How to Build an Employee Benefits Package — Plus the Types of Benefits You Can Offer

Offering employee benefits is one of the most important decisions an employer can make. A strong benefits package can attract top talent — and be a key retention tool, too. Benefits can make a positive impact on employees’ lives and help them feel healthy, rewarded, and appreciated. Numerous studies have shown that happier employees are far more productive than ones that are unhappy.

So how do you go about building a strong benefits package? If you’re building one for the first time, or looking to update your own, check out our tips — plus details on what benefits you can offer.

How to build a benefits package

When building a strong benefits package, the key is thinking about your current culture and the demographic of your employees and how they might value each of these areas.

Ask yourself: Do my employees care less about things like workplace perks and tuition reimbursement and more about telecommute and flexibility? And then go ask your employees. Employee surveys are a fast and easy way to help you align your offerings.

Once you’ve built the right package of offerings, the next step is effectively communicating it with your current and prospective employees. Consider how you will weave it into the vein of your organization’s values and mission. Again, benefits help show your employees that you value them — and that aligns well with core values like making your company a great place to work.

Benefits help show your employees that you value them — and that aligns well with core values like making your company a great place to work.

Obligations and eligibility

Requirements around employee benefits are first based on the number of full-time employees at your company.

If the company is an Applicable Large Employer (ALE), an hourly employee becomes eligible for benefits if the number of hours they work meets or surpasses full-time work. The Affordable Care Act and the IRS define a full-time employee as one who works at least 30 hours a week or 130 hours a month on average (which we covered in Chapter 6).

If the company is not an ALE, offering benefits to hourly employees is based on the company policy and carrier requirements.

When dealing with employees whose schedules fluctuate, it can be difficult to determine if their hours meet a level that is full-time. In situations such as this, the federal government has outlined a process for determining eligibility. The process involves 3 parts:

• Standard measurement period: During this time (3-12 months according to employer’s discretion), an employee’s total hours are divided by the number of weeks worked to determine if their hours are averaging 30 or more per week.
• Administrative period: During this time (no more than 90 days), the employer calculates an employee’s eligibility, discusses the employee’s status with them, and enrolls the employee in a benefit plan, if necessary.
• Stability period: During this time (6-12 months and not shorter than the Standard Measurement Period), the employee is offered benefits if qualified. An employee’s offer and enrollment status is protected even if their hours drop below 30 per week until the Stability Period has ended and eligibility is determined again.

What types of benefits to offer

Here are the types of benefits you can offer, including medical, retirement, life insurance, and more.

Medical

This overarching term can include medical, dental, and vision coverage for yourself and employees. The majority of businesses that do cover their staff members with healthcare insurance do so with medical insurance. Medical can cover everything from doctor and hospital visits, prescription drugs, and catastrophic care.

Most businesses and employees prioritize medical coverage over any other plan.

Depending on the plan you select, the amount of coverage available to you or your employees can increase or decrease, as will the cost. The more the plan offers (wellness checkups, lower copays, and deductibles) the higher the cost. The more basic the plan, the lower the cost to you and/or the staffer.

Some companies add to their healthcare coverage with dental and/or vision coverage and wellness programming. While these are attractive to employees, most businesses and employees prioritize medical coverage over any other plan.

Dental

Your company does not have to offer dental coverage for adults under the ACA.

But for employers, offering dental insurance is a good option if they want to attract top talent. Employers do not have to completely cover the premium costs of the dental plans. An employer can lower their costs by only contributing a certain percentage to the premium costs of certain plans, giving employees options to opt-in or not. Employers can also offer plans where employees pay full costs but the company gets better rates by administering the plan and taking care of employee payroll deductions.

Services required

There are Dental HMO-style plans as well as Dental PPO-style plans. The DHMO is lower in cost because all of the services have preset co-pays and will require a primary care provider to get access to all care as there is no out-of-network coverage. The Dental PPO category has a wide array of plan options that do not require a primary care provider and that allows wider choice in terms of visits to specialists as well as coverage for out-of-network visits.

Plan types

You can expand the number of providers available to you by opting for coverage that allows out-of-network care, such as with a PPO (Preferred Provider Organization) or an indemnity plan. Be aware though that as availability goes up, so does the cost, which means you’ll end up paying higher out-of-pocket expenses. A DHMO (Dental Health Maintenance Organization) will generally offer the lowest co-payments, but that comes with the limitation of having to stay strictly within your plan’s network of providers.

Vision

Offering some form of health insurance is, more or less, a must these days, especially since the Affordable Care Act mandated that employers with 50 or more full-time employees provide it or pay a penalty fee.

The law doesn’t extend to adult vision insurance, so it is up to individual companies whether they offer an employer-sponsored vision care plan. Why would you spend money on a non-essential cost? Simple. Vision insurance offers numerous benefits to the company’s reputation and its bottom line.

Vision insurance policies typically cover routine eye examinations and discounts for the purchase of corrective eyewear. Some policies also contribute dollars towards laser corrective surgery and other procedures.

