Types of Employee Benefits

When most employers think of offering benefits, insurance is usually their main concern. However, there are many other types of employee benefits; some are required (workers’ compensation), and others are optional. It’s a good idea to consider all benefits, even less common ones like relocation assistance, if you want to attract and retain quality employees.

What Are the Four Major Types of Employee Benefits?

Usually, people think of benefits as insurance policies and retirement, but there is a multitude of potential benefits. They generally fall into four categories, including insurance, time off, financial, and retirement.

• Insurance: Health, salary, unemployment
• Time off: PTO, flex time, FMLA
• Financial: Pretax savings accounts, relocation packages, tuition assistance, stocks
• Retirement: Pensions, IRAs, 401(k)s

Some of these are required by law; others provide you a tax credit. Some are inexpensive ways to promote employee well-being and support a company culture of caring. The ones you choose should depend on your company, employee needs, and budget.

What’s the Difference Between Employee Benefits & Perks?

A good rule of thumb is that benefits affect a paycheck, while perks should help you do your job better. So, employee benefits include things like insurance, pretax programs workers can pay into and sometimes get matching funds for, and leave time that might affect a paycheck. Work perks, on the other hand, include everything from a company car to free lunch Fridays. They can also be discounts on the products or services the company provides.

Companies often use perks to define and reinforce their company culture. Businesses that promote the idea of fun and camaraderie at work may have an arcade or planned events on company time. Those promoting teamwork might sponsor peer-rewards programs like Kazoo. Health-conscious companies might have fresh fruit, a juice bar, or treadmill desks.

Perks can be fluid and are limited only by your imagination, so you can try something and if it’s not a good fit, change. Benefits, however, are built into job agreements and are static.

Setting Up Your Benefits

Choosing the Right Employee Benefits for Your Company

Because benefits are more lasting than perks, you should think carefully before adding them to your agreements. In addition to Social Security, Medicare taxes, and FICA, there are five benefits you must provide according to the law:

• Health insurance
• Unemployment insurance
• Workers’ compensation
• Family and medical leave
• COBRA

Other benefits may be required by unions or industry, so know the standards when developing a package. Finally, you should look at your competitors to see what they offer.

While benefits packages no longer top the list of things high-quality applicants look for in an organization, a noncompetitive package can take you out of the race. Older generations, like Boomers and GenX, may be attracted by flexible spending accounts that let them plan ahead for medical expenses, as well as retirement benefits that recognize that they will not be saving for the next 30 years.

Benefits can also determine the kind of people you eventually hire. For example, by providing relocation assistance, you can cast a wider net. Tuition assistance will attract millennials and GenZ, who value the opportunity to learn and grow. Young families will look for flexible PTO, which includes generous maternity and paternity leave.

Here are some of the most common benefits to offer employees:

1. Health Insurance (Required)

The Affordable Care Act (ACA) requires that companies with more than 50 employees provide healthcare coverage. That health insurance must pay for at least 60% of covered services. Employers can have employees contribute toward their insurance coverage, but they can’t force them to pay more than 9.86% of their household income toward it. For a complete list of rules and requirements, visit the Department of Labor website.

If you are a small business (under 50 employees), then you don’t have to provide healthcare insurance. However, you will get a tax credit if you do. To be eligible, you must have fewer than 25 full-time equivalent employees, and your employees’ average annual wages must be under $50,000. You must also contribute a certain percentage towards their premiums, like 50%.

Source: Kaiser Foundation

Health Insurance Options to Offer

2. Workers’ Compensation (Required)

Workers’ comp replaces salary lost due to accident or injury on the job. Each state has its own requirements concerning which employees must be covered, the types of eligible injuries, length of time employees have to file a claim, and the defenses employers can use against claims (such as self-inflicted injuries, willful misconduct, or injuries related to substance abuse on the job).

Workers’ compensation programs are administered by the states, while the federal government administers separate workers’ compensation programs for specific groups such as federal employees, longshore workers, and coal miners. Employers may self-insure for workers’ compensation, however, as long as their policy meets state regulation minimums.

3. Family & Medical Leave (Required)

While family and medical leave is required by law, it’s nonetheless an important benefit for today’s workforce, who want the ability to help family members or recover from injuries or illness without worrying about losing their jobs. Thus, you may want to consider benefits beyond the legal requirements.

By FMLA rules, employees are entitled to 12 workweeks of leave in a 12-month period for:

• The birth of a child and to care for the newborn child within one year of birth.
• Foster parenting, including the fostering and care up to one year of the child being placed with the employee’s family.
• To care for the employee’s spouse, child, or parent who has a serious health condition.
• A serious health condition that makes the employee unable to perform the essential functions of his or her job (including mental illness).
• Any qualifying exigency arising out of the fact that the employee’s spouse, son, daughter, or parent is a covered military member on covered active duty.

