How to Set Up a Small Business Employee Benefits Program in 2023

Feli Oliveros

When it comes to the war for talent, it’s easy to feel like large companies have the upper hand over small businesses. After all, smaller businesses typically have fewer funds and resources to work with—which means that small business owners need to be especially strategic in how they build their employee benefits programs.

But it is possible to go head-to-head with today’s most popular brands. In fact, as we’ll see later, there are certain benefits small businesses are able to provide that most enterprises simply can’t. The key to success lies in your approach.

So, in this blog post, we’ll go over everything you need to know to create your very own small business employee benefits program including what employee benefits are, why they’re important, what kind of benefits you should be offering, plus a step-by-step guide on how to set up a program at your company. Without further ado, let’s get started. 

What are employee benefits?

Employee benefits are perks offered to employees in addition to salary or wages. Some benefits are required by law, while the rest are offered at an employer’s discretion.

The choices you make about your benefit offerings are often influenced by your company’s industry, size, goals, budget, and employee preferences. The benefits you offer, in turn, have a huge impact on your reputation, company culture, and employer brand.

Why are employee benefits important for small businesses?

Creating an employee benefits program isn’t a task to take lightly, especially if you plan on attracting and retaining top talent at your organization. Benefits are almost as important as salary for job candidates comparing offers—and in some cases, they can even be the make-or-break factor. 

According to one survey, 88% of respondents said they’d give better health, dental, and vision insurance “some” or “heavy” consideration when choosing between a high-paying job and a lower-paying one with better benefits. 

Generous benefits also provide peace of mind and security for your existing workforce. When employees receive benefits that meet their needs and support who they are as people—and not just as workers—they’re more likely to stay engaged and stay for the long-term too.

Savvy business owners understand that employee benefits aren’t just a recruitment and retention tool, though. They’re part of a business strategy that affects nearly every aspect of their organization, from operations and finances to their reputation and public image. Comprehensive, meaningful benefits contribute to increased company performance and productivity, and they can even help your organization save money on many fronts.

What employee benefits are small businesses required to provide?

Some benefits are required by federal law, as well as by the state and local governments in the areas where your business operates. These benefits are ones that your employees are entitled to—failing to comply with these requirements can result in steep fines, lawsuits, and more. 

Social Security and Medicare

According to the Federal Insurance Contributions Act (also known as FICA), both employers and employees must contribute to the Social Security and Medicare federal programs. Social Security provides employees with retirement or permanent disability income, while Medicare funds an employee’s health insurance once they reach 65 years of age or are diagnosed with a qualifying health condition.

Both you and your employee are required to contribute 6.2% of your employee’s wages toward Social Security and an additional 1.45% toward Medicare. 

Workers’ compensation

Workers’ compensation insurance protects employers and employees if a work-related accident or illness occurs. This benefit covers the cost of medical care, rehabilitation, disability costs, partial replacement of lost wages, as well as funeral expenses if the employee passes away due to their condition. 

Companies in higher risk industries, such as construction, will typically pay more for workers’ compensation than those in industries that pose fewer risks to their employees.

Note that workers’ compensation laws vary by state. For instance, many states require companies to purchase workers’ compensation before hiring their first employee. So, it’s important to do your research and stay compliant with your state’s regulations.

Unemployment insurance

Unemployment insurance provides financial support to employees who have been let go by their company through no fault of their own, such as through a merger or layoff. 

If a terminated employee files an unemployment claim, you’ll be notified about the request and asked to verify it. If the claim is approved, the appropriate funds will be withdrawn from your company’s unemployment account. You may also appeal wrongful claims, although you’ll need to provide proof of cause for the termination to do so. 

Similar to workers’ compensation, this benefit’s guidelines and regulations vary by state, so you’ll want to look into what’s required for your business specifically. 

Mandatory leave 

Federal and state laws require employers to provide eligible workers with certain leave rights, which are typically unpaid. 

The federal Family and Medical Leave Act (FMLA), for instance, entitles an employee to 12 weeks of unpaid, protected leave if they give birth, adopt or foster a child, take care of a family member with a serious health condition, or take care of their own serious health condition.