For employees, an employer-funded plan defrays some of the (potentially) high costs of routine eye care. Offering employees these benefits — especially if they are at risk of digital eye strain through long hours in front of a computer screen — sends a message that you care about their health and well-being. Offering this extra perk differentiates your organization from run-of-the-mill companies that do not invest in health, and it boosts staff recruitment and retention.

FSA

A flexible spending account (FSA) is a tax-advantaged benefit set up by business owners for their employees. Employees are able to set aside a portion of their earnings to pay for a variety of healthcare and dependent care expenses.

These accounts save employers and employees a portion of their payroll tax because the contributions are made with pre-tax dollars.

Employees can use an FSA to pay for expenses not covered under a medical, dental, or vision plan, plus some over-the-counter expenses, and expenses related to child, elder, or dependent care.

The Internal Revenue Service allows businesses to deduct a portion of an employee’s salary to place in an FSA. The money is deducted before income taxes, which reduces an employee’s taxable income.

HSA

A health savings account (HSA) is a tax-advantaged medical savings account for U.S. taxpayers who are enrolled in high deductible health plans (HDHPs). Employers may make contributions to their employees’ HSAs, and the funds that an individual or business contributes to a given account aren’t subject to federal income tax. Also, funds that aren’t spent roll over and accumulate year-to-year.

People may use funds from their HSAs to purchase eligible medical expenses (prescription costs, deductibles, copayments, and coinsurance) without paying taxes on those purchases, according to Section 213(d) of the Internal Revenue Service Tax Code. If an individual wants to use HSA funds for over-the-counter medications, he or she will need to obtain a doctor’s prescription for the item(s).

Retirement

It’s never too early to think about retirement, especially since 1/3 of small business owners don’t have a retirement plan, according to a report by Manta.

For most workers, their 401(k) retirement plan and Social Security (FICA) contributions are the financial safety net they will rely on when they reach retirement age.

In 1978, the Internal Revenue Service Code made it possible for U.S. workers to set aside a portion of their pre-tax income into a separate savings account called a 401(k).

In short, a 401(k) is a company-sponsored, defined contribution plan that allows employers to set aside pre-tax dollars for retirement.

Wondering what a defined contribution (DC) plan is? It’s a plan where employees set aside a fixed amount (either a dollar amount or percentage of their paycheck) for their retirement.

These 401(k) plans were designed to encourage workers to set funds aside for their retirement by allowing them to avoid payroll taxes on the income they earned today if they saved something for the future.

Most employers provide a matching contribution to each employee’s 401(k), even though it’s not a requirement by law, to further incentivize workers to plan for retirement.

Businesses can match up to 100% of the employee contribution as long as the total amount funded doesn’t exceed $59,000 a year for 2020.

On average, Fidelity reports employers match about 4.7% of their employee’s contributions with additional funds into their accounts.

Life insurance

Life insurance is an optional employment perk that employers do not have to offer to any employees. If a company offers life insurance, there is no minimum or maximum amount of coverage that they must offer.

Common types of life insurance include:

• Term life insurance
• Whole life insurance
• Universal life insurance
• Variable life insurance
• Simplified life insurance
• Simplified issue life insurance
• Guaranteed issue life insurance
• Group life insurance

Disability insurance

Short-term disability kicks in immediately when an employee gets an injury, but there is typically a waiting period of up to 7 days before it kicks in for illness. STD coverage lasts the entirety of the established short-term policy which is often under 90 days.

For example, an employee enrolls in a short-term disability plan with an 90-day short-term policy, then gets an injury. The employee can receive STD coverage for up to 90 days.

Long-term disability typically has a longer waiting period before it begins for both injury and illness. If LTD coverage is paired with STD coverage, the long-term disability will usually kick in when the short-term disability ends. However, for employees who are only participating in LTD coverage, the waiting period can be anywhere from 3-6 months before their coverage kicks in.

For example, another employee at the same company purchases both short-term and long-term disability coverage. The employee’s disability period lasts beyond the 90-day short-term limit so their LTD coverage begins as soon as their 90 days of STD coverage ends.

Supplemental

Sometimes referred to as gap insurance, supplemental insurance acts as a type of safety net. A Harvard University study showed that approximately 62% of personal bankruptcies in the United States are due to the accumulation of medical debt.

The study highlights in more detail that those that filed for bankruptcy due to medical debt were actually covered by a primary insurance plan. With staggering statistics like that, supplemental health insurance may be worth the extra investment. In a nutshell, some of the primary benefits of supplemental health insurance are:

• Guaranteed coverage of special medical needs such as dental and vision work
• Coverage for critical illnesses that require surgeries, extended hospital stays, and frequent medical treatments
• Accidental death policies can also be supplemental insurance. If someone works within an especially dangerous field of work, they can purchase such coverage

Supplemental health insurance is an option for anyone that already has coverage through a primary insurance plan but feels they need additional coverage in the future. Gap insurance is a great option for all employees, but would be especially beneficial for:

• Employees that do not have a savings account that is higher than their deductible
• Those that are hoping to move up a tier in their insurance coverage, but have a long waiting period before open enrollment
• People that anticipate needing vast medical coverage over a short period of time — maternity care, cancer treatments, or specialized hospital care are just a few examples
• Employees that simply want to know that their medical needs would be met with minimal out-of-pocket expenses