6 essentials for a small business employee benefits package

Wondering what goes into a small business employee benefits package that attracts and keeps great people?

There’s a lot to consider to create an attractive and competitive small business employee benefits package.

Some benefits are required by law
A typical small business employee benefits package may also include health, dental and vision insurance, paid time off, retirement, and supplemental benefits.

Ready to create your small business employee benefits package or upgrade your current one? Here’s what you need to know…

1. Required employee benefits

Wondering where to start? There are five benefits you’re required to provide employees:¹

Matching Social Security taxes

Taxes withheld from employees’ paychecks are used to fund benefits like retirement, disability, and Medicare. Your business must pay the same rate of Social Security taxes as each employee.

Workers’ compensation

If you have employees, you most likely need to enroll in either a self-insured, state, or commercial workers’ compensation insurance policy.

Tip: Each state regulates workers’ compensation laws, and some states may exempt certain types of businesses from providing this coverage.

Unemployment Insurance

Your business may have to pay state and federal unemployment insurance taxes if certain labor requirements are met.

Tip: Your company must be registered with your state’s workforce agency if you’re required to pay state unemployment insurance taxes.

Family and Medical Leave

If you run a private company with 50 or more employees, you must provide FMLA benefits.

What’s FMLA? FMLA provides job protection for an employee to take up to 12 weeks of unpaid leave for certain family or medical situations during a 12-month period.

Disability Insurance

There are only a few states that require businesses to provide disability insurance:

California
Hawaii
New Jersey
New York
Puerto Rico
Rhode Island

If your business is required to offer this benefit, eligible employees must get partial wage replacement if they have an illness or injury that did not happen at work.

Note: This disability coverage is different from what employees may get from Social Security if they become totally disabled.

What else goes into a small business employee benefits package?

If you’re trying to build a small business employee benefits package to attract and keep talented people, there’s a few more things to consider. In a recent survey by the Society for Human Resource Management, employees ranked the top 12 most important benefits in the following order:²

Health insurance
Retirement savings
Family care
Paid leave
Flexible work schedule
Professional/career development
Wellness
Education
Technology
Transportation
Relocation

So what do job seekers and employees expect when it comes to benefits?

We covered the employee benefits you’re required by law to provide in #1. But bare bones benefits may not be enough to attract and keep the best employees. If you want to build a team of employees who stick around to help grow your business, creating the kind of compensation package (wages & benefits) they value can make a difference.

Let’s take a closer look at five more things to offer in your small business employee benefits package.

Health insurance
Dental & vision insurance
Paid time off
Retirement benefits
Supplemental benefits

2. Health insurance

Health insurance is at the top of the list of what’s expected in an employee benefits package.

In the U.S., employers pay an average of 67 to 78% of health insurance premiums for family and single coverage.³
It’s a big expense to budget for. On average annual health insurance premiums cost $8,435 for single coverage and $23,968 for family coverage.⁴

This may leave a very tight budget to provide employees with qualified health insurance that includes the 10 “essential health benefits” the Affordable Care Act (ACA) requires plans sold in the individual and small group market to have:⁵

Ambulatory patient services
Emergency services
Hospitalization
Maternity and newborn care
Mental health, substance abuse disorder services and behavioral health treatment
Prescription drugs
Rehabilitative and habilitative services and devices
Laboratory services
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care

Understanding the ACA health insurance mandate

50 or more employees. The ACA also established the employer mandate in which business owners with 50 or more full-time equivalent employees may be subject to a tax penalty if they don’t offer health insurance.⁶
Fewer than 50 employees. But businesses with fewer than 50 FTEs are not subject to the mandate.

More ways to offer health insurance

If traditional employer-sponsored health insurance doesn’t work for your business or seems too expensive, then what? There are other options you can choose to offer health insurance as part of your small business employee benefits package. Let’s take a look at the different options.

Group health insurance

Providing group health insurance means that you have to pay a portion of employee premiums. While it’s true that health insurance premiums are on the rise, it’s still possible that a traditional group plan could be a suitable option for your business.⁶

High-deductible health plan with a health savings account

A high-deductible health plan provides lower premiums for employees, which also lowers your employer premium contribution.⁷ While an HDHP is not the only health insurance option for group coverage, it could reduce your overall healthcare costs.

Factors to consider:

Frequency of medical care. If the majority of your staff need frequent medical care for instance, then you probably wouldn’t want to make an HDHP the only option because the deductible must be met before the plan covers its share of costs for certain services.
The tax advantage of HSAs. A health savings account is designed specifically to be used with a qualified HDHP to help pay for medical, dental, and vision out-of-pocket expenses (except for premiums).
The advantage for employees is that the account is funded through automatic, pre-tax deductions, which can lower their taxable income.⁸

Use SHOP to health insurance for employees

The Small Business Health Options Program (SHOP) is a health insurance exchange that helps small business owners provide medical and dental insurance to their employees. You may qualify for tax credits for buying health insurance through the SHOP Marketplace if:⁹

You have fewer than 25 full-time equivalent (FTE) employees
Your average employee salary is about $56,000 per year or less
You pay at least 50% of your full-time employees’ premium costs
You offer SHOP coverage to all of your full-time employees.

