An essential guide to small business employee benefits

Learn how to build a small business employee benefit package

hand writing on a paper employee benfits

Employee benefits are perks that help small businesses attract and retain top talent. A well-rounded benefits package boosts employee satisfaction and loyalty, making your company a desirable place to work.

In this guide, we'll explore the importance of both mandatory and voluntary small business employee benefits and offer tips on developing a competitive benefits strategy that aligns with your business goals and meets your employees' needs.

What are employee benefits?  

Employee benefits are incentives companies offer employees as part of their compensation model. Provided in addition to employees' hourly or salaried earnings, they include everything from employee health benefits and retirement plans to working from home, flexible working hours, family leave, and even health and wellness services like massages and therapy.  

Small business benefits packages enhance job satisfaction—job seekers often list benefits packages as one of their most important considerations when hunting for a new position. They make companies more attractive to potential and current workers and can significantly improve your business's chance of retaining skilled staff.  

Required benefits for small businesses  

Small businesses are legally required to provide mandatory benefits to employees. Providing these benefits complies with the law, helps avoid legal and financial penalties like fines, and contributes to a supportive, stable work environment for workers. Small businesses must provide the following benefits for employees:  

Workers' compensation 

Workers' compensation protects employers and employees by preventing litigation in case of work-related injuries or illnesses. This insurance covers medical, rehabilitation, and funeral costs, as well as lost wages. For example, if a construction worker is injured on the job, workers' compensation covers their medical expenses and pays them a portion of their regular wages until they can resume work.   

Health benefits 

If your business has more than 50 employees, you must provide health insurance under the Affordable Care Act (ACA), a 2010 reform law that boosts health insurance availability. These benefits offer employees essential health coverage, from routine doctor visits to maternity care and emergency services. Health insurance plans vary, from partially self-funded to high-deductible and health maintenance organization (HMO) plans.

Unemployment insurance 

Unemployment benefits provide temporary financial assistance to employees who lose their jobs through no fault of their own. Issues like downsizing or layoffs can cause unemployment. Employers fund this important employee benefit through taxes paid to the Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA).  

Disability insurance

Disability insurance provides short- and long-term paid leave to employees who cannot work due to injuries or illnesses not acquired on the job. For example, if an employee develops a severe condition like cancer or depression that leaves them unable to work, this benefit pays them a percentage of their regular earnings while they recover.  

While short-term disability insurance typically provides up to 70% of an employee's income for up to six months, long-term disability coverage normally offers 50–70% of an employee's pay for longer lengths of time.  

Family and medical leave

To comply with the Family and Medical Leave Act (FMLA), businesses with more than 50 employees must offer up to 12 weeks of unpaid, job-protected leave for significant family or medical reasons. This includes childbirth, adoption, or severe health conditions affecting the employee or one of the employee's family members. Employees must be in their role for at least one year to qualify for this benefit.  

Voluntary benefits for small businesses   

Voluntary benefits are extra incentives that enhance your company's appeal to both part-time and full-time employees, encouraging them to stay with your organization. Here's a breakdown of the voluntary benefits small businesses can offer:  

Retirement savings plans 

Many employees prefer benefits packages with retirement options. Consider offering a 401(k), Simplified Employee Pension plan (SEP-IRA), or Savings Incentive Match Plan for Employees (SIMPLE) IRA to help employees plan for a stable financial future when they stop working. These retirement plans often have tax advantages for employers and employees, like tax-deferred investments and tax-favored contributions. 

Paid time off (PTO) 

Flexible PTO policies help employees achieve work-life balance and avoid burnout. These benefits, including predetermined vacation time or unlimited PTO, can increase productivity and job satisfaction. For example, your company may offer employees four weeks of yearly PTO.  

Life insurance 

Group life insurance assures employees that their families will be cared for if they pass away. Many employers offer this voluntary benefit for free, as it contributes to a supportive workplace culture. 

Remote working and flexible hours 

Working from home and choosing their own hours allows employees to tailor their work schedules to fit their personal lives, not the other way around. This leads to higher job satisfaction and better retention. 

Dental and vision plans 

While traditional health coverage doesn't include dental and vision insurance, these benefits will help your team stay healthy through regular dental and optometry appointments, helping to detect many illnesses and other conditions in the early stages.  

Employee assistance programs (EAPs) 

Employee assistance programs provide confidential resources like therapy for employees' personal and professional concerns. These issues include mental health, addiction, work-life balance, and other factors that impact workers' ability to perform their jobs well. EAPs can be offered through EAP vendors or as part of health benefits.  

Fringe benefits 

Small perks like free snacks, wellness programs, fitness classes, and occasional team outings go a long way toward fostering a positive workplace and boosting morale. When you decide which fringe benefits to offer, consider your employees' wants, needs, and hobbies.  

4 steps to offer competitive benefits as a small business  

To craft a competitive and strategic employee benefits program for your small business, follow these simple steps: 

1. Determine your budget 

Assess your small business's financial resources to determine how much you can spend on employee benefits. In many cases, benefits cost less than you think—according to the Bureau of Labor Statistics, employee benefits in the private industry cost approximately $12.02 each per hour worked.  

2. Consider employee needs 

Ask your team which type of benefits they need. Aligning with your employees means your benefits package will be valued because you give employees what they truly want. For global teams, tailor your benefits package to suit different demographics.  

3. Offer unique benefits 

Offer perks that reflect your company's culture and values. For example, these can include pet-friendly offices, flexible holiday policies, discounted gym memberships, employer-sponsored courses, tuition reimbursement, or commuter benefits like gas money. Bonus tip: Many of these benefits are affordable, too.  

4. Consider external support 

Work with a professional employer organization or an employer of record like Oyster, which helps small businesses manage benefits packages and compensation. Choose a global employment partner that helps ensure compliance with local laws and offers scalable solutions for managing global employment as your business grows. 

Elevate your small business with Oyster  

Partner with Oyster to offer a competitive employee benefits package that transforms your workplace culture and helps you retain top talent in more than 180 countries. Oyster’s Employer of Record service gives you access to employment, payroll, and benefits administration for global teams, making managing employees worldwide a seamless, automated experience from end to end. 

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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