Employees

Health & disability insurance

Whether small businesses offer health insurance benefits appears to be related to the number of employees they have. Ninety-nine percent of the surveyed businesses with over 200 workers provided health benefits in 2021, while only 72% of those with 10 to 199 workers do. Employers managed to increase cost sharing with employees by using co-payments and deductibles. 

You may wish to provide disability insurance coverage for your employees. You can ask your benefits administrator to add this coverage as a policy rider to your group health plan. You may also ask your benefits administrator to provide accidental death & dismemberment (AD&D) coverage as a policy rider to your group health plan.

Group life insurance

Group life insurance is a single policy that is used to provide insurance coverage for your employees. As long as you provide coverage equitably to your employees and meet some other basic requirements, the IRS generally allows you to exclude from employees' income the premiums you pay for up to $50,000 of life insurance coverage. You may decide to offer a group life-insurance benefit as part of a cafeteria plan.

Self-insured plans

Self-insured health plans are also called employer-based health plans. A self-insured plan is a health insurance plan you set up to pay health care expenses for your employees. Unlike a group health plan that requires you to pay premiums, a self-insured plan requires you to pay health care expenses as you incur them. You can still require employees to contribute to a self-insured plan by making payments to a custodial account. 

Employee Assistance Plans

You may wish to offer an Employee Assistance Program (EAP) as a part of an employee-benefits program. For more information, see the website of the Employee Assistance Professionals Association (EAPA). 
Some of the counseling services that EAPs provide deal with:

Mental health and wellness services may help employees or their dependents to cope with the loss of a family member or to deal with a wide range of anxieties.

Some EAPs offer treatment services for alcohol or substance abuse. Employers find that some level of rehabilitation effort is a cheaper solution than termination.

Mediation services offered by an employee assistance program may help to improve a strained marriage, identify cases of spousal or child abuse, or help parents to cope with an adolescent child.

Professional counseling and treatment may identify a gambling addiction, compulsive use of credit, or similar behavioral disorder.

^{The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.}

Stock-purchase plans

You may decide to fund employee retirement accounts with shares using an employee stock ownership plan (ESOP). ESOPs are a form ofdeferred compensation since you are contributing to retirement accounts.

Another option is an employee stock-purchase plan (ESPP). ESPPs are also called Section 423 stock-purchase plans after the section of tax code that governs their use. ESPPs are a benefit that allows employees to buy shares of the company's stock at a discount to the market price of the stock. This discount is often 15% of the market price.

Stock option plans

Stock options are issued, or granted, to key employees as call options. A call option gives the option holder the right (but not the obligation) to buy shares of the underlying stock at an agreed upon price for an agreed-upon length of time. These terms are spelled out in the option agreement.

There are two main types of employee stock options, whose differences relate primarily to tax considerations:

Incentive stock options qualify for tax advantages. Employees do not owe taxes on incentive stock options until they sell the exercised shares. For more information on the requirements of issuing incentive stock options, see Section 421(a) of the U.S. tax code. You can find the tax code at the Web site of the Legal Information Institute (LII) of Cornell University.

Nonqualified stock options are taxed as ordinary income when the employee exercises the options.

^{The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.}

Cafeteria plans allow employees to pick from a range of benefits and select those benefits that they desire the most. Cafeteria plans are also called Section 125 plans after the section of tax code that governs them. A common format for using a cafeteria plan is a flexible-spending account.

You may decide to hire a benefits consulting firm or use online resources. The Employee Benefits Research Institute (EBRI), International Foundation of Employee Benefit Plans (IFEBP), and American Benefits Council (the Council) are three of the many independent sources of employee-benefit plans.

Education reimbursement

Whether you choose to pay in advance for an employee to take a course or reimburse after completion, the fact that you are willing to pay for employees' career-related coursework or completion of a college degree is a sign of your trust and commitment in them. Generally, employers can exclude up to $5,250 a year in employer-paid educational assistance from income for each employee. You may wish to consider offering educational assistance as part of a cafeteria plan.

^{The above information is educational and should not be interpreted as financial or legal advice. For advice that is specific to your circumstances, you should consult a financial or legal advisor}

Vacation & sick leave

As a small-business owner, you may feel you have little room to provide generous vacation or sick-day benefits. Losing a key employee for weeks at a time may make the difference in closing a sale or missing a shipment date. However, having a sensible vacation and sick-day policy as part of your employee-benefits plan helps you to recruit and retain employees.

You may wish to address the following topics in a vacation and sick-leave policy:

At the very least, you should offer a basic benefit. In general, a basic vacation benefit is one or two weeks of paid vacation. 

When employees reach key milestones, for example five years of service, you want to offer a "milestone" benefit.

You will want to explain unambiguously what method you use for employees to accrue benefits. A common approach is to require a year or similar period of service before granting paid vacation. Similarly, you will want to address how long an employee can accrue vacation or sick-leave benefits.

Offer equitable treatment when establishing vacation and sick-leave benefits. For example, using a milestone policy that rewards employees for years of service of perfect attendance is not unfair if it is applied to everyone. 

Other categories of leave

Unpaid leave allows employees to take a hiatus from work for an indefinite period while keeping their jobs. 

Maternity leave is addressed under the Family and Medical Leave Act (FMLA). FMLA is a 1993 federal law that requires employers to protect employees' rights to take as much as 12 weeks of unpaid leave in a year to care for a newborn, adopted, or foster child. The law also allows an employee time off to care for an immediate family member or oneself if afflicted by a serious medical condition.

A compassionate employer that grants funeral leave for employees to attend bereavement services for loved ones is more likely to be rewarded with worker loyalty than an employer that doesn't show similar compassion. 

Leaved-based donation programs donate employees accrued vacation or sick leave to a charitable organization.

Flexible work hours

Flexible work arrangements are made between employers and employees. Flexible work arrangements are also called flex scheduling or flextime. Since flextime is essentially an unregulated area of employee benefits, it's up to you and the employee to work out an amicable, mutually beneficial arrangement. Variations of flextime include telecommuting, hoteling, four-day workweeks, and job-sharing.

In the aftermath of the September 2001 terrorist attack in the U.S., tens of thousands of reservists serving in the Armed Forces were called up for active duty. Reserve units are comprised of ordinary citizens who serve as part-time soldiers and sailors. The Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 governs employers' treatment of employees who serve in the reserves. If ordered to active duty, the employee is required to notify you by submitting a copy of his or her orders.

USERRA covers all employers in the U.S. It prohibits employers from discriminating against reservists in hiring. Reservist employees who take a substantial pay cut to serve on active duty are likely to be considered as materially affected under SCRA. As employer, you can elect to pay any income the employee loses as a result of serving on active duty at lower pay. 

^{The above information is educational and should not be interpreted as financial or legal advice. For advice that is specific to your circumstances, you should consult a financial or legal advisor.}