Introduction

Whether you own a small business or a large business, the pay and benefit package that you offer your employees will greatly impact the kinds of employees that you will be able to attract to your business, and it will greatly impact your ability to keep good employees. In order to put together the best benefit plan that your company can afford, you need to know the basics of benefit plan planning, and you also need to know what benefit options are available to you and your employees.

Why offer benefits to your employees?

Offering benefits to your employees can be done for a number of reasons. First there are several employee benefits that you are required by law to offer such as: Social Security, Medicare, unemployment insurance, and workers’ compensation insurance.

Social Security is a federally mandated retirement program that requires matching contributions from employees and employers equal to about 6.2% from each person or 12.4% total. Medicare is a health care program that is also funded by matching contributions based on an employee’s wages.

For Medicare employees are required to contribute 1.45% of their wages earned, and the employer is required to match this amount.

Unemployment insurance benefits are another required by law benefit that all employees are entitled to. However, unlike Medicare and Social Security, the employer is required to front the entire cost of this insurance with the amount being based upon the amount of wages that the employee earns and state specific rates. The FUTA rate is currently about 6.2%. In addition to federal unemployment insurance, you will probably also have to make contributions to your state’s unemployment insurance program, also known as the SUTA tax.

Worker’s compensation is the final required employee benefit. It protects the employee if they get injured on the job and are either temporarily or permanently unable to work. Like unemployment insurance, employers are required to cover the entire cost of this benefit as well.

Another reason why a company offers benefits to its employees is to attract and retain qualified employees. In order to entice qualified people to apply for positions within your company, or to encourage loyalty from your current employees, you may offer such benefits as health insurance, disability insurance, life insurance, paid vacations, and a retirement plan. These benefits may be offered either as entirely employer funded, or you may offer these benefits as partially employer funded benefits. You can also grade the amount funded by the company based on performance, seniority, or employment status.

Employee benefits can also be used as a morale builder, as an incentive to increase productivity, or even as an incentive to increase your company’s customer base. Goals can be set and any employee that meets the goal receives the selected employee benefit. For example a sales goal can be set at $10,000 for a specific week. Any salesperson that is able to meet this sales quota gets a cash bonus of $500. Bonuses based on employee performance are yet one other per diem benefit that you can offer your employees.

The final reason companies offer employee benefits, is to distinguish between levels of employees. Employee benefits are graded based on position within the company, level of responsibility, or difficulty of the job. For example an entry-level position may only offer the legally required benefits like Social Security, Medicare, unemployment insurance, and workers’ compensation. However, senior executives may be offered these required benefits as well as a retirement plan, profit sharing, health insurance, and dependent care assistance.