Benefits are crucial for recruitment, retention, and employee performance and health. But as a small business owner or HR leader building your company’s benefits menu, where do you begin? Here’s your ultimate guide to employee benefits — including what’s legally required, why you should offer more than the minimum, and how to create a customized employee benefits package.
Minimum wage, overtime pay, hazard pay, and bonuses are all ways to compensate your employees.
All employers, regardless of size, must pay their full- and part-time employees at least the minimum wage. The federal minimum wage in 2020 is $7.25 per hour. That’s the bare minimum you can pay your employees.
Many states also have their own minimum wage though. For example, in 2020, Arizona’s minimum wage is $12 and Georgia’s is $5.15. Employers who live in a state that specifies a state minimum wage must follow whichever minimum wage is higher, the federal one or the state one. There are also exceptions for employers having to pay employees the minimum wage. Exceptions include:
Employees with disabilities are also an exception, due to Section 14(c) in the Fair Labor Standards Act (FLSA). However, Congressional Democrats have introduced the Raise the Wage Act to stop the Department of Labor (DOL) from letting certain employers compensate employees with significant disabilities less than the federal minimum wage. The following states have abolished subminimum wages for people with disabilities: Vermont, Alaska, Maine, Maryland, Nevada, New Hampshire, and Oregon.
When it comes to wages, you don’t only have to pay your employees hourly. Other ways to pay your employees include salary or on a commissions basis. You’ll also need to consider your policy for giving your employees raises. Some employers give raises to all employees once a year as a percentage of their pay. An annual raise can help employees plan their budget and make sure they keep up with rising cost of living expenses.
| wdt_ID | State | City or County | Minimum Wage Rate | For Tipped Employees |
|---|---|---|---|---|
| 1 | Alabama | $7.25 | ||
| 2 | Alaska | $10.19 | ||
| 3 | Arizona | $12 | $9 | |
| 4 | Arizona | Flagstaff | $12 | |
| 5 | Arkansas | $10 | $2.63 | |
| 6 | California | $13 | ||
| 7 | California | Alameda | $15 effective July 1, 2020 | |
| 8 | California | Belmont | $15 | |
| 9 | California | Cupertino | $15.35 | |
| 10 | California | Daly City | $13.75 | |
| State | City or County | Minimum Wage Rate | For Tipped Employees |
If your business is covered by the FLSA, you have to pay overtime-eligible employees time-and-a-half pay for hours they’ve worked on top of their normal hours. Businesses covered by the FLSA are typically those that have an annual gross volume sales or business of $500,000 or greater.
There’s no law requiring it, but employers might decide to pay workers hazard pay when they perform hazardous tasks or for work that’s physically trying. Hazard pay is typically paid on top of one’s hourly wage or annual salary. For example, a business owner might pay a 10% premium on top of a worker’s hourly rate when they perform hazardous duties. Hazard pay can also be paid as a flat, per month rate.
Some small business owners decide to give employees a bonus to thank them for their hard work and reward top performers. Depending on your business, bonuses could be structured as individual incentives or as team incentives. Employees might work toward a goal, and if they accomplish the goal, they’re rewarded with a bonus.
Other employers use “spot bonuses” or one-time cash rewards given to individual employees. These rewards could be as small as $25 for a worker who’s gone above and beyond or delivered excellent customer service. Other types of bonuses include a:
Employers can provide various types of insurance to employees: health, disability, and life insurance are a few.
Health insurance — including medical, dental, and even vision — will likely be one of, if not your most, expensive benefit. For employees, however, health insurance is also one of the most crucial incentives.
Businesses with more than 50 full-time employees are also mandated to provide health insurance to workers, according to the Affordable Care Act. Otherwise, the business will have to pay a fee for every employee.
Most employers decide to pay a portion of the health insurance premium charged per worker, with the remaining costs passed on to the employee. The type of health insurance you choose will depend on several factors, including where your company is based and how many full-time employees you have on board.