Many states, counties, and cities have their own leave programs as well, each with its own unique rules and requirements. These include:

COBRA continuation coverage

The Consolidated Omnibus Budget Reconciliation Act (or COBRA, for short) ensures that employees (as well as their covered family members) who have employer-sponsored health insurance are able to maintain similar coverage for a certain amount of time after their employment ends or after a qualified event, such as divorce or death, occurs. 

COBRA insurance applies to most employers with 20 or more employees. Some states will have their own health coverage continuation laws, which may expand qualifications to companies with fewer than 20 employees, so again, check what regulations apply to your business. 

Disability insurance 

Certain injuries and illnesses aren’t covered by basic health insurance, so companies will sometimes offer disability insurance to replace a portion of an employee’s income if a serious non-work-related health condition prevents them from fulfilling their responsibilities. 

There are two types of disability insurance:

  • Short-term disability covers employees for a short period of time—typically between two to six months—and covers up to 70% of an employee’s income
  • Long-term disability pays anywhere between 50% to 70% of an employee’s income and can last for years, decades, or for the rest of the person’s life, depending on the plan

Short-term disability insurance is required in California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island. Long-term disability, on the other hand, isn’t required but often offered by businesses. 

What are the best voluntary benefits a small business can offer?

Because of the competition in the current hiring market, small businesses have much to gain by offering more than just the mandatory employee benefits. 

Now, more than ever before, employees want companies to provide benefits that support them on all fronts—physically, mentally, and financially. If you provide voluntary benefits that help them strike a healthy work-life balance and improve their quality of life, you’re already ahead of the competition. 

So, as you put together your employee benefits program, it’s important to consider the long-term impact that competitive benefits like the ones below bring, rather than just the short-term costs your company incurs.

Health benefits

Health benefits form the foundation of any successful employee benefits program. In fact, 98% of organizations surveyed by the Society of Human Resource Management said they offered some type of healthcare coverage in 2022. 

So if you want your business to stand out, focusing on the health and well-being of your workforce is a great place to start. 

Health insurance coverage

Companies are nothing without their employees. After all, it’s physically impossible to run every part of your business yourself. 

That’s why it’s so important to keep your staff healthy. Employees at the top of their game keep productivity high and business costs low, and health insurance helps with that. 

This benefit is required for applicable large employers (ALEs) with 50 or more full-time employees. For all other businesses, health insurance is a voluntary benefit—but it’s one that employees have now come to expect. Financial services firm Charles Schwab found that 84% of people would consider it a must-have if they were to look for a new job.

This means that, after the benefits you’re legally required to offer, health insurance should be at the top of your list when you put together your compensation packages. Luckily, there are a wide range of options to choose from, no matter your budget.

Supplemental health coverage

Supplemental health plans offer coverage for medical expenses that aren’t covered under a traditional health insurance policy. They’re a great way to ensure that all of your employees’ health needs are covered, so they don’t have to raid their savings when unexpected medical issues come up. 

Supplemental plans to consider include: 

Mental health support

The COVID-19 pandemic saw a sharp increase in mental health issues. For instance, according to the Mental Health Index, the risk of depression in full-time workers increased by 71% in 2021 compared to before the health crisis. 

So, it should come as little surprise that employees are seeking out companies that are willing to help them improve and maintain their mental health. 

To cater to these needs, consider including mental health offerings like the ones below in your employee benefits packages: 

Wellness programs

Wellness programs are a catch-all category for any perks (outside of insurance) that support the holistic health of your workforce. In addition to the physical and mental health benefits a company might provide, wellness programs work to improve employee well-being through offerings such as:

  • Medical screenings
  • Free healthy lunches
  • Reimbursements for gym memberships
  • Onsite massage appointments
  • Stress management workshops
  • Company-sponsored sports teams

Best of all, these programs can be easily customized to the needs and budget of your company, thanks to the broad range of wellness perks available today. 

Work-life balance benefits

The benefits below help strike a balance between an employee’s work and personal lives, reduce work-related stress and burnout, and ultimately allow people to bring the best versions of themselves to their team every day. 

Flexible hours and remote work options

The pandemic has transformed the way we work—as well as employee expectations toward their work arrangements. People want their work schedules and work environments to accommodate their lifestyles, and not the other way around. 

Thankfully, today’s tools make flexible schedules and remote work easy to oblige. These benefits also help employees balance their work and personal responsibilities more easily, and ensure that they’re at their most productive when they are at work.