FMLA leave is extended to 26 workweeks of leave in a 12-month period if your employee is the spouse, son, daughter, parent, or next of kin of a military service member with a serious injury or illness. For more information, check the Department of Labor website.

4. Unemployment Insurance (Required)

Companies are required by law to pay unemployment insurance. This insurance provides cash stipends to people who lose their jobs through “no fault of their own,” such as a layoff. They must be actively seeking a new job to qualify for unemployment.

Whether or not you must pay unemployment insurance depends on how much you paid an employee, for how long, and what industry you’re in. There are also some state regulations that may apply. Learn more about unemployment insurance at the Department of Labor’s website.

5. COBRA (Required)

Employers are required under the Consolidated Omnibus Budget Reconciliation Act (COBRA) to offer a continuation of an employee’s healthcare coverage for up to 18 months after the employee’s enrollment ends. It’s meant to protect the enrollee and his or her family while they look for alternate coverage. According to the Department of Labor, COBRA applies in the following circumstances:

• A covered employee’s death
• A covered employee’s job loss or reduction in hours for reasons other than gross misconduct
• A covered employee’s becoming entitled to Medicare
• A covered employee’s divorce or legal separation
• A child’s loss of dependent status (and therefore coverage) under the plan.

6. Life Insurance

Life insurance is a popular benefit choice because companies harness the power of groups to secure lower rates for their employees. In some cases, employers will provide small policies ($2,500) for free. Of course, companies with more dangerous jobs, like construction, security, or law enforcement, will want to look at higher value policies. One nice aspect for employers is that you can sign up for up to $50,000 tax-free in coverage for your employees.

Companies wanting group life insurance must show it benefits at least 70% of their employees and meet other specifications. It may cover spouses and children as well. Other types of group insurance you may want to consider include:

• Group accidental death and dismemberment
• Business travel accident insurance
• Split-dollar life insurance; both employers and employees pay into this insurance, making it an investment as well as an insurance policy

7. Disability Insurance

Disability insurance provides compensation for salary lost during short- or long-term leaves of absence due to injury or illness. It does not have to be because of a job-related incident. However, it can cover the workers’ compensation requirements as long as it meets your state’s standards. It’s a good idea for businesses in industries with high injury rates, like roofing, agriculture, or logging, to offer this benefit to employees.

Many short-term disabilities last less than 13 weeks, but 26 weeks is the usual plan purchased. It replaces up to 67% of a worker’s lost pay.

Long-term disability takes up where short-term leaves off, and runs an average of six months. It covers 50% to 60% of lost income and can continue up to retirement. Long-term disability may mean the inability to perform the tasks of the occupation on hand when injured, or it may mean the inability to perform work at all.

8. Retirement

While employers are required by law to pay into Social Security, few people count on it alone to support them in retirement. Therefore, applicants, especially older ones, are looking for retirement benefits.

The average worker changes companies five to seven times in their career, so while some companies may offer a pension, most offer more flexible plans like IRAs or 401(k)s. These tax-deferred savings plans let employees invest part of their salary. Many employers contribute close to 3% to 4% of their employees’ salaries; they usually match at least 50 cents on every dollar of the employee’s contribution, up to a limit.

Consider the needs of your employees before selecting a retirement plan.

Selecting a Retirement Plan

9. Paid Time Off (PTO)

You’d think time off would be a no-brainer, but this benefit can be as simple or complex as you make it. Most companies start with specific days off, such as major holidays. Some add a “floating holiday,” such as a birthday or religious holiday, that the employee can choose themselves.

From there, you need to determine how many days per year you wish to give for vacation time, how they are earned, and whether they include sick days or mental health days. Finally, do you allow flex time? Let people take advanced leave?

Work-life balance ranks among the top considerations applicants have when deciding on a company, even above pay. Having a clear, flexible, and generous PTO package helps your company stand out and shows employees that you value them as people.

Common PTO Days Businesses Offer

10. Tuition Assistance

Investing in tuition reimbursement for employees lets you attract skilled and motivated workers, reduce attrition, and groom a more qualified workforce and leadership from within. According to a Gallup survey, 45% of millennials would change jobs to receive tuition benefits. Right now, about half of all companies provide undergraduate tuition assistance, while 40% provide graduate-level tuition assistance.

However, you do not need to limit your educational benefits to formal education. More and more, people are turning to the internet for webinars, digital courses, and mentoring. Education sites like Udemy offer a wide range of classes, sometimes with certificates, without a formal degree program. They provide a modern alternative for companies with employees who are more interested in the knowledge than the degree.

