How to Stay Competitive: Benefits for Small Businesses

Small businesses often struggle to keep employees happy because their limited budgets can't compete with larger organizations that offer better incentive programs. 

Salary.com's Consulting Services can help your organization set up competitive employee benefits that fit your budget using data-driven solutions.  

What are employee benefits? 

Employee benefits are non-wage compensations like health insurance, dental and vision insurance, retirement plans, and wellness programs that support employees' overall well-being.  

Even if budgets are tight in small organizations, they should still offer employee benefits to attract and retain top talent, who might otherwise seek opportunities with larger organizations. A competitive benefits package can drive long-term business success and ensure compliance with federal and state laws. 

Competitive Pay Assessment can help organizations assess the market competitiveness of their pay and benefits programs.  

How can small businesses manage the cost of employee benefits? 

Given the tight margins that small businesses operate and the rising cost of benefits, here are some actionable tips they can do to manage costs: 

Maximize existing benefits 

Evaluate existing small business employee benefits to identify and utilize underused services, like mental health support included in some life insurance plans. 

Bundle insurance plans 

Bundle health insurance plans with dental or vision coverage to receive discounts on group health insurance, reducing overall costs. 

Promote voluntary wellness programs 

Implement voluntary benefits such as employee assistance programs to promote well-being and potentially lower future health insurance claims. 

Introduce employee-paid premium options 

Allow employees to contribute to premiums for certain benefits, like voluntary dental or vision insurance, which helps businesses provide comprehensive health coverage affordably. 

Purchase only what is needed 

Conduct employee surveys to customize the benefits packages specifically to their needs, ensuring that small businesses only invest in the most valuable and desired benefits. 

Partner with insurance experts 

Collaborate with a licensed insurance broker or compensation experts to find the best small business benefits package that fits your budget while meeting state and local laws and employee expectations. 

Salary.com's Compensation Consulting can help solve critical challenges by delivering innovative and efficient data-driven solutions; all backed by over 70 years of compensation and total rewards experience.  

Types of benefits that small businesses can offer  

An employee benefits package typically includes a combination of legally mandated benefits and extra benefits that are voluntarily offered by employers. These types include:

Mandatory benefits 

Here are some employee benefits that small businesses are legally required to provide: 

• Health insurance: Small businesses must offer group health insurance to ensure employees have comprehensive coverage for medical needs, reducing out-of-pocket costs and supporting their well-being under the Affordable Care Act. 

• Workers’ compensation: Workers' compensation insurance protects employers and employees from financial burdens due to work-related injuries, ensuring coverage for medical expenses and lost wages. 

• Social security and medicare: These federal programs, funded by the Federal Insurance Contributions Act (FICA), provide retirement income and health insurance at age 65, ensuring long-term financial and health security for employees. 

• Family and medical leave: The Family and Medical Leave Act (FMLA) mandates up to 12 weeks of unpaid leave for qualifying events like childbirth or serious health conditions, allowing employees to take necessary time off without losing their jobs. 

• COBRA coverage: The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires businesses to offer continued health coverage for former employees and their families, ensuring access to health benefits during transitions. 

• Unemployment insurance: Provides financial benefits to employees who lose their jobs involuntarily, offering a safety net until they secure new employment and ensuring financial stability during periods of transition. 

• Disability insurance: Offers income replacement to employees unable to work due to non-work-related injuries or illnesses, supporting them with short-term or long-term benefits customized to their recovery needs. 

Voluntary employee benefits 

Many small businesses offer voluntary or "fringe" benefits to attract and keep top employees. Although these benefits may seem to be unnecessary and costly, they often ensure employee loyalty: 

• Paid time off (PTO): PTO ensures employees get paid during vacations, sick days, personal time, or when attending appointments. 

• Health savings account (HSA): HSAs are ideal for employees with high-deductible health plans, allowing them to save pre-tax money for medical expenses like prescriptions and doctor visits. 

• Employee assistance programs (EAPs): EAPs provide essential support for employees and their families dealing with personal challenges, including mental health issues and substance abuse. 

