Understanding Your Benefits
Paid Leave
Paid leave, including holiday, vacation, personal, and sick leave, is highly valued in the workplace, though not federally mandated. These benefits allow employees to rejuvenate, benefiting the business as well. A significant number of small businesses provide these types of leave, with the most common being holiday and vacation leave. The average small business offers several paid holidays and vacation days, with the amount of vacation increasing with tenure.
While federal law doesn’t require paid leave, various states and cities have their own regulations. It’s important for businesses to be aware of and comply with these local laws. The cost of providing paid leave is a notable part of employee compensation.
Unpaid Leave
A large portion of small business employees have access to unpaid family leave. This benefit, not mandated for smaller businesses under the Family Medical Leave Act, is a valuable, low-cost way to support employees during family-related needs.
Health Insurance
Providing health insurance, including medical and prescription drug coverage, is not compulsory for small businesses, but many choose to offer it. A significant number of employees in small businesses receive these benefits. The Affordable Care Act stipulates certain requirements for businesses that choose to offer health insurance.
The average cost of providing healthcare benefits is a considerable part of the hourly compensation for employees.
Life and Disability Insurance
A minority of small business employees receive life insurance, and even fewer have access to disability insurance. These benefits are relatively low-cost compared to their potential value.
Retirement Benefits
About half of small business employees have retirement benefits, primarily through defined contribution plans like 401(k)s. The cost of these benefits is a significant portion of the hourly compensation.
The National Federation of Independent Business provides resources for developing a benefits plan.
Fringe Benefits
Fringe benefits, such as daycare, tuition assistance, employee discounts, and gym memberships, are primarily funded by employees but can be a valuable part of a benefits package.
Free Benefits
Benefits that have no direct cost, like pleasant work environments, casual dress codes, remote work options, flexible schedules, and pet-friendly policies, can greatly enhance a company’s culture and appeal.
Mandatory Benefits for Small Businesses
Social Security and Medicare Contributions
Businesses are required to withhold a portion of their employees’ earnings for Social Security and Medicare under the Federal Insurance Contributions Act (FICA). This contribution is a fixed amount from both the employee’s earnings and an equal match from the employer. The average cost to employers for these contributions is a notable part of the hourly compensation for each employee.
Unemployment Insurance (UI)
Employers are obligated to contribute to Federal Unemployment Tax Act (FUTA) taxes, along with state unemployment taxes. In certain states like Alaska, New Jersey, and Pennsylvania, there’s an additional requirement to withhold a portion of these taxes from employees. The overall expense of UI taxes for employers translates to a specific amount per employee hour.
Workers’ Compensation
Workers’ compensation, which is managed by state labor departments, provides coverage for employees who suffer job-related injuries. While not mandated by federal law, it is a state-level requirement. The cost of workers’ compensation for businesses averages to a specific amount per hour worked.
Overtime Pay
Under the Fair Labor Standards Act (FLSA), employees earning below a certain annual or weekly threshold are entitled to overtime pay for hours worked beyond the standard 40-hour workweek. This overtime pay is set at a minimum of one-and-a-half times the employee’s regular hourly wage. The FLSA does not mandate additional pay for work done during nights or weekends unless it exceeds the 40-hour threshold.
Jury Duty Leave
Employers are required to provide leave for employees summoned for jury duty. This leave is generally unpaid, although some states mandate that employers offer paid leave for jury duty.
Benefit Glossary
The glossary includes terms like Preferred Provider Organization, Health Reimbursement Arrangement, Health Savings Account, and others, explaining various aspects of health insurance and benefits. These terms cover a range of topics from types of health plans to cost-sharing and payment methods for medical services.
- Calendar Year Deductible (CYD): This is the amount an individual needs to pay before their insurance starts covering coinsurance costs. This deductible is reset annually.
- Out-of-Pocket Maximum: This refers to the maximum amount a person will pay during a policy period (usually a year) before the insurance plan starts to cover 100% of the allowed expenses. This limit does not include premiums, balance-billed charges, or healthcare costs not covered by the plan.
- Co-Insurance: After meeting the deductible, co-insurance is the shared cost between the insured individual and the insurance company. It’s typically a percentage of the total cost of a healthcare service.
- Co-pay: This is a fixed amount paid by the insured for certain medical services, like a doctor’s visit or prescription medication.
- Outpatient: An outpatient is someone who receives medical treatment at a hospital or clinic but is not admitted overnight.
- Provider: This term refers to any facility, person, or entity that offers medical services and is recognized for payment by the insurance company.
- Usual, Customary, and Reasonable (UCR): UCR rates are the standard charges for services in a specific geographic area. Insurance companies base their co-insurance payments on these rates. If you receive services from an out-of-network provider, you may be responsible for paying the difference between the provider’s charges and the UCR rate.