Comprehensive health insurance includes:
Many small business owners also choose to offer employees the benefit of a Health Savings Account, or HSA, to help them cover what can often be high out-of-pocket medical expenses. With an HSA, an employer deposits part of their employee’s paycheck— pre-taxes — into an HSA account. The employee can then use the pre-tax money on eligible health expenses such as doctor copays and prescription drugs.
Flexible spending accounts, or FSAs, are similar to HSAs. HSA money, however, typically rolls over into the following year, while with FSA accounts, it’s usually “use it or lose it” for the year.
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees that leave your company — whether they quit, are fired, or retire — are entitled to continue with the group health insurance you’ve provided them while they’ve worked for you. COBRA is a federal law that applies to all employers with more than 20 employees.
However, many states also have similar laws that apply to smaller companies, so you’ll need to check with your individual state. Either way, the good news is that COBRA won’t cost you anything. Employers are allowed by law to charge former employers 102% of the cost of continuing with the health insurance they’ve had. So, employees who leave who want to keep their health insurance will need to pay:
This type of insurance gives employees partial wage replacement when they get sick or become disabled when they’re away from work. Five states currently require businesses to extend disability insurance to their employees. These states include:
For employers in all other states, providing disability insurance is optional.
Offering life insurance to your employees can help provide a financial safety net to family members in the event of an employee’s death. Employers can choose to pay all, part, or none of the monthly, quarterly, or annual premium payments.
With this type of insurance, employees who get hurt while they’re on the job are provided with partial wage replacement and coverage for medical bills. Workers’ comp is dictated by states, so you’ll want to check the specifics for your individual state. Some specify that employers with more than 5 employees must offer workers’ comp, while others mandate every company must.
States also vary in terms of which situations they require compensation in. For small businesses without workers compensation insurance, the alternative when an employee gets hurt at work would be to pay their partial wages and other related expenses out of pocket.
Small business owners aren’t required by federal law to give paid time off, but many states do have requirements, so make sure to check with your state’s labor department. Even if your state doesn’t require paid time off, employees need a break — so it’s a good practice to offer your workers at least some time off.
Some small businesses create an overarching paid time off (PTO) policy, which encompasses vacation, sick, and personal days. A general PTO policy can be easier to track and lets employees take advantage of unused sick days, for example, as vacation days. Other business owners choose to break out days off into separate policies.
Paid time off can include:
Sick, parental, and bereavement leave are some of the types of paid and unpaid leave employees may request to take.
While there are currently no federal laws that require employers to give workers paid sick leave, companies subject to the Family and Medical Leave Act (FMLA) do have to provide for up to 12 weeks of unpaid leave for certain medical situations, either when it comes to the employee or to a member of their immediate family. One example would be the birth or adoption of a child; another would be illness.
In most states, only employers who have 50 or more employees must follow FMLA. But certain states have their own family leave laws that you might be subject to.
Employees must be allowed to take FMLA leave once they’ve worked for their employer:
Some states also do require employers to give their workers paid sick days, though others don’t.
Companies that are subject to the Family and Medical Leave Act (FMLA) have to provide for up to 12 weeks of unpaid leave for the birth or adoption of a child. But some small business owners decide to make parental leave paid. Still others choose to supplement what’s required of them to make the benefit even more attractive.
Options might include:
Most employers have a policy in place for when one of their employees has a loved one pass away. According to the Society for Human Resource Management (SHRM), 90% of employers provide paid bereavement leave, which is typically anywhere from 2 to 4 days. SHRM has proposed extending:
For workers who need more time to grieve after losing a loved one, or who have to handle time-consuming family arrangements, some employers offer a 30-day leave of absence, which can be unpaid if the employee doesn’t have enough sick or vacation days to cover the time away from work.
Every employer in the United States must match their employees’ Social Security and Medicare tax contributions. The cost per employee will depend on how old each employee is and how much you pay them.
