The Employee Benefits Your Start-up Should Offer
By now, you've probably taken care of all the federally and state mandated benefits that you need to offer your employees. If you read that sentence and thought, "Wait, I have to do what?!" then you might want to go back and read our other two blogs on required benefits:
Overall, employee benefits are a win-win. Employees love them because they can add financial and professional value to the their lives, and employers love benefits because they are helpful in attracting and retaining talent. Just because employee benefits as a whole are a win-win does not mean that benefit programs are one size fits all. In fact, it's quite the opposite. Employers should thoughtfully consider and select benefit programs that will be most helpful to their employees. After all, what good is a benefits program if nobody wants to enroll in it?
So what are some of those benefits that aren't required but offer a lot of value? Let's take a look.
Businesses commonly offer group-term life insurance to employees. An employee’s spouse or children are not usually eligible for group-term coverage, but some plans allow the employee to pay for additional coverage for their spouse or children. The word ‘term’ means that the life insurance policy is in effect for a certain period of time only. Generally, with employer-sponsored life insurance, the term is for as long as the employee works for the employer.
Life insurance coverage is quite variable and can depend on the industry, specific employee’s job, and more. Insurance providers usually assess a company’s demographics to determine how much coverage is appropriate for a business or group of individuals. Your business insurance provider should be able to help you navigate this sensitive process.
An often-overlooked aspect of group life insurance is that it is considered a taxable benefit after a certain limit. As of 2021, IRS Code Section 79 states that any group life insurance coverage over $50,000 and paid for by the employer is a taxable benefit and must be reported on the employee’s W-2 form as income. If an employer pays for $60,000 of life insurance for an employee, the employee is subject to pay income tax on $10,000 of that amount. Because group life insurance may affect your income and payroll, it’s best to work with your insurance provider and accountant to ensure you are properly filing your business taxes.
Dental insurance is not required by law, but a 2017 survey showed that 67% of small businesses and 97% of large businesses offered dental benefits to employees. Some health insurance plans include dental coverage in their packages, but most often, dental plans are offered separately. Dental insurance typically covers a portion of the costs for things like preventive care, fillings, crowns, root canals, and oral surgery. Some plans may also cover orthodontics or other oral hardware like dentures and bridges.
Although dental insurance is not required, the growing awareness that dental health can significantly improve physical and mental health is prompting more employers to offer this benefit. Fortunately, dental insurance is more affordable for employers and employees compared to health insurance.
Like dental insurance, vision insurance is not required by law. Basic vision insurance covers things like annual eye exams, eye glass prescriptions, and contact prescriptions, and more comprehensive plans might cover procedures like LASIK. Again, some health insurance plans may include vision coverage which can be beneficial, but this is not often the case. Vision insurance is typically even more affordable than dental insurance, and employer sponsored vision insurance is a great benefit to offer employees as it can aid in attracting and retaining employees.
Retirement Savings Plans
Retirement savings plans, also called employer-sponsored savings plans, may be one of the most sought after benefits next to employer sponsored health insurance. These savings plans, like 401(k), Simple IRA, and 403(b), allow employees to invest a portion of their paychecks into an interest-gaining account while benefiting from tax breaks.
Often, employees want to know if a savings plan is matched. In a matched plan, the employer matches – usually up to a certain amount – an employee’s contributions to the savings plan. Employers don’t have to match employee contributions, but employers who don't can run into issues when annual discrimination testing is done on the plan.
As an employer, if you match a portion of your employees’ contributions, you can deduct your matched contributions on your company’s federal income tax return up to a certain point. Savings plans are also very attractive to prospective employees and can be helpful in attracting and retaining talent.
Wellness programs are likely the most loosely defined benefit that employers can offer to employees. Wellness programs may include employee sponsored fitness memberships, additional mental health days, flu shots, and more. Wellable, a company that helps organizations create healthful employee environments highlights eight dimensions of well-being: physical, emotional, financial, social, occupational, purpose, intellectual, and environmental. While an employer may not be able to offer programs or services that touch each of these areas, many are able to add value to employee wellness within the structure of existing benefits when these benefits are combined with a company culture that promotes the success of employees.
There are many voluntary benefits that an employer can offer to employees, such as pet insurance, cancer insurance, and critical illness insurance. With voluntary benefits, the key word is "voluntary." The employee decides which, if any, of the benefits they want and pays for them through convenient payroll deductions. The employer can offer the benefits based on group underwriting and at group rates - allowing the employee to get a better deal than what is offered to individuals. The win for employers is that they can offer a Fortune 500 level of benefits without having to pay for them - the employee just chooses the benefits most important to them, which might differ from everyone else.
As an example, employers recently started offering identity theft insurance to employees. A 2018 survey indicated that roughly one-third of employers offered this insurance, and about two-thirds of polled employers stated they wanted to offer identity theft Insurance by 2022. The availability and demand for ID theft insurance was driven by the large increase in cyber attacks and subsequent identity thefts of individuals, which can cause a huge loss of time and money if not handled with expertise.
It is important to know your employees and their general needs to know what benefits you should offer. Insurance advisors can help you review your employee profile to know what voluntary benefits make the most sense to complement your employer-paid benefits, and how to administer them with new cloud-based systems to keep your paperwork headaches to a minimum.
These are just a few examples of commonly offered benefits, so this list is not exhaustive. It is also important to remember that benefits don't always mean "insurance." Yes, many benefits are insurance policies that employees can utilize, but there are others like retirement programs, wellness programs, or continuing education programs that are not insurance policies.
The most important thing to remember is that you should select benefits that your employees will want to enroll in. You probably won't be able to cover all the bases, so choose what is most important today. As you grow, you can always add benefits, but it's a lot harder to offer a smorgasbord up front and later need to take it away.