Why Offering Employee Benefits Matters and What You’re Legally Required to Provide
Benefits play a crucial role in attracting top talent, boosting employee morale, and reducing turnover rates. In fact, nearly 20% of HR professionals update their benefits packages annually to improve retention. While benefits are an excellent way to keep your key employees satisfied, many of them are also legally mandated.
From healthcare requirements under the ACA to workers’ compensation and evolving retirement plan laws, here’s a brief rundown of what employers need to comply with—and some recommended benefits to consider.
6 Benefits Employers Are Commonly Required to Provide
Let’s start with the essential benefits that help you stay compliant and avoid legal risks. Keep in mind that many requirements are state-specific, so we include links to detailed regulations for your region.
Workers’ Compensation
If an employee gets injured or ill on the job, workers’ compensation protects both the employee and employer by covering medical bills and rehabilitation costs. Most states mandate workers’ comp coverage, though the details vary. For instance, California requires it for any business with even a single employee, while New York enforces fines for small employers who don’t comply. Texas currently does not require this coverage. Check your state’s regulations with our workers’ compensation resource.
Retirement Plans
In recent years, several states have introduced mandates requiring employers to offer retirement plans based on company size. For example, California and New York City require this for companies with more than five employees, while Illinois’s rules apply to businesses with over 25 workers, with smaller firms soon joining. According to a 2020 survey, 401(k) plans rank high on employees’ priorities, just behind health benefits and paid time off. Even if not mandatory where you operate, offering retirement options is wise and helps employees plan for their future. Learn more about 401(k) plans for small businesses.
Health Insurance
Under the Affordable Care Act, businesses with over 50 employees must provide health insurance or face penalties of roughly $4,000 per employee annually. Smaller businesses aren’t required to offer coverage but doing so can help attract candidates and retain staff. Our 2020 research found that more than half of small businesses provide health insurance, and a Harvard Business Review study showed 88% of workers would prioritize health, vision, and dental benefits over a higher paycheck.
Family and Medical Leave
The federal Family and Medical Leave Act (FMLA) grants eligible employees unpaid time off for family or medical needs, usually up to 12 weeks annually, with job protection. Nine states offer paid family leave options to supplement this. Our paid family leave guide explains state-specific policies.
Short-Term Disability
Short-term disability insurance offers income protection for employees unable to work due to temporary disabilities, like illness or injury. Some states, such as California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico, require this coverage.
Unemployment Insurance
Though often overlooked as a “benefit,” unemployment insurance is mandatory and typically deducted through payroll taxes. It provides partial wage replacement for workers who lose jobs involuntarily. Employees who quit voluntarily, are terminated for cause, or independent contractors don’t qualify. This insurance is integrated into normal payroll processes.
Optional Benefits That Appeal to Employees
Many employees value additional perks, with 80% indicating they prefer enhanced benefits over pay raises. Offering extras beyond the legal minimum can improve your ability to attract and keep skilled workers.
Popular Optional Benefits Include:
- Health insurance
- Paid time off (PTO)
- Retirement plans
- Vision and dental insurance
- Parental leave
- Life insurance
- Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA)
Paid Time Off (PTO)
PTO ranks as the second most valued benefit among small business employees and may reduce absenteeism by 6-8%. Data also shows that rested workers tend to be more productive. Efficient PTO tracking tools can simplify management, with costs typically increasing labor expenses by around 2% per week of vacation offered.
Commuter Benefits
Employers can provide pre-tax commuter benefits to cover public transit, parking, or vehicle expenses. Some states and cities have mandated commuter benefit programs.
FSAs and HSAs
Flexible Spending Accounts and Health Savings Accounts let employees use pre-tax income for medical expenses, copays, or prescriptions. Eligibility and rules vary depending on whether you offer health insurance and deductible amounts. Working with a benefits broker can help set these up correctly.
529 College Savings Plans
These allow employees to save pre-tax money for their children’s education, helping address rising college costs. Although awareness is low, employees often appreciate this benefit once they learn about it.
Work From Home (WFH)
Remote work options have become more popular, with nearly half of small businesses now offering permanent WFH arrangements. About 70% of job candidates expect flexible work options, which can also boost productivity.
Did You Know?
Many employers extend benefits to part-time staff as a strategy to attract and retain valuable employees.
The Business Case for Offering Benefits
Balancing the costs of benefits with their advantages can be challenging, but here are several compelling reasons to invest:
- Boosted Productivity: Studies show that satisfied employees can be up to 31% more productive, with corresponding sales increases.
- Improved Retention: More than half of workers say they’re likelier to stay with an employer offering favorable health plans. Retaining employees reduces the high costs of turnover.
- Affordable Options: Some benefits cost just a few dollars per employee monthly, while others, like health insurance, can be more expensive. Nearly half of employers with fewer than 10 employees still find ways to offer some health coverage, and options like remote work can cost nothing at all.
If your business is subject to any of the required benefit laws, it’s best to prioritize compliance first. For deeper understanding and implementation, working with a benefits expert can simplify the process. Beyond clients can access a dedicated team of small business benefits specialists to guide them through these steps.
