Choosing the Right Benefits Package for Your Small Business
Published on January 16, 2018
What to expect in your benefits package?
This is a question most new employees want answered. But what does a good small business benefits package look like? Forbes defines a good small business benefits package as “health insurance, some life and disability insurance and probably a retirement savings plan.” But this might not apply strictly to every small business in the marketplace. And if you do offer all those benefits, there are plenty of different plans that offer those benefits.
What types of benefits should you offer in your benefits package?
This isn’t going to be a straightforward answer, because every business has a different budget and employees with varying needs. But let’s look at what you can offer in a small business benefits package. And remember, a small business benefits package can be great for employees. Not only will you give your employees security and encourage them to stick around, you can also save money when tax season comes around.
Health insurance in a small business benefits package
This might be the first thing an employee is going to expect out of a benefits package. Luckily for you, group health insurance comes in many shapes and sizes to fit your specific budget and needs. One big difference between plans is whether it’s a Preferred Provider Organization (PPO) plan or a Health Maintenance Organization (HMO) plan.
HMO plan: An HMO plan may have lower premiums than a PPO, but with those lower costs comes less flexibility. If you include this plan in your small business benefits package, your employees will probably need to have a primary care doctor that they coordinate with to get referrals for specialized care. Employees might also be required to receive medical care “in-network”, which means only working with doctors and hospitals who have a partnership with the insurance provider.
PPO plan: In simple terms, a PPO is an organization that works with contracted medical providers to create a network. You can use this provider network, but might also have the flexibility to choose doctors outside the network by paying more. With this type of plan, you typically do not need to have a primary care provider. You don’t usually need to get referrals for specialists or advanced care. This plan might have higher out-of-pocket costs than alternatives such as a HMO.
Retirement savings in a small business benefits package
You may also find that there are plenty of ways that offering health insurance to your employees benefits you as a small business owner. Be sure to understand the specifics for any particular insurance product you choose. In particular, each plan will have specific limitations, exclusions, and definitions that vary from plan to plan.
There are a few options for retirement plans that you could add to your small business benefits package. A common choice is a defined contribution plan, such as a 401(k). You can choose to offer a 401(k), which allows employees to set a certain amount of their paycheck aside, often with investment options they can customize. You can then match a percentage of whatever they set aside. This is a great plan that could appeal to different budgets, since you can limit how much employees can contribute, decide how much you match, and establish requirements for when employees become eligible. Your generosity can motivate employees to stay with your company. Also, a 401(k) is a qualified plan, so contributions could be deductible for the employer.
The other option is a defined benefit plan, or as most know it: a pension. This is a little more of a commitment on the employer’s part. It is designed to provide a more guaranteed amount of money per month after retirement, which may appeal to some employees.
Life and disability insurance in a small business benefits package
According to the Harvard Business Review, these benefits do not rank as high on employees’ wish lists for small business benefits packages as health care and retirement. But these are great benefits for employees to have as security in the unfortunate case of a major injury or a death.
There are two categories of life insurance you could choose from for your small business benefits package: term insurance and permanent insurance. Term insurance is the no-frills take on life insurance, basically only meant to cover an employee’s dependents if he or she dies unexpectedly within a specific time period. Term life insurance often has lower monthly premiums. If you expect your employees to want more benefits with their life insurance policy, you may want to consider a permanent life insurance policy—this type of policy is more expensive because it has lifelong coverage and also has an investment component.
Disability insurance is a great way to provide a safety net in case of injury or illness (physical or mental) that prevents an employee from coming into work for a period of time. Note that this is different than worker’s comp insurance, which deals more with work-related injuries.
All insurance plans have specific limitations and exclusions, so make sure you understand the specific terms of any plan you choose. This article only provides general information, and does not cover all the specifics that apply to any particular policy.
Is a small business benefits package worth the cost?
A Glassdoor survey on employment confidence found that 79% of employees would prefer more benefits to a pay increase. With this in mind, and the fact that you might save money on taxes by adding to your small business benefits package, the benefits to you can be pretty significant.
Offering a small business benefits package to your employees could help you stay competitive without raising everyone’s salaries. You can still keep prices low by choosing plans that don’t break your bank, yet offer your employees the right amount of security. You can choose between any of the policies we discussed earlier, and tailor your options for any budget or type of employee.
This article is only for general information and is not tax, accounting, employment, or legal advice. Consult your own tax, accounting, employment, or legal advisor for guidance.