Employee Benefits: A Guide for Small Business Owners

Wages, overtime, bonuses, and other salary benefits.

You might not think of wages as an employee benefit, but they can be when you begin adding additional methods of obtaining higher earnings. For example, your employees may have base salaries, but they may be able to earn bonuses or a percentage of sales. Those additional earnings would be considered employee benefits.

What is minimum wage?

The federal government and state governments establish minimum wages that must be paid to employees. Currently, the federal minimum wage is $7.25 per hour. Many states have a minimum wage that is higher than that amount. In fact, some cities or counties impose higher minimum wages for local employees also.

Overtime pay.

Any employee who works more than 40 hours in a week is eligible for overtime pay. Some states have additional laws surrounding this regulation. These employees are entitled to receive a work rate of not less than 1.5 times their regular pay rate. Many companies pay even more for employees who work on holidays.

Salary benefits.

Many employers offer benefits packages that allow employees to earn money above and beyond their established salary. Employers often base bonuses on a variety of factors, including:

• The amount of the base salary
• The performance of the employee
• The success of the business
• Sales attributed to the employee
• Referrals attributed to the employee

The way in which bonuses and other salary benefits are provided should be clear and written in a company policy. They should be applied consistently to all employees to avoid the appearance of favoritism.

Legally required employee benefits.

The federal government, as well as state governments, require employers to offer some benefits to employees. According to the U.S. Bureau of Labor Statistics, some of those “legally required benefits provide workers and their families with retirement income and medical care, mitigate economic hardship resulting from the loss of work and disability, and cover liabilities resulting from workplace injuries and illnesses.”

Some of the mandatory employee benefits that state and federal laws require include:

Social Security

Social Security—also known as Old Age, Survivors, and Disability Insurance—provides income for retired workers, dependents, disabled workers, and certain families. Social Security is funded by a payroll tax on wages, which is generally 6.2% of taxable income for employers and 4.2% for employees.

Medicare

Medicare is a program that pays for medical care for retired people and individuals with long-term disabilities. It is funded by employees and employers through a payroll tax of approximately 1.45% of taxable earnings.

Unemployment

The Federal Unemployment Tax Act (FUTA)—which is also known as federal unemployment insurance, as well as state unemployment insurance—provides income benefits to individuals who have lost their jobs. FUTA covers the federal government’s share of administering the unemployment insurance and job services programs in all states. During periods of high unemployment, FUTA pays half of the cost of unemployment benefits.

State unemployment insurance (SUI) provides income payments to eligible workers who have been laid off from their jobs. Benefits are typically paid weekly and amount to a percentage of an employee’s average weekly wage up to a maximum amount. While SUI is mandated by the federal government, it is administered by states. SUI is funded by state payroll tax that employers pay.

Workers’ Compensation

Worker’s Compensation (WC) pays medical expenses, a percentage of lost income, and disability payments for employees who suffer from work injuries or illnesses. WC programs are administered by state governments and paid for by employers. WC insurance may be available through state-approved insurance plans, private insurance carriers, or self-insured coverage.

Health insurance

The Affordable Care Act (ACA) requires certain employers with 50 or more full-time employees to provide affordable health insurance to eligible full-time employees. There are several requirements of those health insurance plans that must make them “adequate” for employees, including the overall allowable cost of the plans and percentage of total coverage they offer.

Family And Medical Leave Act benefits.

Private employers with 50 or more employees must also comply with Family and Medical Leave Act (FMLA) benefits. This allows employees to take up to 12 weeks of unpaid, job-protected leave for certain family and medical purposes during a 12-month period. Employees are also eligible for up to 26 weeks of unpaid leave in a 12-month period for Military Caregiver Leave. Qualifying events for unpaid leave include childbirth, serious or chronic personal illness, or caring for a family member with a serious or chronic illness.

It’s important to note that some states, such as California, require employers to give employees additional paid or unpaid sick and safe leave. Make sure you do your homework to know your state and local leave laws.