• Wellness programs: These programs promote physical and mental health through activities like fitness classes, team challenges, and wellness incentives, reducing healthcare costs and boosting team morale. 

• Life insurance: Offering group life insurance ensures financial security for employees' loved ones in case of unexpected events, ensuring accessibility and peace of mind. 

• Flexible work schedules: Allowing employees to adjust their work hours improves job satisfaction, work-life balance, and retention rates, adapting to modern workplace needs. 

Why employee benefits matter for small businesses 

These benefits are a significant part of overall compensation, averaging $10.37 per hour worked, alongside wages of $24.36. While legally required benefits like unemployment insurance and ACA-approved health insurance contribute minimally. 

However, employers need to realize that employee benefits are crucial for small businesses despite initial cost concerns. Investing in employee benefits not only meets legal obligations but also boosts employee engagement and makes them want to stay long-term. 

Benefits of offering employee benefits 

Here are some benefits of offering employee benefits for small businesses: 

Attract top talent 

Offering comprehensive employee incentives, such as health insurance coverage and retirement plans, helps small businesses compete for skilled professionals in a competitive job market. 

Benefits Program Evaluation can help review how employees currently perceive your benefits offerings, and develop competitive new benefits plans that fit within your budget.  

Increase employee satisfaction 

Providing benefits like flexible spending accounts and health savings accounts shows employees that their health and financial well-being are valued, boosting overall job satisfaction. 

Reduce turnover 

A well-structured benefits program, including dental and prescription drug coverage, can significantly decrease employee turnover by promoting a sense of security and loyalty among staff. 

Enhance productivity 

When employees are covered for qualified medical expenses through benefits like health maintenance organizations, they are more likely to stay healthy and productive at work. 

Tax advantages 

Small businesses offering retirement benefits such as a simplified employee pension plan (SEP) can enjoy tax benefits while also helping employees plan for their financial futures effectively.

How to set up a competitive employee benefits package for small businesses 

Small businesses need careful consideration of both financial constraints and employee needs. Here are some simple steps to set up a competitive employee benefits program without breaking the bank: 

1. Step 1: Assess needs and budget

   Evaluate your financial capabilities and employee needs. Determine if you can offer health insurance, such as through a health reimbursement arrangement (HRA) or a professional employer organization (PEO), to cover qualified medical expenses. 

2. Step 2: Research benefits options

   Explore various types of employee benefits. Compare costs and benefits to find a balance that suits both your budget and the needs of your employees enrolled in the benefits program. 

3. Step 3: Design customized packages

   Customize benefits packages to appeal to employees, considering options like flexible spending accounts (FSAs) for business expenses and offering long-term disability coverage for serious health conditions. 

   Compensation and Benefits Program Design can enhance the strategic value of your pay programs and design benefit packages that deliver a clear competitive advantage while containing costs.  

4. Step 4: Communicate clearly

   Communicate the details of the employee benefits packages clearly to all staff. Ensure they understand the benefits cost, coverage limits, and how to utilize different benefits like health insurance or PTOs.  

5. Step 5: Stay compliant

   Stay up-to-date with regulatory requirements when offering health insurance or other benefits. Compliance with laws such as the Affordable Care Act ensures that employees receive comprehensive benefits packages and legal protection. 

6. Step 6: Seek employee feedback

   Regularly solicit feedback from employees on their satisfaction with the benefits program. Adjust benefits packages as needed to improve employee retention and satisfaction with the employee benefits packages. 

7. Step 7: Review and adjust annually

   Review your employee benefits annually to ensure competitiveness in the market. Adjust benefits based on employee feedback, changes in benefits trends, or shifts in your small business's financial position to maintain a competitive edge. 

Given the competitiveness of the current job market, offering employee benefits has become more of a necessity for small businesses than a strategic advantage. Even if budgets are tight in small organizations, they should still offer employee benefits if they want to attract and retain top talent, who might otherwise seek opportunities with businesses that have more enticing offers.