When Should Your Small Business Offer Employee Benefits?
It can be tough for entrepreneurs to attract and retain high-quality employees in the early stages. To hire a stellar workforce, they need to sweeten the pot with employee benefits. But that comes at a cost.
Providing the employee benefits applicants seek may mean investing a significant percentage of funds on top of an employee’s salary. According to the U.S. Bureau of Labor Statistics (BLS), in December 2020, approximately 70% of private employee compensation was for wages. The other roughly 30% was spent on benefits.
Entrepreneurs struggle to manage startup costs and anything more than the basic requirements of employee compensation. In this instance, crossing a few key thresholds before offering the three benefits below can make or break your new business venture.
1. Retirement plans
A retirement plan might be the benefit you don’t think you need to provide employees right away. With many U.S. workers struggling to save for their post-work years, though, this perk can set your company apart from the pack.
Many options for retirement plans are too pricey for entrepreneurs because defined benefit plans typically require the employer to bear nearly all the financial burden. More affordable options include a small business 401(k) that offers products without massive fees and significant tax advantages for companies.
Incorporate all the relevant variables into your calculation of the added cost of employee compensation.
When should you offer retirement plans?
Should you cross the business profitability threshold before you offer a 401(k)? Not necessarily. There are plans where employer contributions are not required. Once your new venture does return a profit, you might consider matching employee contributions or offering a 401(k) profit-sharing plan that rewards employees for helping get you into the black. Set an employee duration threshold for offering retirement plans.
Offering a retirement plan as part of your employee compensation package will put you ahead of companies that don’t. There’s no need to wait.
Health insurance is an expensive benefit that many entrepreneurs may assume is out of reach, yet it’s vitally important to employees. In fact, 56% of employees say healthcare coverage is what keeps them in their current position. The same survey found that 46% say it was a positive aspect — or the deciding factor — when they took their job.
While not required to offer healthcare until you reach 50 employees, many entrepreneurs with fewer employees want to provide the benefit to attract employees. Options include federal or state-run programs or group plans offered by local municipalities and chambers of commerce.
When should you offer health insurance?
Business owners always have the option of buying into private group plans if they have at least two employees. The cost to the employer for these benefits will vary widely. Pay attention to your current employee requests and what your job applicants are saying as they interview.
3. Paid leave
Every entrepreneur understands the value of paid leave as an employee benefit. Hard-working employees should be able to take time off without sacrificing their income.
Under federal law, paid vacation, holidays, sick, and personal leave are not requirements for any employer. There are, however, legal requirements for paid leave in certain states and municipalities. Entrepreneurs should be aware of any laws that apply to them.
Businesses that offer paid leave handle it differently. Some define a certain number of days for each type of leave (e.g., vacation vs. sick leave). Others take a consolidated paid time off (PTO) approach, allocating a certain number of days to be used as the employee sees fit.
When should you offer paid leave?
As with health insurance, your business plan might include a threshold of profitability before you’re able to offer a generous leave benefit. Another key threshold with paid leave is employee longevity.
Your business is in the driver’s seat with regard to nearly all its leave policies. However, paid time off represents an attractive part of employee compensation.
Start small and build as you grow
The number of employees you have will affect how generous you can be with paid compensation. It also affects how flexible you can be with benefits.
Start with what your budget can bear and increase benefits from there. As your workforce grows, some economies of scale may come into play. Invest in your employees, and they are far more likely to invest in your business and its success. Consider the number of employees, their longevity, and your profit margins. Keeping all of these factors in sharp focus may just help your small business cross the benefits threshold.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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