Unlimited PTO

Paid time off, or PTO, allows employees to take time away from work without their income taking a hit. Traditionally, companies would separate PTO into categories such as sick days, vacation leave, and mental health days, assigning an accrual rate or yearly allowance for each. 

However, a recent Glassdoor report shows that many employees would prefer to have unlimited PTO instead. An analysis of the website revealed that 88% of reviews that discussed this type of leave policy categorized it as a pro for the company offering it.

If this isn’t feasible for your small business, consider offering generous PTO benefits that are more appropriately structured for your organization. For instance, companies like Patagonia and Nike have implemented longer-term leave programs, otherwise known as sabbaticals, to attract top talent. 

Financial benefits

With today’s ever-increasing cost of living, many Americans are having a hard time just getting by. 

In 2022, over 88% of respondents said that inflation had a moderate, high, or very high impact on their household budgets. Another cause for concern? Even high-earners with annual incomes of over $150,000 made significant changes to their spending, borrowing, and investing habits last year. 

These issues eventually make their way into the workplace. Employees who worry about their finances can’t perform at their best, and they’re more likely to be affected by physical and mental health issues. And if they don’t get support from their employers, they’re much more likely to leave too: 87% of HR leaders say that employees will quit if their company doesn’t provide financial benefits that support their needs. 

Take care of your employees’ financial health and encourage them to stick around for the long-term with the finance-focused benefits below. 

Retirement plans

Many Americans struggle to save enough for their golden years. Working Americans ages 45 and older believe they’ll need an average of $1.1 million to comfortably enjoy retirement, according to one survey. However, only 24% of respondents expect to have that much saved when they retire. 

Help your employees secure their financial future by providing them with a retirement savings plan, such as a 401(k) plan, SEP IRA, or SIMPLE IRA.

You may choose to include employer retirement contributions in your benefits plans as well. These additional contributions to your employees’ savings accounts go far in helping them achieve their saving goals for a comfortable retirement.

Student loan repayment

Student loan debt has become a hot button topic in recent years, and for good reason. 

For one, the cost of higher education has become almost prohibitively expensive—meaning most students need to take out a loan just to attend. Meanwhile, a rising cost of living combined with stagnant wages means that borrowers often don’t have enough money left to put towards loan repayment. 

Because this is an issue that’s much more prevalent in younger generations, offering assistance with student loan repayment can be instrumental in attracting Gen Z, millennial, and even Gen X workers to your organization

Childcare assistance 

With the increasing cost and inaccessibility of quality child care, working parents with young children struggle with childcare and the expenses this service brings. As an employer, you can help reduce this burden for your employees with families by offering childcare benefits such as:

By providing working parents with much-needed child care assistance, you reduce employee stress and absenteeism while simultaneously improving employee productivity. 

Other fringe benefits

Compared to some other perks, fringe benefits like the ones below are ideal for small businesses because they’re cost-effective ways to inspire employee loyalty.

Creative and thoughtful perks that address the needs and pain points of your workforce can also help differentiate you from the competition and leave a great impression on prospective employees. 

Professional development opportunities

The newest crop of workers in today’s labor market can bring new life into your organization. They’re career-driven, ready to take ownership of their roles, and are hungry to learn. 

But they want their employers to support them in their ambitions, and they’re not taking no for an answer. Over seven in 10 millennial and Gen Z workers say they’re ready to leave their current job because of a lack of support in skill development. 

Attract ambitious and entrepreneurial types to your organization by offering professional development and training opportunities like the ones below:

  • In-house mentorship programs 
  • Continuous learning stipends 
  • Opportunities to attend industry conferences and workshops
  • Reimbursement for online skill development courses

Paid volunteer days

Millennial and Gen Z workers are also passionate about volunteering with organizations that are meaningful to them, but they often lack the free time to do so.

Incentives like paid volunteer days signal to workers that you want your employees to have a fulfilling life outside of work and that you care about your local community. 

Software company SourceDay gives employees about 32 hours of paid volunteer time every year. Follow the lead of small businesses like SourceDay and include an allowance of paid volunteer time in your own benefits program. 

How much does it cost for small businesses to offer employee benefits? 