Recommend employee use the Health Insurance Marketplace

Employees who shop on the Health Insurance Marketplace for Individuals and Families can qualify for a premium tax credit or cost-sharing reduction subsidy based on income. According to the Centers for Medicare and Medicaid Services:¹⁰

9 out of 10 people using the Marketplace are eligible for savings
4 out of 5 people can find a plan through the Marketplace for $10 or less a month after subsidies
96 percent of consumers looking for health insurance through the Marketplace will be able to choose plans from at least three health insurers

Use an Employer-Sponsored Arrangement

Under IRS Notice 2013-54, an employer can use this arrangement to offer employees the option of applying post-tax dollars toward the purchase of health insurance or taking those post-tax dollars as cash compensation.¹¹

To establish an employer-sponsored arrangement:

The IRS states that business owners can set up their payroll to have a portion of employees’ post-tax wages go directly to a health insurance company (if requested by employees) to pay for coverage without having to set up a group health plan.
One of the unique things with this arrangement is that the IRS excludes it as an employer payment plan.
Employer payment plans are considered group health insurance plans. So with this arrangement, you’re giving employees the choice of buying an individual health policy from an insurance company you provide them access to.

Create a Health Reimbursement Arrangement

It’s not traditional health insurance, but it can still help lower healthcare costs for your employees.

Health Reimbursement Arrangements (HRAs) are employer-funded group health plans.¹²
From this fund, employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year.
Unused amounts may be rolled over to be used in subsequent years.
The employer funds and owns the arrangement

If you want to offer a HRA, keep in mind:

Small businesses with fewer than 50 full-time equivalent employees can use qualified HRAs.¹³
Eligible small businesses can contribute pretax dollars to qualified HRAs of up to $5,850 for each single employee and up to $11,800 for each employee with dependents.

3. Dental & vision insurance

Dental

Did you know an estimated 29% of adults in the U.S. don’t have dental insurance?¹⁴

Without dental insurance, your employees are more likely to skip routine exams and avoid getting needed dental work because of the cost. Here’s what dental care costs out-of-pocket for common services:¹⁵

Exams (including x-rays and cleaning) = $75 to $20
Fillings (amalgam and composite) = $150 to $450
Tooth extractions (non-surgical, gum-erupted) = $219 to $4,000
Crowns (single resin) = $500 to $3,000
Root canals (single, exposed) = $300 to $2,000

Offering your employees dental insurance options can help offset the cost of dental care, depending on the service. Most dental insurance plans cover all or part of dental services based on three different levels of care:

Preventive care like routine exams and cleanings
Basic procedures like fillings
Advanced procedures like crowns, bridges, and other surgeries.

Vision

Offering your employees vision insurance can help reduce out-of-pocket costs for eye exams, glasses or contact lenses, and other eye-care products.

The average out-of-pocket costs per year for corrective vision care in the U.S. is about $500.¹⁶

Eye exams
Glasses or contact lenses
Eye-care products

Vision insurance is another supplemental health insurance product you can offer your employees. Eye care isn’t usually covered by standard health insurance plans.

4. Paid time off

According to the Society of Human Resource Management survey, respondents also ranked paid time off as a very important benefit.¹⁷In the U.S., 77% of employers offer paid leave for sick days, 79% of employers offer paid vacation days, and 81% of employers offer paid holidays.¹⁸

Some employers also offer paid time off for:

Maternity leave
Paternity leave
Jury duty
Bereavement leave
Mental health days

5. Retirement benefits

About 69% of employers offer retirement benefits, and have about a 52% participation rate.¹⁸

There are two primary ways you can offer retirement benefits.

Through a:

Defined benefit plan, which is a pension
Defined contribution plan such as a 401K

With a pension plan, your business puts in all the money. But with a defined contribution plan, employees put in most of the money, and you make a matching contribution up to a certain amount.

A type of pension plan that may be a good fit for your small business is the Simplified Employee Pension.¹⁹

This type of plan allows employers to set aside money in retirement accounts for themselves and their employees.
It does not have the start-up and operating costs of a conventional retirement plan.
It allows for a contribution of up to 25% of each employee’s pay.

If considering a defined contribution plan, there are a few that may work best for small employers because they offer more cost-savings. These include the following:

SIMPLE 401K for businesses with 100 or fewer employees
Small business owner 401K for companies where all the staff are part owners
Savings incentive match plan for employees (SIMPLE IRA) designed for firms that have 100 or fewer employees and don’t currently offer another type of retirement plan.