Disability insurance

Some states require employees to offer disability insurance to employees. Disability insurance provides partial wage replacement for employees who suffer illness or injury that requires them to miss work. It is not a federal benefit, but states like California, Hawaii, Rhode Island, New Jersey, New York, and Puerto Rico require employers to offer it.

Types of employee benefits not required by law.

There are some employee benefits that employers choose to offer, but they are not required by law to provide them to employees. Non-mandated employee benefits are provided at the discretion of the employer. They may include:

Paid vacation time.

Nearly all employees expect some paid vacation time when they begin working a full-time job. Many employers offer a standard two weeks for the first year in which an employee is working, with that amount going up over time.

Paid time off.

There is a trend to offer vacation and sick leave as paid time off (PTO) instead of separate benefits. Some companies even offer unlimited PTO. Some studies have suggested that employees take less time off when the benefit is considered “unlimited.”

Sick leave

Sick Leave (other than FMLA) would include paid time off for days when an employee or immediate family member is ill or injured. Many companies offer only a few sick leave days per year; however, employees may utilize FMLA in conjunction with sick leave to get more time off. California and some other states mandate additional sick and safe leave time.

Contributions to retirement savings plans.

Retirement plans, such as a 401k, are common employee benefits through an employer. Employers generally contribute a matching amount of money that is equivalent to the amount the employee contributes up to a certain percentage of the employee’s income.

Tuition assistance

Many companies offer tuition reimbursement assistance to employees. You might consider tuition assistance for specific majors that would benefit your organization or for any educational pursuit. In many cases, a company will require an individual to remain with the company for a certain amount of time after they receive a degree in return for tuition assistance.

Professional development

Professional development or ongoing education is an important part of most careers. Many companies offer employees a certain amount of money annually to cover professional development expenses, which may include travel, food, and tuition budgets.

Wellness programs

Healthy employees are the most productive. Thus, wellness programs or incentives can benefit your entire organization. That might include participation in smoking cessation or gym memberships. There is no limit on what types of wellness programs you can offer as a small business.

Child care assistance.

Child care costs are astronomical. In fact, many employees are forced to quit their jobs to stay home with children because of the rising cost of child care. An employee benefit that includes child care assistance will reduce stress, boost employee appreciation, and ensure children are cared for properly.

Travel or public transportion benefits.

Employees who must travel a distance to work may appreciate mileage reimbursement or public transportation benefits. Some companies offer a stipend for travel costs, or they will purchase bus passes for employees who use public transportation.

Ability to work from home or remote work.

Polls indicate that the majority of employees in today’s workforce want the option of working from home at least some of the time. While there are some industries where this is not possible, many companies can offer remote work options. Small businesses should consider downsizing offices and supporting work from home arrangements for employees who are interested in such a setup.

Employee benefits result in employee satisfaction.

Many employees have reported that these additional benefits are major factors when evaluating job offers. Employers can improve the caliber of their workforce and applicants by offering more than the basic legally required benefits package.

Full-time employee benefits.

Most of the legally required employee benefits apply only to full-time employees. Additionally, many companies require an employee to be full-time before they are eligible for additional perks and non-mandated benefits.

A “full-time” employee is generally one who works 35 to 40 hours per week. However, companies are free to redefine that as they wish. It’s important to note that some salary benefits (Ex: overtime) must be provided for employees who work more than 40 hours.

Part-time employee benefits.

Part-time employees often do not have the same options for benefits that full-time employees do. However, they can always bargain for or negotiate with small businesses to obtain the benefits they want.

Most federally required benefits only apply to full-time workers. It’s important for an employee to keep track of their hours and ensure their employer is properly categorizing them pursuant to state and federal laws, as well as company policies.

Employers offer an array of employee benefits.

Offering a variety of employee benefits can be one way to attract the best employees to your company. While you are required to provide certain benefits, there are many that you can choose to offer as an added perk.