Employee benefits can help you demonstrate your commitment to employees and attract and retain top talent. To remain competitive in the market, employers have come up with innovative ways to compete for talent. Here are nine popular employee benefits to consider:
#1: Flexible work arrangements.
Employees who have flexible work arrangements tend to be more satisfied with their jobs, are more likely to be productive, and have higher attendance rates than those lacking a work-life balance. Consider offering employees flexibility when and/or where they perform their work, such as work from home arrangements, compressed workweek schedules (such as four 10-hour work days per week), or flextime (early arrival and departure).
If you offer compressed workweeks, keep your overtime obligations in mind. Some states (and certain industries), including Alaska, California, Colorado, and Nevada, require overtime pay when non-exempt employees work more than a certain number of hours in a workday. However, some states may allow employers to adopt alternative schedules (eliminating the daily overtime requirement) if certain conditions are met. Check your specific law to ensure compliance.
Offering paid vacations and adopting a company culture that encourages employees to use their time off can help attract and retain top employees. Since vacations aren't a required benefit, employers can generally determine how much time off they provide. According to the Bureau of Labor Statistics (BLS), small employers provide an average of nine vacation days after one year of service.
A small but growing number of employers offer unlimited vacation time, trusting that employees will use their professional judgment when deciding when and how much time off to take. Unlimited vacation policies can decrease the administrative burden of tracking vacation accruals and increase employee flexibility and autonomy.
#3: Paid sick leave.
Paid sick leave is another popular benefit among employees (and may be required in your jurisdiction). Several cities and states require employers to provide paid sick leave, so check your applicable law to ensure compliance.
Offering paid sick leave may be more affordable than you think. The BLS says that the average cost to small employers for offering paid sick leave in 2018 was 20 cents per hour worked (or 0.7 percent of total compensation). The benefits of a paid sick leave program may outweigh this cost. With paid leave, sick employees are more likely to stay home, decreasing the spread of germs in the workplace. This could limit additional employee absences and help to minimize a dip in productivity.
#4: Health insurance.
Health insurance can be a significant expense for employers, but it's a common benefit employees have come to expect. Options such as consumer-driven health plans (CDHPs), which are typically high-deductible health plans tied to a health savings account, are generally less expensive than traditional health plans. Additionally, small employers who meet certain eligibility criteria and who offer health coverage through the Small Business Health Options Program ("SHOP") Marketplace may qualify for a Health Care Tax Credit.
#5: Student loan assistance.
Some employers have launched programs to help employees pay down their college loans. The most common of which involves the employer paying a certain amount, such as $50 each month, to the employee's lender. While these programs can be costly, employers can control costs by limiting the time the employee can receive the benefit, for example, three years. Another concern is that employees who don't have unpaid college loans won't receive this benefit, which could undermine the intent of the program. With these cost and equity concerns in mind, some employers have tried to use 401(k) plans to encourage employees to pay down their college loans in other ways. For example, some employers offer employees a matching contribution to their 401(k) plan if they set aside at least a certain percentage of their pay to repay their college loans. Employees who don't have college loans to repay can still qualify for the employer's matching contribution by making their own contributions to the 401(k) plan. If you're considering this type of benefit, consult with your tax advisor to ensure compliance with IRS rules.
#6: Retirement plan.
There are a number of options available to employers that are considering offering a retirement plan, some of which include:
- SIMPLE IRA: The Savings Incentive Match Plan for Employees (SIMPLE) is a tax-favored retirement plan that allows both employees and employers to contribute to traditional IRAs. Employers must make a matching contribution to participating employees (between one and three percent depending on the circumstances) or contribute two percent of each employee's compensation. Employer contributions are generally tax deductible to the employer. Tax credits of $500 for the first three years of the SIMPLE IRA plan may be available to employers to offset the costs of establishing and administering the plan.
- 401(k) Plan: A 401(k) plan allows both employers and employees to make contributions toward retirement savings. Unlike a SIMPLE IRA, there is no employer contribution requirement. Compared with IRA-based plans, the 401(k) plan is attractive to employees because the maximum contributions are generally higher than the SIMPLE IRA. However, 401(k) plans may have higher administrative costs than IRA-based plans because 401(k) plans are more complicated to maintain.
- Profit Sharing: A profit-sharing plan can be an attractive retirement savings plan option for employers that have concerns about cash flow. With this type of plan, the employer can decide from year to year whether (and how much) to contribute to the plan based on what they can afford in that particular year. However, these plans tend to have higher administrative costs and more requirements than SIMPLE IRA plans or SEP Plans (see below).
- SEP Plan: A Simplified Employee Pension (SEP) plan is a retirement plan where an IRA is established for each employee, which is funded solely through company contributions. A business establishing an SEP Plan may decide whether, and how much, to contribute each calendar year up to a certain amount set by the IRS. Qualified employers may also be eligible for a tax credit ($500 per year for the first three years of the plan) for establishing a SEP Plan and employer contributions are tax deductible on the employer's tax return.
- Payroll Deduction IRA: A payroll deduction IRA (Individual Retirement Account) allows employees to save for retirement without an employer-sponsored retirement plan. The employee establishes the IRA with a financial institution and then authorizes the employer to make payroll deductions from the employee's salary and contribute them to the IRA.
- State-Run Plan: Several states, such as California, Connecticut, Illinois, Maryland, and Oregon, have enacted legislation that creates a state-run retirement program that workers in the private sector can join. These programs are designed for employees whose employers don't offer a retirement plan. While run by the state, these programs typically still impose some obligations on employers, such as withholding employee contributions and remitting them to the plan. Some require employers to automatically enroll employees in the plan. Check your state law to ensure compliance.
#7: Professional development.
Providing employees with development opportunities is a low-cost benefit and an effective retention tool. Consider mentoring, job shadowing, and professional development classes to help retain top talent. Engage employees on a regular basis to determine their career development interests and offer options accordingly.
Recognition is a simple, low-cost way for employers to motivate employees by showing appreciation for a job well done. Consider recognition through an "Employee of the Month" program, an announcement in company communications, or a note from a supervisor or head of the company.
#9: Commuter assistance.
The IRS allows employees to pay for certain commuting costs on a pre-tax basis (via payroll deductions), which may result in significant tax savings for employers and employees. Some state and local jurisdictions have begun requiring certain employers to offer such benefits. The IRS also allows employers to subsidize certain commuting costs on a tax-free basis. These commuter benefits apply to qualified transportation benefits that meet certain requirements, including a ride in a commuter highway vehicle, a transit pass, or qualified parking.
Assess which benefits make the most sense for your business by considering the costs, the impact on recruitment and retention, employee needs, and company culture.