Should you offer retirement benefits?
In a recent survey by the Society of Human Resource Management, 82% of respondents said retirement and savings is an important benefit they want from employers.¹⁷And it’s a big shift, jumping 27% since 2020 as a benefit employees want.

6. Supplemental benefits

Health, dental and vision insurance are the most common benefits employers offer. But you can offer supplemental benefits to your employees, often at little to no cost to you. Here’s how:

Through an employer-sponsored group plan where you pay all or some of the costs of coverage
As a voluntary benefit where employees pay 100% of premiums through payroll deduction
By providing employees access to buying their own individual coverage where they pay premiums directly to the insurance company

While there are many types of supplemental insurance you can offer, let’s take a closer look at the following:

Disability insurance
Life insurance
Critical illness insurance
Accident insurance
Funeral expense insurance

Disability insurance

If someone gets hurt, can’t work, and needs to take an extended amount of time off, what will happen to their income?

That’s what disability insurance is for.

Disability insurance helps workers replace lost income if they end up being out of work due to a disabling illness, injury, or accident.

There are two types available:²⁰

Short-term disability insurance (offered by 43% of employers)
Long-term disability insurance (offered by 35% of employers) If an employee gets injured and can’t work, or can only work part-time, disability insurance pays the employee a monthly rate based on their annual income for a set period of time.

What about disability through Social Security?

If you’re thinking, “Couldn’t my employees just get disability benefits through Social Security?” The answer is “yes.”

However, keep in mind that 67% of first-time Social Security Disability Insurance (SSDI) applicants are denied.²¹
Even for those who get Social Security Disability, it may not be enough to cover the cost of living and other expenses. In 2024, the average disability payment is $1,537, and it can be even lower for younger workers.²²

By providing access to additional financial protection through disability employer benefits, you’ll give your employees more peace of mind about meeting financial obligations if they become disabled.

Life insurance

An estimated 57% of employers offer life insurance plans to employees.¹⁸

The type of life insurance that’s typically offered by companies is group term life.
Term insurance provides coverage for a specific number of years, usually 5 to 30 years, and is often used as income replacement when a primary income earner dies.

Here’s how this type of life insurance works for employers:

Coverage amount. You decide the amount of coverage you want to offer employees, such as 1 or 2 times their annual salary or a flat amount like $50,000.
Basic term-life. Some employers provide employees with a basic term-life insurance plan that pays an average of $10,000 to $25,000 if they die during the coverage period.²⁰
Tax-deductible. Premiums for group term policies are a tax-deductible business expense, which offers more incentive to provide this benefit.
If you give employees access to life insurance through a voluntary or individual plan, you still get an advantage because employees pay their own premiums.
Employees may also purchase additional life insurance coverage and pay the premium.

If an employee with a life insurance plan dies, the plan pays the person’s beneficiaries a designated amount often calculated to pay for funeral expenses, debt, cost of living, and other expenses.

Other types of life insurance plans include:

Whole life insurance. Whole life insurance differs from term insurance in that a portion of the premium goes into a guaranteed cash value account that is accessible.
Universal life insurance. This is a type of permanent life insurance that can last a lifetime with the monthly premium building cash value within the policy.

Critical illness insurance

Critical illness insurance is another type of supplemental insurance plan you can offer employees. It’s designed to help pay debts, expenses and costs of daily living in the event of an unexpected medical event or terminal diagnosis such as:²³

Heart attack
Life-threatening cancer
Loss of hearing, speech, or vision
Loss of independent living
Advanced Alzheimer’s disease
Major organ transplant
Paralysis
Coma
Renal failure
Stroke
Carcinoma in situ
Coronary artery bypass graft

Accident insurance

Supplemental accident insurance covers medically-related services and products that are necessary due to a qualified accident. Workers’ compensation insurance (required), helps protect employees injured on the job. But what happens if they’re hurt in an accident when they’re not at work?

Supplement accident insurance can provide a cash benefit for:

Medical expenses
Transportation
Lost income
And in most cases, anything else the insured person chooses to spend the cash benefit on

Funeral insurance

Did you know the average cost for a funeral in the United States is $7,848, according to the National Funeral Directors Association. The average cost for cremation is $6,971.²⁴Funeral insurance is another supplemental insurance option you can offer employees to help cover funeral costs if they die.

Ready to create your small business employee benefits package?

You’ve got a lot of options to consider when it comes to creating a small business employee benefits package to attract and keep top talent. Not sure where to start? Or have questions about what benefits to offer?

We can help. Call us at (800) 827-9990 or find a licensed insurance agent in your area to review your options and create a plan to help your business and employees thrive.