What benefits MUST you provide and which ones just make good business sense.
At many points during business ownership, you will consider the pro’s and con’s of providing employee benefits: Start-up, budgeting, business growth and downturns in the economic climate. But many small and medium business are confused as to what benefits they MUST provide, which are optional and what one’s do employees really need or want.
First, let’s go over the “benefits” that must be given. I put “benefits” in quotes for this section because in my opinion, if you HAVE to give it, it is not a benefit but an employee liability, just like paying employment taxes:
- Time off to vote, go to jury duty or serve in the military. This does not mean it is time-off with pay, only that you must allow them to be absent from work to fulfill a civil duty.
- Time off for medical leave under FMLA regulations IF your company qualifies.
Yep – that’s it. Sure, you have to pay the employer share social security and medicare as well as federal and state unemployment on each employee (unless they are exempt…which could a blog in itself!), but the above “benefits” are the only must-have-to-do’s as an employer. Everything else is gravy…I mean, a benefit.
So that means, as a small/medium business owner, you DON’T have to provide the following:
- Health Insurance (except in Hawaii)
- Dental Insurance
- Vision Insurance
- Life Insurance
- Short-Term (unless mandatory in your state of business) or Long-Term Disability
- Vacation Pay
- Holiday Pay
- Sick Pay
- Personal Time
- Retirement Plans
So, if a business doesn’t have to provide any of the ten items listed above, why would they? Well, in reality, most businesses do provide some of the items above to stay competitive when it comes to attracting and retaining employees.
Most companies provide paid holidays when those holidays fall on an employee’s scheduled day to work. The “Big 6” holidays that most companies will honor are New Year’s, Memorial day, Independence Day, Labor Day, Thanksgiving and Christmas. Some companies will also through in the “Eve’s and Aft’s” like New Year’s Eve, day after Thanksgiving and Christmas Eve if their business can permit these down days.
When it comes to vacations, companies usually use the standard of two-weeks with pay after a completion of length of employment. Some wait six months, where others wait a year. The pitfalls that companies may fall into with vacation is to whether it is accrued or non-accrued, use-it-or-lose-it or day-before-day-after policies. Again, those details can be a whole other blog. So, let’s stick with subject of this particular blog.
So, now you know the “Must Have’s” and “Don’t Have To’s” but what if your company WANTS to. What must you know from a legal standpoint?
Well, a very important thing to adhere to when it comes to any benefit that has pre-tax implications (such as insurance and retirement plans) is that those benefits must be extended to everyone. If one employee get’s health insurance, then so do the others. Sure, you can have your plan written to only provide the benefits to employees that fulfill status requirements like: Full-time of no less than 30 hours per week, after the completion of 90 days of employment. But, if all your full-time employees who have worked 90 days get health insurance…then they all must! Leaving employees out of a benefit is one of the biggest errors made by employers, and the bad thing is, these benefits fall under the scrutiny of the IRS and US Department of Labor, both of which greatly benefit from fines and penalties assessed to businesses.
Businesses also make expensive mistakes administering their programs that either effect their bottom-line dollars our can jeopardize the benefit program by violating their plan agreement. Some of those mistakes include:
Poor record keeping. Most businesses don’t have a benefit specialist on their staff and often the task of administering a plan falls upon the shoulders of someone who doesn’t have experience in the task and most likely, has many other hats they wear for the company. By having benefits as a “low priority” task, some very costly mistakes can be made including missing an employee’s enrollment period either as a new-hire or during open enrollment time. Another is missing dependent eligibility issues such as a birth of a child, divorce or when I child ages-off a policy.
Overpaying for benefits. There are two ways a company can overpay for benefits. The first is pretty easy, they don’t shop around. Keeping in touch with your agent 2-3 months prior to your policy renewal will allow them enough time to present your group to other carriers for pricing or negotiate your current plan with your carrier to help avoid costly price increases. Some of the negotiations could include increasing the deductible, increasing the co-pays and co-insurance or switching to a different product such as an HSA.
Another way a company overpays for benefits is by contributing too much to the premium cost. I know that doesn’t make sense to some of you, but if a company covers 100% of the employee expense of insurance, most carriers require that ALL employees be enrolled, whether the employee wants/needs to coverage or not. Then, as a business, you are paying for insurance for an employee that may be covered by their parent or spouse and would never even need the coverage you are providing. By having an employee pay something for their own coverage and picking up the expense for their dependents, you know that those employees who are enrolled truly need and desire the benefit you are providing. A company must make sure that it is contributing the minimum requirements outlined in their plan contract, most carriers require that employers pay at least 50% of the employee only coverage.
Too Many Items on the Benefit Menu: Sure, it looks nice to have 15 items of benefits listed on their new employee informational packet, but do all the benefits actually make sense? Do your employees actually use them? If you are paying for membership to the local fitness center, what is your utilization rate? If you pay for the membership at the local warehouse store, is anyone actually using it? Make sure to get reports from your benefit vendors that show how much you paid for the benefit and how much it’s being used. Why pay out hundreds of dollars a month for a benefit if no one really cares? Another good thing to do is actually ask your employees to list or rate the benefits they want or desire. Then, they feel like you really want to know what will make them happy. And we all know, happy employees equal happy bosses.
When it comes to benefits, it really is a smart business decision to make sure that a specialist is enlisted when it comes to providing and administering a benefit program. Whether that is hiring someone with a benefit or HR background or outsourcing it to a company like PANTHEOS, a business should make sure that they don’t fall into any of the legal or monetary pitfalls of providing employee benefits. It makes good sense to provide benefits for employee recruitment, retention and morale, but it’s even better sense to do with knowledge and expertise.
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Author: Charmaine Hollaway, Director of Operations for PANTHEOS
PANTHEOS is a full service professional employer organization (PEO) specializing in the outsourcing, management and administration of employer/employee liabilities and tasks such as payroll, benefit administration, human resources and risk & safety. Providing services all over the U.S. to small and medium businesses, our experts help business owners become great employers while decreasing their liability and improving their profits. Find out more about PANTHEOS by calling (877) 693-9700 and speaking to one of our Business Development team members.
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