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Updated: April 24, 2024

Requirements for offering employee benefits (and why it’s a good idea anyway)

Published By:

Jon Davis

More from our experts

Benefits are important for attracting top talent, keeping teams happy, and improving employee retention. In fact, nearly one-fifth of HR professionals update their benefit programs every year in an attempt to retain more staff. While offering benefits is a good way to keep your best and brightest, did you know many of them are actually required?


From ACA healthcare mandates to workers’ comp to a slew of new retirement plan mandates, here’s a quick overview of what you have to do as an employer — and what’s a good idea.

6 benefits employers are often required to offer

First, let’s talk about some “must-have” benefits, which can keep you compliant and protected from liability. Most requirements are state-based, so we also include links to detailed requirements for your area.


Workers’ Compensation
When someone gets sick or injured on the job, workers’ compensation protects both the employer and the employee by covering costs associated with medical care and rehabilitation. Almost all states require employers to provide some type of workers’ comp coverage, although rules differ from state to state.


For example, coverage is mandatory in California, even if a business has just one employee. In New York, even employers with five employees or less can face fines of $5000 if they fail to offer coverage. Currently, the only state that doesn’t require workers’ comp coverage is Texas. Use our workers’ comp map to see your state’s requirements.

Need help with workers’ comp or benefits?

Our in-house team makes it easy to meet your requirements and take great care of your team. Schedule a quick consult

Retirement plans

In the last few years, 14 states have established requirements around offering a retirement plan. Depending on the state, the requirements vary by employee count. For example, California and New York City’s new requirements apply to companies with more than five employees. The Illinois mandate extends to companies with more than 25 employees, but smaller companies will fall under the mandate within the next year.


According to our 2020 State of Small Business Survey, 401(k) plans are near the the top of employees’ wishlists (falling just below health benefits and PTO). Even if offering a plan isn’t required in your jurisdiction, it’s a smart idea — and it can help you save for the future, too. Here’s more on 401(k) plans for small businesses.


Health benefits

If you have more than 50 employees, the Affordable Care Act requires you to provide health benefits. If you’re not compliant, your business can incur penalties of around $4000 per employee per year.


While smaller businesses aren’t all required to offer health insurance, it can be a really good idea to do it anyway. In our 2020 State of Small Business Survey, we found that over 50% of employers offer their workers health insurance. It can be a good way to stay competitive with job seekers and maintain a better relationship with your existing team. A Harvard Business Review Study found 88% of respondents would prefer health, vision, and dental insurance over a higher salary.


Family and Medical Leave

The Family and Medical Leave Act is a federal law that requires employers to provide eligible employees time off for family or medical reasons, but the leave is unpaid. Typically, qualifying workers can take off up to 12 work weeks during a 12-month period. The Act requires job-protected leave, which means employers must provide the employee with a job that has similar pay and benefits upon return. While this federally-required leave is unpaid, nine states have taken steps to offer employees a paid option to offer some income. Our paid family leave guide goes into more detail on each one.


Short term disability

State disability or short-term coverage helps workers who lose income from a temporary disability, such as an accident, illness, or injury. Some states mandate coverage, including California, Hawaii, New Jersey, New York, and Rhode Island. Puerto Rico does as well.


Unemployment insurance

It may not feel like a benefit because pretty much everyone pays it as part of their payroll taxes, but make sure not to overlook obligations for state unemployment insurance (SUI) and the Federal Unemployment Insurance Act (FUTA). When an employee loses their job from circumstances out of their control, unemployment provides a portion of their previous wage. Workers who voluntarily leave, are fired, or are independent contractors do not qualify for unemployment. Unemployment insurance is typically collected and remitted as part of the normal payroll process.

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Optional benefits that employees will love

Next, let’s cover some benefits that can go a long way toward reeling in top-tier talent.  Since 80% of employees would likely choose additional benefits over a bump in salary, going above and beyond what’s required can play a role in retaining your most valuable workers.


Our research shows that the following benefits are most important to employees (in order):

  1. Health insurance
  2. Paid time off
  3. Retirement benefits
  4. Vision insurance
  5. Dental insurance
  6. Parental leave
  7. Life insurance
  8. HSA and FSA accounts


Here’s a rundown of your choices for putting together a package that includes optional and lesser-known benefits.


Paid Time Off (PTO)

Paid time off is the second most popular employee benefit among small business workers, and it might just be a boon to your bottom line. Studies show a six to eight percent decrease in absenteeism when staffers receive PTO, and data also suggests that rested teams are more productive. PTO tracking can be really easy if you have the right tools, and it only increases your labor costs by about 2% per week of vacation time you offer.


Commuter benefits

Generally, companies can offer employees commuter benefits as a pre-tax way to pay for travel to and from work. Usually, commutes by bus, subway, or train are eligible. For those who want to stay on the road, vehicles and parking fees can be suitable for coverage too. There are even mandated commuter benefits programs in states like New Jersey and New York, and in many larger cities.


FSAs and HSAs

Flexible Savings Accounts (FSA) allow employees to have pre-tax dollars deducted from wages and put into an account to pay for health insurance deductibles and copayments. Funds can also be spent on certain dental and medical expenses, supplies, and items such as prescription medications.


Many of the rules and requirements for different health savings plans depend on whether an employer offers health insurance and how high the deductibles are. Bottom line, it’s good to have some help from a benefits broker to make sure you understand this benefit and get everything set up right.


529 college savings plans

These savings plans let your employees set aside pre-tax dollars to help pay for their children’s college education. Despite rising education costs, almost two-thirds of Americans are not aware of the value of 529 education savings plans. While your employees might not be aware of this type of benefit, they’ll be delighted to learn how much 529 plans can do to help anticipate and pay for college.


Work from Home (WFH)

Our research found that experience with working from home has led almost 50% more small businesses to offer it on a permanent basis. As telecommuting continues to trend up, 70% of job candidates might not even consider companies without flexible-work options.  Studies also suggest some remote work can improve productivity.

Did you know?

Many employers offer part-time employees benefits as a way to reel in talent and encourage productive workers to stick around for the long term.

What’s the business case for employee benefits?

OK, we’ve covered a lot of ground on different benefit types, but how do you balance the expenses you may be taking on with the upside of potential benefits? Here are a few reasons that may push you over the top:


Benefits increase productivity

First, happy employees are most likely more effective employees. A Harvard Business Review study found a 31% boost in productivity when staffers are satisfied in the workplace. Data also uncovered a 37% increase in sales from happy employees. Many employers think that kind of lift is worth the added costs.


Benefits improve retention

The right mix of benefits can play a role in retaining team members. For example, around 56% of workers report they’re more likely to stay with an employer if they like their health plan. Some statistics also correlate employee satisfaction with benefits offered by employers too. It’s time-consuming and expensive to replace employees, so you may want to do more to get them to stick around.


Benefits are within reach

Some benefits cost a few dollars per employee per month, and others — like health insurance  —  can cost several hundred dollars a month. To determine a budget, you need to take a serious look at your finances to make sure you take the right approach. With that said, almost 50% of employers with three to nine staffers find a way to provide some form of health insurance. And offering a work from home option might not cost you anything at all.


If any of the requirements we mentioned above apply to your business, you should probably start there. And when you want to dig deeper, it’s a great idea to work with a benefits advisor who can make it easy to understand what’s involved. If it helps, we offer OnPay clients access to a team of small business benefits experts to guide you through the process.

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.