One of the costs of doing business is compensating employees -- and part of that compensation comes in the form of benefits. What are benefits? Which benefits do employers have to provide? Are there other benefits that could help you retain your employees and provide for their well being? What about their cost? This section provides answers to all these questions.
Benefits are provisions you make to help ensure your employees’ well being. They can also help with morale, hiring new employees, and retaining existing employees. Typically, benefits make sure that your employees and their families are protected from economic hardships caused by any of these factors:
- Sickness, disability, death
- Short-term absence
Benefits you MUST provide to employees include the following:
- Social security
- Unemployment insurance
- Worker’s compensation insurance
Depending on the business size and number of employees, either the federal government or the State of California may require larger businesses to provide some additional benefits, such as Family Care Leave.
Benefits you MAY provide to employees can include a range of options including:
Holiday pay. When a legal or common religious holiday falls on a workday, most businesses offer their employees paid time off on those days. The specific paid holidays offered may vary from business to business, or even from year to year depending on when the holidays fall. As such, it is important to establish a policy regarding paid holidays and share that policy with your employees.
Sick pay and/or personal time off. Most businesses offer a specified number of paid sick days to their employees. Some employers choose to offer a combined sick pay/personal time off (PTO) benefit, enabling employees to also be paid for taking time off for personal business (appointments, time to care for an ill child, etc.) The number of paid sick and/or PTO days will vary from employer to employer. As such, it is important to establish a policy regarding this benefit and share that policy with your employees.
Health plans. These benefits may include medical, dental, mental, and vision health plans. Your contribution as an employer may be tax deductible; the employee contribution is not considered taxable income. Health plans may be insured (also called “indemnity” or fee-for-service plans) or pre-paid (health maintenance organizations). Choosing a health plan that works for you and your employees can be complicated; consult with a health benefits expert for specific plans in your area.
Life insurance. This benefit provides compensation to family members after the death of an employee. Life insurance may provide survivor income (regular payments) or lump-sum payments to beneficiaries. Some life insurance plans are offered by health insurance providers. Cost of life insurance may be paid by the employer, the employee, or both.
Disability insurance. This benefit provides employees a percentage of their pay if they have an off-the-job injury or illness that prevents them from working. Plans may be for short-term, long-term (LTD), or both. Cost of the plan may be paid by the employer, the employee, or both. Many trade, professional, and labor organizations offer disability insurance.
Leave time. Time off, with or without pay, can occur for a variety of reasons: leave of absence or annual leave; parental leave; sick, personal, compassionate, or emergency leave; religious observance; community service; or educational leave.
Offering leave for one or more of the above choices is optional for employers with fewer than 50 employees - however, per the California Family Rights Act (CFRA), businesses in California with 50 or more employees must offer unpaid family and medical leave as a benefit. Employees also have the right to family and medical leave under the Federal Family Medical Leave Act (FMLA); however, employees’ rights under the California law are the same or better than under Federal law. It is important to note that businesses with fewer than 50 employees are not required to offer this benefit.
If your business does have 50 or more employees, your employees will be eligible for leave if the following requirements are met:
- The employee must have been employed by that employer for over 12 months; however, if the employee is taking a leave for pregnancy disability, there is no eligibility period required.
- The employee must have worked at least 1,250 hours in the last 12 months unless the leave is being taken for pregnancy disability.
- The employer must have at least 50 employees within a 75 mile radius of the location where the employee who wants leave works
If the above conditions are met, the employee is entitled to take up to a total of 12 workweeks off for family care or medical leave in any twelve month period, or up to a total of 4 months leave for pregnancy disability; however, the employer does not have to pay the employee's salary during this time. As mentioned above, employees are also entitled to 12 weeks of leave under the Federal Law; however, the time must run concurrently. In other words, the employee does NOT get 24 weeks total.
Leave can be requested due to a medical reason, or to allow parents to care for a new child. Per the Family Care Leave benefit, both mothers and fathers can take leave to care for a new child. The child does not have to be sick; the leave just has to be because of the child's birth. Additionally, employees may also take leave if they have recently adopted a child or taken one into foster care.
