Small Business

Do Small Businesses Have to Offer Fringe Benefits?

Updated on January 17, 2020


While most large employers tend to be legally required to offer fringe benefits, a small business usually does not have to offer certain fringe benefits such as health insurance. However, prioritizing fringe benefits may be worthwhile for a small business seeking to further improve its company culture for several reasons.

Continue reading to learn more about which kind of businesses are required to offer fringe benefits.

What are fringe benefits?

The IRS defines fringe benefits as forms of pay in addition to the stated compensation for the performance of work or services.

These are employer-sponsored benefits offered to employees as compensation for work-related activities or to promote job overall satisfaction.

Examples of common fringe benefits include:

  • Group health insurance
  • Vacations and holidays
  • Life insurance
  • Sick leave

The IRS tax guide for fringe benefits further explains which employee benefits are taxable and nontaxable. For example, group health insurance is a nontaxable fringe benefit, and employee health insurance premiums are usually tax deductible for small business employers.

Do small businesses have to offer fringe benefits?

According to the IRS and the Affordable Care Act (ACA) mandate for employers:

  • Employers with fewer than 50 full-time employees are not required to offer health insurance and certain other fringe benefits to their employees.
  • Employers with 50 or more full-time employees are often required to offer fringe benefits, including health insurance, to their workforce.

This means that small businesses typically do not have to offer specific types of fringe benefits that a large employer may legally be required to provide.

Which fringe benefits do employers have to offer?

Most employers are required to offer the following fringe benefits:

  • Social Security tax – All employers are required to pay into the Social Security program, which provides benefits to Americans who are retired, disabled, or survivors.
  • Workers’ compensationWorkers’ compensation insurance covers workplace- and employment-related injuries and illnesses.
  • Health insurance – A business with 50 or more full-time employees is required to provide health insurance. A small business with less than 50 full-time equivalent employees is not required to offer group health insurance coverage.
  • Unemployment insurance – All businesses pay into unemployment insurance, which is funded by employers in most states (although employees may pay directly for this in some states).
  • COBRA insurance – Also known as the Consolidated Omnibus Budget Reconciliation Act, COBRA requires group health plans to offer continuation coverage to eligible employees. COBRA does not apply if a small business does not offer a group health plan.
  • Family and medical leave – Employers with over 50 employees are required to offer job-protected family or medical leave. Small businesses usually are not required to offer this.
  • Civic obligations – Depending on the state, employers are required to provide unpaid time off to their employees in order to attend jury duty or jury service.
Fringe BenefitRequired for a large business?Required for a small business?
Group health insuranceYesNo
COBRA insuranceYesNo
Family and medical leaveYesNo
Social Security taxYesYes
Unemployment insuranceYesYes
Worker’s CompensationYes*Yes*
Civic obligations (i.e. jury duty)Yes*Yes*

*Workers’ compensation and jury duty rules vary by state law.

Overall, business size and state law determines which kind of employers are required to offer fringe benefits.

Fringe benefits and company culture

Even though your small business may not have to provide certain fringe benefits to your employees, doing so may contribute to several strategic advantages for your business, such as creating a more positive company culture, increasing employee retention, and assisting with recruiting.

  • Company culture – Current and prospective employees often view fringe benefits as a way to evaluate company culture. Offering popular and highly valued benefits could be an effective way to show that a company cares about the well-being of its employees.
  • Employee retention – Workers may be more likely to stay at a company with great benefits. Such perks, including group health coverage, may increase employee loyalty; reduce employee turnover, absenteeism, and sick days; and promote greater job satisfaction.
  • Recruiting – One of the best ways to create a competitive small business benefits package is to offer some of the top fringe benefits, such as group health insurance, or group dental and vision These benefits may help a company stand out and attract quality employees.

Ultimately, while a small business is required to offer fewer benefits than a large business, it may be worthwhile for a small employer to provide employee benefits to its workforce.

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This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.

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