11. Health Savings Accounts

This add-on to healthcare lets employees put money into a dedicated savings account specifically for healthcare issues. It’s only available for people enrolling in high-deductible health insurance plans.

For 2019, the maximum annual contribution allowed in an HSA was $3,500 for an individual and $7,000 for a family. Employees over 54 years old can also add $1,000 a year as catch-up contributions. Savings in an HSA are allowed to grow without expiring at the end of the year. Participants may opt for pretax payroll deductions or make tax-deductible contributions independently. HSA contributions are never taxed, nor does the government tax the interest earned in these accounts.

How HSAs Work

12. Flexible Spending Accounts

Health flexible spending accounts are also pretax savings accounts that do not incur taxes on distribution. Any employee can set one up, but again, they must cover health expenses. Such expenses can include eyeglasses, alternative healthcare like acupuncture, or even over-the-counter medicines. FSAs have a limit of $2,700 per year, and the accounts expire at the end of the year, meaning the money must be spent or lost.

You can also set up FSAs for dependent care or commuting expenses. These too are tax-advantaged.

13. Relocation Assistance

Relocation packages are a great way to attract qualified talent who may be on the fence about making a move for a job. It’s an important consideration, as telecommuting and remote work are increasingly common and moving costs are so high. Nothing in a relocation package is set in stone, so you can negotiate with a potential hire on each piece.

Some of the costs in a relocation package include:

• Packing and unpacking services
• Moving company with insurance
• Home sale or lease-breaking penalty assistance
• One or more house-hunting trips (travel, hotel stay)
• Temporary housing (usually limited to a month or less)
• Travel to the new location (mileage, plane tickets, hotel fees en route)
• Miscellaneous (per diem, driver’s license fees for the new state, and so forth)

14. Wellness Programs

The ACA offers employers incentives for certain extra programs, provided they are designed specifically to promote health or prevent disease. Such programs can include attending health education seminars, getting free flu shots in the office, or even participating in a health risk assessment. Companies with this type of wellness program can get rewarded for up to 30% of the cost of coverage. Many health insurance companies and benefits packages include this in their healthcare offerings.

Other wellness programs focus on the areas of mental, financial, and even legal health. For example, some programs offer free advice lines or free consultation(s) with a psychologist, lawyer, accountant, or other professional. These often have limits on the appointment time and number of appointments per year. Even so, they help your employees solve one-time problems or give them direction and encouragement for tackling larger issues.

Create a Wellness Program

15. Equity

A great way to get your employees invested in your company for the long term is to provide equity benefits in the form of stock or stock options. Typically, options are issued by the company and cannot be resold, only exercised. Startup companies often use these to reward early employees, especially those who persevere through a rough beginning stage. Fast-growing companies can use them as an incentive for employees to push the company to succeed.

Frequently Asked Questions (FAQs) About Types of Employee Benefits

Selecting the right benefits and the right level of benefits can be a complex task. We considered the most common questions readers have about employee benefits and answered them below. If you have additional questions or comments, leave them in the comment box at the end of this article.

Is there an easy way to secure benefits for my employees?

Yes. Many payroll and benefits services like ADP offer packages of benefits and insurance that meet federal and state laws. Also, there are numerous providers that will administer it for you.

Where can I find out what’s required?

Even the required benefits come with different conditions. A good place to start is with the federal or state department of labor. There are also professional business organizations that can supply the information.

How do I know the best benefits to provide employees in my industry?

Look at what your competitors provide. You can find some of this information on employer review sites like Glassdoor. But also ask your workers: What do they wish they had? What don’t they care about? What do they want more of? Look at the benefits you already provide (aside from insurance)—which are being used?

Do I have to provide every employee with the same benefits?

No. Even among insurance, you can select certain plans for specific groups—for example, your fishermen on the seas may need different coverage than the accountant in the office. Also, executives often expect and negotiate for specific benefits, such as relocation packages.

I want to provide them all—how do I decide?

Budget will probably be your biggest guide, then which benefits are most desired by employees and reflect your company values. After that, check with the providers and see what packages they offer. For example, many health insurance companies also provide wellness programs and HSAs.

Bottom Line

Employee benefits are an important part of your personnel budget, and can comprise 30% or more of your wage cost per employee. Many HR or payroll services that handle employee benefits offer packages, but you should consider first which benefits to select. Some are required by law, by regulation, or by union rules. However, others can reflect company values, promote loyalty, and help your employees with work-life balance. With the right package, you can attract highly qualified applicants and keep the valued ones you have today.