Small business guide to benefits that attract and retain employees

Each May, the nation celebrates Small Business Week and recognizes the contributions small businesses make to our economy and workforce. According to the U.S. Small Business Administration, more than half of Americans either own or work for a small business, and small businesses create nearly two out of three new jobs each year.

Being small can create big challenges in the business world, and having the financial ability, knowledge and resources to offer benefits to employees can be daunting. But the potential return on investment for small businesses that navigate the process is substantial.

Recruitment, retainment, and employee wellbeing

Like their corporate counterparts, small businesses have a vested interest in offering quality benefits to their employees. Such offerings help employers of all sizes attract and retain employees and increase the odds that they will be productive team members when they are at work. The right set of benefits targeted at employees’ physical, mental and financial wellness can help relieve a variety of stressors that when not addressed can pull their attention away from the job at hand.

With that in mind, small businesses shouldn’t wait to offer benefits to their employees. Once a small business has at least two full-time employees and the financial stability to contribute toward medical benefit premiums or retirement plan costs, it’s time to put a plan into action, according to experts.

“In the very early days of launching a business, it can be difficult to set aside funds for anything other than essential business expenses but today many providers are offering solutions to small businesses to make retirement benefits affordable,” said Kristen Carlisle, General Manager of Betterment for Business.

“As the business grows and becomes more profitable, it’s a good time to examine new areas that are worth investing in, such as a match benefits program. Not only will it help your employees, but it will also benefit the business overall by making your company more attractive in the talent acquisition landscape.”

Start with the basics

With endless options available, how should a small business choose the best plans for its employees?

Carlisle recommends offering the basics first — 401(k), health insurance, parental leave and vacation days. Then consider popular upgrades such as dental and vision insurance, life and disability insurance, Health Spending Accounts, Flexible Spending Accounts, longer paid parental leave and flexible paid time off.

Ask your employees what they’d use

Employees increasingly are expecting a Netflix-like experience in their benefits choices, choosing from options that have been curated based on their demographics. Small businesses should be strategic about the plans and options they offer, said Shirah Swanson, supervisor of client services for OneDigital’s enterprise division, which services small business accounts.

“Don’t spend money on things of no value to them,” said Swanson. “You may be surprised at their answers.”

Diana Torzewski, CFP at Human Interest, which provides 401(k) solutions to benefits managers at small- and medium-sized businesses, agreed that asking employees what’s top of mind is a good way to approach the process of selecting benefits. “One trend we’re hearing from a lot of companies is their employees are really asking for benefits linked to security,” she said. “That might include a lot of benefits, but it certainly includes financial security.”

Be aware of new regulations, programs, options

The time has never been better for small businesses to consider launching a benefits program. Several regulations and programs are available to help with startup costs and make it easier for small business employers to provide benefits to employees. Among them:

• The Affordable Care Act’s Small Business Health Options Program (SHOP) helps small businesses provide health coverage to their employees.
• Federal law and all states require that health plans sold to employers with less than 50 employees are guaranteed issue, meaning they cannot decline to cover employees and rates are based on demographics of age, sex and location.
• More than 30 states are considering or have passed state retirement plan legislation to encourage more Americans to save for retirement by partnering with private-sector businesses to offer state-sponsored retirement plans.
• Pooled Employer Plans (PEPs) and Multiple Employer Plans (MEPs) are a new option designed to make it easier for small businesses to offer more robust retirement savings plans by allowing unrelated companies to join together in a plan managed by a third-party sponsor.
• Tax credits up to $5,000 per year are available for setup and administrative tasks related to 401(k)s for employers with fewer than 100 employees; and additional tax credits are available to small businesses that already offer a 401(k) if they add auto-enrollment features.

Assess costs and fees

Small businesses need to be aware of the costs and fees associated with a variety of benefits options.

“While the average annual plan cost for a business with 50 employees is 2.22% of plan assets, the range is quite large,” said Torzewski. “When it comes to cost, business owners need to assess three big buckets of costs as well as how the costs are divvied up between the employer and their employees.”

Those fees include fees that hit employees such as 401(k) transaction fees; fees associated with administering a plan, including recordkeeping, processing payroll contributions and making investment trades, providing customer support and delivering financial advice and education; and the time-cost for administrative work.

Know your fiduciary responsibilities

Small businesses also need to be aware of their fiduciary responsibilities when offering benefits to their employees. Fiduciary responsibility is something that most small business owners are likely unfamiliar with, said Carlisle.

It refers to the legal responsibility that a plan administrator has to ensure that a plan is working in the best financial interest of the participants. Many 401(k) providers will act as the fiduciary for the plan, taking that role off the business owner’s plate along with much of the administrative burden associated with managing and running a retirement plan, she said.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics.

Editor’s Note: This article is part of a series for ALM’s Small Business Guidance program, providing insights and information for small and medium-sized companies.