Under Title I of the Americans with Disabilities Act (ADA), all employers have to give reasonable accommodation to qualified applicants and employees who have a disability. There are a few caveats though. The employer doesn’t have to make accommodation if doing so would create an undue hardship for the employer or threaten the safety of the employee asking for the accommodation or for others. Types of accommodations might include:
A learning stipend is cash that you give employees to be put toward any type of continuing education or professional development. If you decide to offer a learning stipend, you can do so as often as you like — monthly, quarterly, or annually. Some business owners set aside a few thousand dollars a year per employee for learning opportunities. But even a small amount — enough for an employee to attend a local conference or two — can be attractive to employees.
Some small business owners choose to tie funds only to activities directly related to an employee’s job, while others leave the benefit more open.
Other ways to support employees’ learning could include:
With the majority of students who graduate these days leaving school in debt, a student loan assistance benefit can be especially attractive and helpful to your workers in paying off their loans early. You don’t have to contribute a huge amount to make the benefit worth it. In a low interest rate environment, even a small amount of assistance can go a long way to helping employees get out of debt.
Many companies with a student loan assistance benefit decide to:
Discounts at local shops and businesses can be a welcome benefit for employees who work and live locally. Discounts might include:
A growing number of workers find remote work a top benefit.
The flexibility to work remotely, whether it’s full-time or part-time, has become an increasingly attractive benefit for employees juggling work and family obligations and often looking to avoid long commutes.
Offering flexible work options can also help keep employees’ stress at bay and their productivity up. Some employers extend flexible options to working when employees want as well. If an employee is a night owl, for example, they might prefer to complete the bulk of their work duties in the evening when they feel most productive, instead of during the traditional work day.
In recent years, the IRS made identity theft protection a tax-free employee benefit whether a company has previously suffered a data breach or not. Before, only companies that had a breach could offer the benefit tax-free.
With identity theft rising at an unprecedented pace in recent years — and often starting at work — a benefit that monitors employees’ credit, new applications for credit cards, address, changes and even the dark web for their information can offer peace of mind.
A good number of Americans aren’t saving for retirement. As a small business owner, you can help by offering a retirement plan such as 401(k) plan that automatically takes money from employees’ paychecks and puts it into a retirement account.
With a 401(k), employees’ contributions are tax deductible, while businesses that offer a 401(k) can also claim tax credits. Retirement plans also don’t have to be a costly employee benefit. While setup could cost several hundred dollars, ongoing monthly fees per employee can run as low as in the single digits.
Some organizations also pledge to match employee contributions. So, if the employee commits to investing a certain percentage of their salary into the 401(k), the company matches that, or at least a portion of it — helping employees save even more.
When a small business awards employees stock options, they’re giving them the right to purchase shares in the company over a period of time. The hope is that the shares will increase in value as time goes by. So, when the business does well, employees will also benefit financially.
Some employers in big cities with an extensive public transportation system choose to give their employees a discount on public transportation, while others in areas where employees drive more might offer parking discounts. Small businesses could also give incentives to employees who agree to commute mainly via public transportation, or even bike, carpool, or walk to work.
Programs that promote wellness have the potential to help lower healthcare costs and boost employee well-being and productivity. Wellness programs can be very affordable, depending on how you structure them. For example, you might:
Breaks during the work day, whether they’re for lunch or they’re periodic breaks throughout the day, are not legally required by the federal Fair Labor Standards Act (FLSA), which sets the national standard for hour and wage laws.
Some states, however, do have rules in place that mandate employees get breaks for meals, rest, or both. But other states have no such mandates. For example, in Texas, breaks are discretionary for employers, while in California an employee working for 5 hours or more must be given a meal break of 30 minutes, at a minimum.
Federal law, however, does require employers to provide reasonable break time for a worker who needs to express breast milk for her nursing child. The employer must:
Small business owners might also be required to give their employees leave for the following reasons:
On top of what’s required when it comes to employee benefits, many small business owners decide to create a comprehensive benefits package that includes extra perks. If you can afford them, benefits such as a generous parental leave or even tuition assistance can go a long way toward building good will among your workers.
