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Running your own business entails many financial responsibilities, especially when it comes to what you provide to your employees. No matter how wonderful your business idea, you may only be as successful as the people you employ.

This means offering competitive wages, as well as benefits. For many business owners, understanding the nuances of offering benefits can be a challenge because of the various rules, regulations and laws that are involved.

Once that is understood, owners must decide what, if any, benefits they can offer that extend beyond the basics. This is largely a question of what the owner can afford, and what they cannot. On that same note, you should understand that as a small business owner, you may have to go above and beyond the call of duty when it comes to the benefits you offer your employees. Doing so can help you attract and retain top talent.

Here, we’ll go over some of the basics of offering employee benefits. We’ll discuss what you must offer, as well as options that you should consider offering.

 

What you must provide

One of the first things you must do when putting together your potential benefits package is determine what is required by law. Usually, what you must offer depends on the number of people you employ. The more people you employ, the more likely you will have to offer most required benefits.

“Legally required benefits provide workers and their families with retirement income and medical care, mitigate economic hardship resulting from loss of work and disability, and cover liabilities resulting from workplace injuries and illnesses,” – U.S. Bureau of Labor Statistics

Required benefits include:

• Workers compensation
• Social security taxes
• Unemployment insurance; federal and state
• Medicare
• Family and medical leave

Workers comp covers employees who are injured or who become sick while on the job. The coverage can include employees who telecommute. This compensation varies according to which state your business is based in. Also, you may have to buy disability insurance to cover your workers.

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Social security benefits provide income for retired workers, their dependents, as well as disabled workers and their families. Employers are required to deduct a certain percentage of their employees’ wages in the form of a payroll tax to cover this benefit. A portion of the tax is paid by the employee, too.

Medicare pays for medical care for retirees and those who have been diagnosed with long-term disabilities. It is not to be confused with Medicaid, a government sponsored health insurance program for the poor.

Social security and Medicare are paid via the federal FICA payroll tax. You must withhold tax for social security at 6.2% of the employee’s gross wages. That’s up to $117,000, which is the Social Security wage base as of 2014, according to Paychex, a major payroll and human resources provider.

You must withhold the Medicare tax at 1.45% of the employee’s gross wages.

Lastly, you must also match 6.2% for Social Security, up to the wage base and 1.45%, also according to Paychex.

Unemployment benefits are for people who lose their jobs. These benefits stem from the Federal Unemployment Tax Act (FUTA). It covers the federal share of the costs of administering unemployment insurance and job service programs in all states, notes the BLS. When unemployment is exceptionally high, like it was following the 2008 financial crisis, those who are eligible are paid one-half of the cost of extended unemployment benefits.

Remember, there are federal and state laws that deal with unemployment. To make sure you are in compliance, seek out the requirements of your state’s workforce agency, such as the labor department. This is also where you will register your business.

 

The benefits you probably didn’t think about

When most think of benefits for their employees, they naturally think of health care insurance and unemployment benefits. The others mentioned above are likely also understood and easily accepted.

However, there are other benefits that you as an employer must provide. If you don’t, the failure could land you in the hot seat for breaking the law.

For example, if an employee is summoned for jury duty, you must give them that time off. You cannot fire them. The same applies if an employee wants to go vote, or perform military service.

If an employee becomes pregnant, or if their spouse becomes pregnant, you must allow them time off to care for their new baby. They are eligible for unpaid time off for up to 12 weeks. The same is true for employees who adopt a baby. Those who must take time off to care for an immediate family member who is very sick, must also be allowed this unpaid time off.

Once they have used all the time, you must reinstate that employee to the same job, or to an equivalent position. You cannot demote them, and you definitely cannot fire them.

Also noteworthy is the employee does not have to take all the time at once in some cases. They could opt to take the time off in whatever increments they wish. These benefits stem from the federal Family and Medical Leave Act (FMLA).

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Weighing your options

Employers cover these benefit expenses in the form of payroll taxes, such as FICA, which we mentioned above. They can also be paid in the form of compulsory insurance premiums.

The costs per employee vary depending on the person’s wage. Understand that benefits could easily exceed the employee’s hourly rate, notes QuickBooks. Covering payroll and unemployment taxes, and workers’ compensation insurance could cost you 10%.

Also, note that you could pay a higher percentage for lower-paid employees because unemployment taxes and social security taxes phase out after a certain compensation level, QuickBooks points out.

“If you do business in a state with a high unemployment tax rate and a higher workers’ compensation rate — like New York or California — that will also add on a few more percentage points,” QuickBooks

 

Consider doing this

While benefit expenses may be great, don’t rule out going above and beyond the standard, required, offerings. In today’s workplace environment, workers have come to expect such benefits as paid-time off for vacation and holidays, and even office outings. Anything that makes them feel well appreciated beyond just their salaries is welcomed.

[Fifty ideas on how to motivate your employees]

One idea that even the U.S. Small Business Administration lists as being a favorite is flex time. It notes that one of the biggest reasons some business owners enjoy what they do is “not necessarily that they are their own boss, but that they can work the hours that work for them. “

For that same reason, you should consider offering your employees the opportunity to take advantage of flexible work hours in which they can set their schedules to better suit their needs.

“…this can be a great incentive for attracting and retaining high performing and motivated employees,” SBA

If your budget can handle it, consider splurging on corporate membership programs, such as those for gym memberships. The SBA notes that such memberships could foster employee wellbeing, and a perk for you is they could be tax deducted!

Then there’s always the good, old-fashioned party. These allow employees to relax and enjoy each other’s company without the hassles of performing their jobs. They can even lead to traditions that employees grow to appreciate.

I recall a company favorite among employees at a previous newspaper job that caused much excitement around the holidays. The anticipation was over getting a gift certificate for a turkey or a ham. It became a tradition. Nowadays, workers are lucky to be treated to a holiday party, so finding employers willing to show such appreciation means a lot.

So, do what you can and consider working such expenses into your budget. If you don’t offer them, there’s a great chance that another company will, and there’s a better chance that the employee will opt for the other job instead of what you’re offering.

Don’t let the size of your small business deter you from offering as many benefits that you can. There are packages available that could fit well within your budget.

In addition, you may find that the costs of maintaining benefit offerings for your employees can pay off significantly in the long-run, and that goes beyond just attracting and keeping them.

This includes benefits that can not only make a difference in the lives of your employees, but whether they will stay or leave.