Zacks Blog

Heading the list of must-have benefits is medical insurance, but many job applicants also demand a retirement plan, disability insurance and more.

Benefit Basics
The law requires employers to provide employees with certain benefits. You must:

Give employees time off to vote, serve on a jury and perform military service.
Comply with all workers’ compensation requirements.
Withhold FICA taxes from employees’ paychecks and pay your own portion of FICA taxes, providing employees with retirement and disability benefits.
Pay state and federal unemployment taxes, thus providing benefits for unemployed workers.
Contribute to state short-term disability programs in states where such programs exist.
Comply with the Federal Family and Medical Leave (FMLA).

You are not required to provide:

Retirement plans
Health plans (except in Hawaii)
Dental or vision plans
Life insurance plans
Paid vacations, holidays or sick leave

Expensive Errors
Providing benefits that meet employee needs and mesh with all the laws isn’t cheap–benefits probably add 30 to 40 percent to base pay for most employees–and that makes it crucial to get the most from these dollars. But this is exactly where many small businesses fall short because often their approach to benefits is riddled with costly errors that can get them in financial trouble with their insurers or even with their own employees. The most common mistakes:

Absorbing the entire cost of employee benefits. Fewer companies are footing the whole benefits bill these days. According to a survey of California companies by human resources management consulting firm William M. Mercer, 91 percent of employers require employee contributions toward health insurance, while 92 percent require employees to contribute toward the cost of insuring dependents. The size of employee contributions varies from a few dollars per pay period to several hundred dollars monthly, but one plus of any co-payment plan is it eliminates employees who don’t need coverage. Many employees are covered under other policies–a parent’s or spouses, for instance–and if you offer insurance for free, they’ll take it. But even small co-pay requirements will persuade many to skip it, saving you money.

Health Insurance
Health insurance is one of the most desirable benefits you can offer employees. There are several basic options for setting up a plan:

A traditional indemnity plan, or fee for service. Employees choose their medical care provider; the insurance company either pays the provider directly or reimburses employees for covered amounts.
Managed care. The two most common forms of managed care are the Health Maintenance Organization (HMO) and the Preferred Provider Organization (PPO). An HMO is essentially a prepaid health-care arrangement, where employees must use doctors employed by or under contract to the HMO and hospitals approved by the HMO. Under a PPO, the insurance company negotiates discounts with the physicians and the hospitals. Employees choose doctors from an approved list, then usually pay a set amount per office visit (typically $10 to $25); the insurance company pays the rest.
Self insurance. When you absorb all or a significant portion of a risk, you are essentially self-insuring. An outside company usually handles the paperwork, you pay the claims and sometimes employees help pay premiums. The benefits include greater control of the plan design, customized reporting procedures and cash-flow advantages. The drawback is that you are liable for claims, but you can limit liability with “stop loss” insurance–if a claim exceeds a certain dollar amount, the insurance company pays it.
Archer Medical Savings Account. : Under this program, an employee of a small employer (50 or fewer employees) or a self-employed person can set up an Archer MSA to help pay health-care expenses. The accounts are set up with a U.S. financial institution and allow you to save money exclusively for medical expenses. When used in conjunction with a high-deductible insurance policy, accounts are funded with employee’s pretax dollars. Under the Archer MSA program, disbursements are tax-free if used for approved medical expenses. Unused funds in the account can accumulate indefinitely and earn tax-free interest. Health-savings accounts (HSAs), available as of January 2004, are similar to MSAs but are not restricted to small employers.