People are the lifeblood for any business, especially if you’re a small one. You will need all the best talents you can afford to help you make it successful. To do that, though, you need to offer benefits.
This is where much of the confusion lies. What kinds of benefits should you provide and how much? Do you need to have health insurance and 401(k) plans even if your team is no more than 25 people?
Here’s a FAQ to help you:
What are the essential benefits to employees?
This can vary from state to state, but usually, you need to provide the following:
- Social Security
- Worker’s Compensation
- Disability Insurance
- Unemployment Insurance
- Family and Medical Leave
- Health Insurance
With Social Security, the employer matches the contribution of the employees. Family and medical leave, as well as health insurance, is mandatory once your business has at least 50 full-time employees, although there are exceptions.
Employees can also participate in retirement and savings programs such as 401(k) and individual retirement accounts (IRAs). With the former, you have the option to match their contribution up to a specific limit, which can change annually.
How much should be your insurance coverage?
It should be enough to cover the employees and their eligible dependents and that it should be affordable enough for them.
Keep in mind you can choose not to provide this if you are a small business with fewer than 50 full-time employees. Even if you exceed that number, you can still avoid it if this number is good for only 120 days. In other words, you can attribute it to seasonal recruitment.
Granted, health insurance can be expensive, so you have some options. One, you can look for one through the Small Business Health Options Program (SHOP). In return, you can be entitled to a health care tax credit.
You can also work with a voluntary supplemental insurance company, whose offerings can help fill in the gaps the basic health insurance might not be able to provide.
What are the repercussions for not granting benefits?
There are two. One, you will get the attention of the IRS in a bad way. If they find you withholding payroll taxes such as Social Security taxes but are not paying it to them (or using them as capital, also known as pyramiding), you can expect a hefty fine, jail time, or both.
If you need to provide health insurance to your employees and their dependents but fail to do so, you might have to pay penalties. So far, the Trump administration ended it for 2019, but those who qualified in 2018 will still pay fines for the violations.
Second, you will fail to attract good talents. Worse, you can end up with people so desperate to get a job but don’t have the skill and expertise. In turn, they become liabilities, costing more money for the business.
Benefits can mean money for the business, but in reality, you are likely to spend more for healthcare costs and productivity loss if your employee gets sick or they leave your business for your competitor that provides them with better-quality benefits.