Business owners often get creative when they formulate their benefits package, adding in perks that don’t break the bank but are meaningful for employees. Here are some fringe benefit examples.
As a small business owner, replacing employees can be a frustrating process that costs you significant time and money.
According to the Society for Human Resource Management (SHRM), the cost to replace an employee can reach up to 50%-60% of an employee’s annual salary, while an analysis by the Center for American Progress estimates replacement costs at about twice an individual’s annual salary.
Retaining your workers by having a strong benefits package should be a top priority. Creating a benefits package that offers more than the minimum will make your business an attractive one to prospective employees and help with both employee recruitment and retention.
A solid benefits package often results in employees who are:
Research shows that when employees feel valued and they believe their benefits needs are being satisfied, they also perform better on the job and are more productive overall. In addition to offering more than the minimum, it’s also a good idea to closely monitor your employee benefits program so you can see which benefits employees love and which ones they can do without.
Setting up an employee benefits package can seem daunting at first, but it doesn’t have to be overwhelming if you take it step-by-step.
1. A first step in setting up an employee benefits package is to establish your goals and your budget. How much money can you dedicate to both your overall benefits program and to paying for benefits for each employee on your team? Set up a spreadsheet and dive into crunching the numbers.
2. Then, once you’ve established your goals and your budget, make a list of the benefits that you have to provide your employees based on either federal, state, or local law. You’ll need to do a bit of research to find this out, and you can tap into information from your state’s Labor Department to learn what benefits are mandated by your state.
3. After you have your list of must-have employee benefits, you can start to estimate your initial benefits program costs by shopping around for providers.
The cost of each benefit — healthcare for your employees, for example — will depend on your business’s location and the number of employees that you want to insure, among other factors. Keep in mind that medical insurance will be one of the costliest benefits that you provide.
4. Once you’ve created a budget and you’ve estimated how much you’ll have to spend on required employee benefits, you can calculate how much money you have left over to spend on additional perks.
Establishing your goals and your budget is essential to creating your employee benefits package.
5. Now comes the tough part: choosing the additional perks. One way to gauge which benefits your employees might find especially valuable is to survey them.
Send out a survey about their priorities and preferred benefits based on their own unique situation and lifestyle. The top-rated employee benefits tend to be healthcare — which can include medical, dental, and vision — and paid time off. In general terms, you can use the following as a gauge of monthly costs per covered employee:
You might also look at data from the Bureau of Labor Statistics that shows various amounts employers pay for a variety of employee benefits.
6. Once you’ve developed your full menu of employee benefits, you’ll want to think about how you’re going to run your employee benefit program. Many small businesses — and especially those with more than 10 employees — find that the best way to keep track of employee benefits is with an HR and payroll software.
A good software program will help you keep track of all of your benefits in one spot and will also help to ensure that the data doesn’t get compromised or lost. A good HR and payroll software program will include features such as:
7. Finally, don’t get complacent with your employee benefits program. Once you have your system in place, keep tabs on how it’s going with periodic reviews. You can run a variety of reports using your HR and payroll software to see which benefits employees are taking advantage of and how often. You can also survey your employees again to get a feel for which benefits have been successful and which have not.
If one, or even several, of the benefits you’ve chosen don’t seem to be popular with your employees, don’t hesitate to get rid of those benefits and test out another one.
Since some employee benefits are required by law, all small businesses must take the time to address the issue of an employee benefits package.
Small businesses, especially, can more easily suffer from having to replace an employee who’s left the company, so making sure your benefits package is attractive to your employees can be crucial to saving both time and money. Ultimately, a strong benefits package can help to boost the bottom line.
A comprehensive benefits package can also help you to recruit employees to your business, attracting the best and brightest. As you create your employee benefits package, consider being as generous as you can given your finances, and throwing in some unexpected, exciting perks to keep your employees happy and engaged.