The "family members" that an employee may take leave to care for include parents, spouses, and children. The law does not require that children under eighteen who work cannot be able to take leave to care for their parents, nor does the law require that parents be able to take leave to care for children who are over eighteen.
If the employee is taking leave due to illness, the employer may require the employee to provide proof of that illness. This proof would be supplied from a doctor or other appropriate healthcare provider. Additionally, if the employee can reasonably foresee taking the leave, he or she must provide the employer with advance notice.
During the leave, the employee or the employer may choose to have accrued vacation time pay the employee during his/her leave. If the leave is taken because of the employee's own illness, sick pay can be used to pay the employee during that period; however, employers are not required to allow employees use accrued sick days to be paid if their leave is being taken to care for a sick family member, or because of a new child.
During the leave, if the employee was enrolled in the company’s group health plan, the employer must continue to pay the employer contribution to that plan, enabling the employee to remain insured throughout his/or her leave. During the leave, the employee also has the right to continue to participate in other benefits, like disability insurance; however, the employer does not have to continue to pay into retirement and pension plans during the time of the leave. During that time, employees may make their own contributions to those plans.
It is illegal for an employer to fire or refuse to hire an employee because the employee has asked for or taken family care or medical leave.
Retirement plans. The average retiree needs about 75% of their pre-retirement income, while social security provides only about 40% of pre-retirement income. The gap can be closed with personal savings, continuing to work another job, or a supplemental retirement plan. Employer-sponsored retirement plans are tax deductible, and any income earned by the plans has taxes deferred until money is paid out at retirement. Several plans exist; all are fairly easy to implement:
- 401(K): For any business; uses employee pre-tax dollars and may also have employer contribution
- Defined benefit: For business with older employees
- Individual Retirement Account (IRA): For sole proprietors
- Keogh: For sole proprietors and partnerships
- Money purchase: For businesses with younger employees
- Profit Sharing or Employee Stock Ownership Plan (ESOP: Uses company profits or offers of stock to fund retirement
- Simplified Employee Pension (SEP): For sole proprietors and small businesses
Deciding which retirement plan is best requires careful attention to many factors. You may find it helpful to consult with a retirement or pension planning specialist to develop your own business’s retirement plan.
Other options. The range of potential employee benefits is endless. Many employers provide additional “perks” to their employees both to motivate and compensate them for their efforts:
- Bonus, commission, and award programs based on achievement or longevity
- Flexible schedules and telecommute options
- Credit union participation
- Dependent care reimbursement account
- Medical expense reimbursement account
- Dining and exercise facilities or reimbursement
- Gifts, merchandise discounts, or discounts on entertainment and local events
- Transportation benefits, such as parking, a company car, or bus or train passes
- Tuition reimbursement or direct payment of education and training expenses
Some of these benefits may be provided to all employees, while others may be reserved for employees with certain levels of achievement or responsibility.
Who Pays for Benefits?
For mandated benefits, federal and state regulations and laws determine the amount employers and employees pay toward these benefits.
For optional benefits, the cost may be allocated in a variety of ways: to the employer, to the employee, or shared. You may wish to offer a set contribution toward benefits, and allow employees to choose “cafeteria style” the specific combination of benefits that will best meet their needs. Discuss possible payment arrangements with a benefits counselor.
Which Benefits Package Is Best for You and Your Employees?
Determining the best combination of benefits can be a difficult task. For more help with developing a benefits plan for your employees, you may with to consult with these resources:
- An insurance broker
- A benefits consultant
- Trade, industry, or union groups
- Local chambers of commerce
- The California Department of Insurance
How BOS Partners Can Help:
BOS partners can help you learn more about employee benefits. Many BOS partners can also serve as a resource for identifying specific benefits plans. Each of the resources below has information and resources to assist you:
- Gilroy Economic Development Corporation (GEDC)
- Internal Revenue Service
- Meriwest Credit Union
- San Jose BioCenter
- Silicon Valley Small Business Development Center
Additional Online Resources: