Today's companies want to do right by their people. In 2020, businesses spent a record amount on their employee benefits, averaging over $12,000 per person. The diversity of offerings was just as impressive — in addition to traditional health insurance, companies offered 401(k) plans, paid parental leave, gym stipends, fertility benefits, and more.
While startups and small businesses don't have the budgets to offer every perk under the sun, they know benefits drive workplace satisfaction and retention. That means it's critical to provide the right benefits at the right time.
1. Health insurance usually comes first
Workers value both health and retirement benefits, but health insurance typically ranks higher on the priority list — and for good reason. It's immediate, personal, and often the first thing candidates ask about when evaluating an offer.
Most large employers offer it as a matter of course, but the picture looks different for smaller businesses. According to Gusto's 2024 State of Small Business Survey, more than two-thirds of employers with more than 10 employees offer health insurance — but that drops to just one in four among businesses with one to five employees. If you're a small business owner, that gap is actually an opportunity: offering health insurance can meaningfully set you apart when competing for talent.
There are also regulatory reasons to prioritize it. The Affordable Care Act (ACA) requires companies with 50 or more full-time employees to provide health insurance — where the IRS defines "full-time" as working on average at least 30 hours per week. If you're growing fast and approaching that threshold, getting coverage in place now is probably a lot easier than scrambling for it later.
Getting ahead of the 50-employee mark has another upside. Companies with 25 or fewer employees and average salaries of $65,000 or less may qualify for a small business healthcare tax credit — worth up to 50% of what your company pays in employee premiums.¹ It's one of the more powerful incentives available to small businesses building out a competitive benefits package.
2. Retirement plans drive employee satisfaction
Healthcare is the keystone of your overall benefits package. But if offering health insurance eases your employees' concerns about what could come today, 401(k) plans similarly address their futures.
A Gusto analysis of small business payroll data found that the typical small business worker saved at least 15% less for retirement in 2025 than in 2019, after adjusting for inflation — and for the lowest earners, that decline exceeded 25%. Anxieties around Social Security's long-term solvency only exacerbate those concerns, particularly among younger workers. Millennials and Gen Z — the largest generations in the workforce — largely doubt they'll ever collect benefits, with 39% of Millennials and 45% of Gen Zers saying they believe Social Security won't be there when they retire.
For the fourth consecutive year, retirement savings and planning benefits ranked among the top employer priorities — rated "extremely important" or "very important" by 81% of employers — according to SHRM's 2025 Benefits Survey of nearly 4,000 HR professionals. (Source: https://www.shrm.org/topics-tools/research/employee-benefits-survey)
Compared to most other benefits, retirement plans are also customizable because you can add features like profit sharing and employer matching. can make your 401(k) plan even more attractive. Perks like these also come with employer tax benefits, as matches are typically 100% tax-deductible — making them a great alternative to bonuses and other cash rewards.¹ Thankfully, the tax benefits don't end there.
3. Offering both is likely more affordable than you think
Budget-conscious teams don't have to choose between offering health insurance or a retirement plan. Thanks to the SECURE 2.0 Act, a landmark retirement law passed in 2022, offering a 401(k) plan is probably more affordable than you think.
The SECURE 2.0 Act offers a series of tax incentives — as much as $16,500 in tax credits over three years — for eligible businesses looking to start offering a retirement plan.¹ To qualify for these tax credits, your company needs to meet certain requirements, including but not limited to the following:
You have 100 or fewer employees who made at least $5,000 in the prior year.
At least one of your employees isn't a highly-compensated employee.
You didn't sponsor a retirement plan for the same employees within the last three years.
Learn more about other requirements here.
Let's put those savings into perspective. For companies with fewer than ten employees, the tax credits could potentially cover the cost of a 401(k) plan for three years, depending on your plan and who your provider is. If you have 20 or fewer employees, offering a 401(k) plan could cost less than the price of insuring health benefits for just one employee. In 2025, the average cost of employer-sponsored health insurance was $9,325 for individual coverage and $26,993 for family coverage, according to KFF.
Healthcare and retirement benefits aren't nice-to-haves — they're offerings that top talent expect. But if you're a small business, offering both can be challenging. Legacy retirement providers aren't designed to support startups and small businesses, charging higher fees that eat into budgets and employees' savings.
With straightforward pricing and a full-stack solution,² Gusto Retirement’s 401(k) plans are designed for startups and small businesses who want to do both.
FAQs
What benefits should small businesses offer first?
Health insurance typically comes first for most small businesses, as it ranks as a higher priority for workers in most surveys. However, retirement benefits like a 401(k) are a natural second step, as they significantly boost employee satisfaction and help with recruitment and retention.
What tax benefits are available for offering a 401(k)?
Employer contributions to 401(k) plans are typically 100% tax-deductible.¹ Additionally, SECURE 2.0 provides tax credits of up to $16,500 over three years for eligible businesses starting a new retirement plan.¹ Small businesses may also be able to deduct plan administrative expenses.
Disclosures
¹ You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
² Investment advisory services for Gusto's 401(k) product (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an affiliated SEC-registered investment adviser. 3(16) fiduciary services are offered by its affiliate, Gusto Retirement Services, LLC, and only made available to clients who use the integration services available through Gusto's payroll services.