According to figures from the US Bureau of Labor Statistics, you can expect to spend about 30% of an employee’s total compensation on their benefits. 

The report broke the numbers down even further: Legally required benefits accounted for 7.5% of total compensation costs. Retirement and savings benefits made up another 2.8% of an employee’s total compensation.

But if your business has a limited budget, here’s some good news. With some creativity and out-of-the-box thinking, you can supplement baseline offerings like health insurance with a number of free and low-cost benefits (we’ll offer some examples below) that increase the relevancy and perceived value of your compensation packages. 

How to set up an employee benefits program at your small business

Set goals for your benefits program

Like any other part of your business, you need goals to guide your efforts so you’re not aimlessly spending your time, energy, and money. So before you do anything else, decide what talent goals you want to hit, based on your overall business strategy.

For instance, maybe you want to fill 50% of your job listings by a certain deadline. Or perhaps you’d like to increase employee engagement by 35% by the end of the year. 

Setting goals will help you prioritize the employee benefits that move you closer to your targets with the resources you have available.

Create your budget

Designing a compelling and competitive benefits program would be a cinch if you had unlimited funds. But the reality is, it’s not reasonable to allocate all of your financial resources to your benefits program (no matter how much you’d like to).

So after you’ve decided on your goals, next you’ll need to figure out how much money you have to work with. 

Start by budgeting for your mandatory benefits, as you’ll need to provide them no matter what. Next up is health insurance, as this is usually the next largest benefits expense. After you’ve accounted for these costs, you’ll know how much you have left to spend for the rest of your benefits program.

Decide which benefits to offer

Now comes the fun part: choosing your offerings. Because you’ve already set aside money for your biggest expenses, you can use the remaining funds toward benefits that bring you closer to your talent goals and attract the employees you want at your organization. 

If you need help figuring out what benefits would work best for your company, we offer some ways to gather the information you need towards the end of this article. 

Calculate the costs of your benefit offerings

Once you have a list of the benefits you’d like to offer, you’ll need to determine how much they’ll cost—and whether they fit within your budget. 

At this point, you’ll want to start shopping around for providers too. Vet them, ask any questions you need to, request quotes from your top picks, and compare prices to get a better understanding of your costs. 

Research whether you can get some of the benefits you want at a lower price too. For example, group plans and tax credits can bring down the cost of health insurance. Most employee benefits are also tax-deductible, allowing you to stretch your budget even further. 

Additionally, you can choose to have your employees fund part or all of their benefits to save even more of your budget. This is a common practice for benefits like health, vision, dental, and life insurance. Because employers have access to lower rates through group insurance plans, your workers will still save more money this way than if they were to purchase these policies on their own. 

If you find that you’re over budget, consider bundling different lines of insurance for a lower rate or negotiating with vendors to get a group discount on certain perks. 

Finalize your benefits program

When you have all the information you need, it’s time to finalize your offerings. You may want to have a select group of people from your organization—including financial advisors, benefits specialists, legal counsel, and perhaps even a few of your employees—to provide their input on your decision. 

You’ll also need to determine whether your company will contribute to your employee benefits plans, and if so, how much. This decision will largely depend on your budget, and if you have any money left to spend. Consider whether your employees would prefer a wider variety of benefits, or a focused menu with you covering some of the costs (and perhaps chipping in on their retirement savings).

Once you’ve decided on your benefits, you’ll need to set up the program itself. Reach out to the vendors you’ve chosen to work with, enroll your company in the appropriate plans, gather and sign paperwork, and finalize everything before you officially roll out your benefits program to your workforce. 

Share your program with your employees

Now you’ll want to notify your employees about your benefits program. No matter how much you tailor your benefits to your staff, all of the time and money you spent will be for nothing if they don’t know about it.

Host a meeting with your entire team to notify them about your new menu of offerings, explain when and how they can take advantage of them, and respond to any questions or concerns they might have. You’ll want to have a member of your HR team (or a representative from your insurance providers) to field any questions you don’t have the answers to.  

Make sure to provide physical or digital summaries of your program so employees can review the details and costs for each benefit on their own time. They’ll also need a point of contact they can reach out to for any additional questions. 

Finally, update your careers page and active job listings so prospective employees know about your new benefits too. 

