for 2-6 months with up to 70% of the employee’s current income.

Long-Term Disability: Covers for years or decades with 50% – 70% of the employee’s current income.

     2. Unemployment Insurance

Businesses are required by law to provide unemployment insurance to their employees in the event the employee loses their employment and income. The specific requirements are by state, so you’ll need to become familiar with your local specifications.

     3. Workers’ Compensation

Small businesses are required to provide worker’s compensation to all their employees. This guarantees the employer will cover the cost of medical treatment and recovery and a portion of lost income in the event the employee attains a serious accident or illness in the workplace.

     4. Family And Medical Leave

The Family and Medical Leave Act (FMLA) requires employers to continue to provide group health coverage for their employees in the end they have to take unpaid, job-protected leave for family and medical reasons.

FMLA guarantees 12 workweeks of leave in a 1-year period for:

• The birth of a child
• The placement of a child in foster care or adoption services
• The care of a spouse, child, or parent with a serious medical condition
• The recovery of the employee from a serious health condition
• The needs of the employee’s spouse, child, or parent who is a military personnel on “covered active duty”

FMLA guarantees 26 workweeks of leave in 1 year to:

• Care for a spouse, child, parent, or next of kin who is a servicemember that received a serious injury or illness

     5. Social Security and Medicare

Employees must pay into Social Security and Medicare through their employer to work in the United States. These federal programs provide retirement or permanent disability insurance and health insurance once the employee turns 65 or is diagnosed with certain health conditions.

The Federal Insurance Contributions Act (FICA) states employers and employees must contribute:

• 6.2% of the employee’s income to Social Security
• 1.45% of the employee’s income to Medicare

Employee Benefits Most Liked By Employees

Every employee is different, so the benefits they most like depend on who they are. In general, women value flexible work and paid family leave, millennials, and Gen Z employees aren’t as driven by traditional benefits as baby boomers, and remote workers value payment for their work-from-home fees.

Some of the most popular employee benefits are non-monetary benefits, like mental health insurance and counseling coverage.

And while it is a given benefit, employees really value strong health insurance that can be customized to their family’s needs. Make sure you understand the importance of health benefits for employees so you make the most of this essential service.

How To Structure An Employee Benefits Plan

There are seven steps you should follow when you structure an employee benefits plan. It starts with understanding the current benefits trends, comparing the employee compensation commonly offered in your industry, and gathering input from your employees on what benefits they want.

Here are the full 7 steps to making an employee benefits plan:

1. Find out current employee benefits trends
2. Compare current employee compensation in the industry
3. Gather employee input on benefits packages
4. Decide what types of benefits you want to offer
5. Find a broker to negotiate with insurance companies on your behalf
6. Communicate to educate workers on the new benefits package
7. Reflection and evaluation of effectiveness

You can learn more about each of these steps in detail in our article How to Design Employee Benefits Plans in 2023. 

We also recommend you download your free copy of this PDF about Structuring an Employee Benefits Plan!

Frequently Asked Questions

Are there required employee benefits?

There are required employee benefits business employers must provide for their employees. These include health insurance, disability insurance, unemployment insurance, workers’ compensation, family and medical leave, and Social Security and Medicare.

What employee benefits are common for small businesses?

Most small businesses include health insurance, dental and vision insurance, paid time off, and a retirement plan in their employee benefits. It is also common to offer benefits like life insurance, maternity and paternity leave, wellness programs, and disability insurance.

What employee benefits do millennials want?

When it comes to employee benefits, millennials care about work-life balance and benefits that support that, such as paid time off, flexible work arrangements (hours and location), paid family leave, mental health education and support, and professional development.

What employee benefits does Gen Z want?

Gen Z is interested in employee benefits that are customizable to their needs and interests. For example, they care a lot about paid time off, flexible work hours and locations, mental health programs, and paid family leave. They are less interested in commuter benefits or phone reimbursements.

How much do employee benefits cost for a small business?

On average, employee benefits cost about 30% of the total cost it takes to hire an employee. This is the same for small businesses and big businesses. To calculate roughly how much you should spend on benefits per employee, you should determine what 30% of their salary is.

Conclusion

You’ve now learned a great deal about which employee benefits your small business is required to include, which are generally used in a basic package, and which ones your employees might like.

Your business is unique, however, and so are your employees. Make sure you take the time to cater our advice to your specific situation.

If all of this feels overwhelming, or even if you want to bounce your ideas off a trained professional, learn about employee benefits consulting and how a consultant can give you expert advice on your employee benefits plan, and then contact our benefits experts!

You can also check out the way Pacific Prime helps our corporate clients design their employee benefits packages.

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Serena Fung

Senior Content Creator at Pacific Prime

Serena Fung is a Senior Content Creator at Pacific Prime, a global insurance brokerage and employee specialist serving over 1.5 million clients in 15 offices across the world. With 2+ years of experience writing about the subject, she aims to demystify the world of insurance for readers with the latest updates, guides and articles on the blog.

Serena earned her Bachelor’s Degree in Psychology from the University of British Columbia, Canada. As such, she is an avid advocate of mental health and is fascinated by all things psychology (especially if it’s cognitive psychology!).

Her previous work experience includes teaching toddlers to read, writing for a travel/wellness online magazine, and then a business news blog. These combined experiences give her the skills and insights she needs to explain complex ideas in a succinct way. Being the daughter of an immigrant and a traveler herself, she is passionate about educating expats and digital nomads on travel and international health insurance.

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