When small and mid-sized businesses offer comprehensive benefits, the investment pays back dividends in employee satisfaction, reduced turnover, recruiting effectiveness and a healthier team.
Although smaller businesses generally understand the advantages of offering benefits that are meaningful to employees, they often are concerned that they won’t be able to afford benefits that compete with those provided by larger companies. But, in fact, affordable plans that also will appeal to employees are available to small and mid-sized companies.
Here are four ways smaller businesses can make benefits more affordable:
Accessing Affordable Care Act Offerings
Under the Affordable Care Act, small businesses can access an online marketplace where they can shop for health insurance coverage and compare available options. Because the ACA requires employers in most states to pay part of their employees’ insurance premiums, smaller businesses should identify what percentage they’ll have to pay and consider how that cost affects the choice of plan they can afford.
Unfortunately, certain aspects of the ACA don’t work well for small businesses and can make this health insurance option difficult to manage. For example, while the small business SHOP Marketplace may seem like an attractive option at first glance, it fails to address the main concerns small business owners face with group health insurance including cost, participation requirements and instability. Additionally, many small business owners have experienced delays and technology glitches making the system less than desirable to work through. And finally, when small businesses use the SHOP Marketplace, they are responsible for compliance and reporting requirements, which means time taken away from developing business and instead spent on tedious reporting tasks.
Offering Section 125 Plans
Section 125 plans, more commonly known as cafeteria plans, let employees pay for qualified medical, dental or dependent-care expenses using pretax dollars. Because cafeteria plan use reduces employees’ taxable income, it also shrinks the employer’s Social Security (FICA), federal income and federal unemployment tax burden. In many states, offering Section 125 plans also may reduce an employer’s state unemployment taxes.
Implementing 401(k) Retirement Plans
According to the Internal Revenue Service, retirement can last for 30 years or more, and employees might need up to 80% of their current incomes to retire comfortably. Those facts make employer-sponsored 401(k) plans a highly valued benefit from which both employers and employees profit.
For 2019, workers younger than age 50 can contribute up to $19,000 to their 401(k) plans. Employees ages 50 and older, who have less time until retirement, can make contributions of up to $25,000, allowing them to catch up or get a bit ahead in these long-term savings plans.
Almost all small and mid-sized businesses can set up cost-effective, easy-to-administer 401(k) plans, with or without matching a percentage of what employees contribute. Tax credits and other incentives for starting a plan may reduce a small business’s costs, and contributions are tax deductible for employers who do choose to match employees’ contributions.
For employees, 401(k) plans offer a relatively simple opportunity to create long-term financial security. With compounding interest, their regular contributions eventually will grow into solid nest eggs. And, because neither contributions nor investment gains are taxed until the employee begins accessing the money in the account, contributions to a 401(k) can reduce employees’ current taxable income.
Professional Employer Organizations
A professional employer organization, or PEO, can be an outstanding partner in helping smaller businesses provide employee benefits on par with those offered by larger companies. PEOs “co-employ” smaller organizations’ employees. This automatically makes the employees part of a larger group for health benefit purposes, which frequently reduces small companies’ costs.
On behalf of their clients, PEOs handle payroll and manage payroll taxes, while the small business continues to direct its employees’ day-to-day activities. PEOs often assist with human resources functions, workers’ compensation, safety concerns and other employee issues, as well.
Fortunately, small and mid-sized businesses have options for and access to a multitude of benefits that will reduce expenditures and be valued by their employees. Considering the costs and the impact on recruiting, retention and company culture, smaller businesses should assess their options and choose the benefits that best fit their employees’ and their organizations’ needs and goals.