Choosing a Benefits Plan for Your Small Business
Building a great team means retaining your best employees. And one of the best ways to keep employees on board is with a great benefits package. Unfortunately, this can be a daunting task for small businesses. Benefits are costly and tricky to navigate, and there isn’t one size fits all. But with this guide, we hope you feel empowered to take your next step!
To start, let’s discuss what’s required by state and federal law when building an employee benefits package.
#1: Social Security Taxes. Your business is required to pay Social Security and Medicare taxes at the same percentage rate as your employees. Or in other words, company tax payments are a business expense. They must also withhold the employee’s share of tax payments from gross pay.
#2: Unemployment Insurance. This insurance is created to pay benefits to workers who have been laid off. This is something both federal and state governments manage, as they are funded by a tax on business. However in some states, you may also be required to pay unemployment insurance taxes.
#3: Disability Insurance. While this is not required by EVERY state, several states require businesses to give partial wage replacement insurance to employees that are eligible for non-work related sickness or injury. These are also known as short-term disability plans. Employers MUST comply with the FMLA (Family and Medical Leave Act), which entitles employees up to 12 weeks of unpaid leave during a 12-month period.
Next, let’s discuss what’s optional (but strongly advised) when building an employee benefits package.
#1: Medical Insurance. This is the area where a lot of small businesses get stuck, as it’s one of the more expensive benefits. However this is a HUGE factor in attracting employees to work for you! Medical insurance includes health and dental coverage, and many employers only pay a percentage of the premium charge per worker. Whatever is left goes into the employee’s paycheck. As further incentive, sometimes businesses will elect to pay the entire health insurance premium per employee. The variety of insurance providers available to you depends on where you’re located.
#2: Flexible Spending Accounts (or FSA). FSA’s have increased in popularity because of their ease of use and convenience. FSAs allow employees to contribute pre-tax dollars each pay period. The money is then accessed using a credit or debit card issued by the insurance holder. You can learn more about the most common types of FSAs here.
#3: Paid Leave. Paid leave can come in the form of vacation days, personal days, and national holidays. The amount of yearly paid vacation is up to the employer, however it’s typical to provide at least 10 days. Employers can have it set up to where workers accrue PTO and sick days based on the number of hours the employee has worked throughout the year, combined with the amount of years worked. Personal days and floating holidays are usually set at the start of the year, and don’t change.
#4: Retirement Savings. Small businesses have a few options in choosing retirement plans, however the most common is a 401(k) plan. These plans are similar to FSAs, because employees can contribute a certain amount of their pre-tax salary into an account managed by a third party. But unlike FSAs, (401)k contributions aren’t eligible for withdrawal until the employee has reached a certain age. You might also consider having your small business match a current plan of your employees. So if the employee is investing a certain percentage of their annual salary, then you would match that investment.
In addition to the required and optional benefits we’ve listed above, your small business may also want to consider some of these lower tier benefits, or perks. They aren’t required, but they’ll definitely help you stand out as a small business!
- Tuition reimbursement
- Contributing to transportation and parking expenses
- Providing weekly team lunches, stocked fridge, snacks, etc.
- Team outings, retreats, or happy hours
- Pet friendly offices
- Monthly reimbursements, like a gym membership or phone bill
We hope you feel empowered to take your next step in creating an employee benefit plan for your small business! Need additional help? Taurus CPA Solutions has you covered! Employee benefit plan audits are one of our specialties. Our firm meets specific practice management requirements in the areas of training, quality control and self-monitoring. In addition, as a member firm, we have access to exclusive resources for employee benefit plan audits. Give us a call at (410) 465-4600 or contact us online today.