Track your results

Congratulations! You’ve officially launched your new employee benefits program. However, you’re not quite done yet. 

You’ll need to track the metrics related to the talent goals you set at the beginning of this process to see whether you’re meeting them, and whether you need to make any changes to get you closer to your objectives. 

Also make sure to review your program at least once a year to see how aligned your benefits are with your targets, what your return on investment looks like, and whether you need to adjust your goals based on the data you’re collecting. 

Following this final step ensures that your benefits program is always helping you work toward your talent goals and business strategy. 

3 tips to remember as you put together your employee benefits program

1. Do your research

There are a number of ways to determine what benefits would make your program memorable for current and prospective employees. 

Start by looking at the benefits that are traditionally offered to or expected by employees in your industry. For example, tech startups are usually known for offering flashy benefits like employee stock options, unlimited PTO, and a host of wellness perks—and these are so commonplace that top tech talent won’t settle for anything less.

Most companies will list out their perks on their careers page or on forums like Glassdoor and Built in LA. From there, it’s a simple matter to visit your competitors’ pages to see what they offer, so you can figure out how to make your benefits stand apart from theirs. 

Other resources to tap into include your local Chamber of Commerce, data from HR associations and publications, as well as your benefits advisor and tax professional. 

2. Ask employees what benefits they want most

Of course, the easiest way to find out what benefits your employees want most is to ask them directly. Workers want to know their opinions matter to their employer, and asking for their input is an easy way to show that. Plus, it’s much easier (and cost-efficient) to figure out what your employees want this way than through trial and error. 

You can gather employee feedback through anonymous surveys, town hall assemblies, or through their one-on-one meetings with their managers. 

Many HR software platforms also allow employers to send out quick surveys to employee accounts. They then compile the results in an easy-to-understand report for you to review. Gusto allows Premium plan members to touch base with their workers on topics like benefits, learning, and retention—and employees can respond in just a few clicks.

Once you’ve gathered enough data, try your best to implement the benefits your employees want most. Just as employees want to be heard by the leaders of their organization, ignoring their feedback can negatively impact employee morale and their engagement with future requests for feedback.

3. Don’t forget about free, low-cost, and unique benefits offerings

Just because your business doesn’t have the financial resources of huge enterprises doesn’t mean that competitive benefits are out of your reach. Sometimes it just requires creative thinking and an in-depth understanding of what your employees are looking for. 

Non-traditional benefits like flexible schedules, remote work, and pet-friendly offices are easy and free to implement. Low-cost perks like free meals, restaurant gift cards, and weekly yoga sessions are other affordable ways to show your employees appreciation without breaking the bank. 

And let’s not forget the one-of-a-kind benefits that only small businesses are able to offer.

Because employees at small businesses tend to wear multiple hats, people have more chances to accept stretch assignments and take on new responsibilities. They also have greater access to the people leading the company, thanks to its flat organizational structure. And the work employees do at small businesses often has a larger impact on the company too.

These kinds of opportunities attract ambitious professionals who want to make a difference in their next role. If those are the kind of people you want at your company, then you might want to include these highlights on your careers page.

When perks like these are added to your benefits program, you’ll have a unique competitive advantage other organizations will be hard-pressed to replicate.


Easy benefits management is just a few clicks away

Putting together a competitive employee benefits program may not be the easiest process, but it’s a rewarding one. 

However, it’s also an initiative with a lot of high stakes involved. As we mentioned before, not following the regulations in place for certain benefits can open your company up to financial penalties and lawsuits. Additionally, certain requirements are triggered by company size, which means that you’ll have to keep track of new guidelines as your company grows. 

If you don’t want to spend time learning about and tracking these additional regulations (and if you don’t want to deal with the additional stress), consider outsourcing these tasks to an experienced benefits advisor. They’ll do most of the heavy lifting for you, and allow you to focus your attention on the tasks that need you most. 

And when you partner with Gusto’s licensed benefits advisory team, you’ll also get access to the tools you need to stay compliant with the law and stay on top of your HR paperwork. Get in touch today to learn how we can help you with your employee benefits.

Feli Oliveros Feli Oliveros is a freelance finance and business writer with experience covering personal and small business finance. In 2015 she graduated from UCLA, where she earned her bachelor’s degree in English and minored in Anthropology.
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