Employee benefits, some of which are required by law, are an essential part of your personnel budget and can have a direct impact on hiring and retaining top talent. Knowing the different types of employee benefits can help you choose the right ones for your company, depending on your industry, employee needs, and budget.
The four major types of employee benefits, generally considered traditional benefits, are medical, insurance, paid time off, and retirement. Let’s take a closer look at each of these, as well as a few nontraditional benefits that might enhance your company culture and improve employee engagement and retention.
If you already know the benefits you want to provide but need help creating a detailed program, then check out our guide on how to set up an employee benefits program.
Medical benefits are those directly related to an employee’s health. These can include things like insurance coverage for medical expenses, reimbursement for expenses incurred, and flexible spending accounts (FSAs) that allow employees to set aside pretax money to cover healthcare costs.
Most Common Medical Benefits
What is it?
(Required for 50+ employees) Medical, dental, and vision insurance
Health Savings Account (HSA)
Pretax accounts for health expenses (does not expire)
Flexible Spending Account (FSA)
Pretax accounts for health, child care, commuting, or other expenses (expires annually)
Consolidated Omnibus Budget Reconciliation Act (COBRA)
(Required) Extends health benefits to workers who have lost their jobs
Some companies also offer wellness programs that promote healthy living and preventative care. These are usually part of a non-traditional benefits program; however, employees who participate in these programs may also be eligible for discounts on their medical bills.
An employee’s benefits may vary depending on their job and company, but many employers offer some form of insurance to their employees. This type of insurance can protect employees from a variety of risks, including medical expenses, loss of wages due to injury, and death. Some company benefits may be mandatory for all employees, while others may be specific to certain positions or companies.
Most Common Insurance Benefits
What is it?
Generally, group-term life insurance
Replaces salary for time lost due to injury; good for construction or agriculture
(Required) Provides temporary financial assistance to employees who lose their job through no fault of their own
Paid Time Off Benefits
Paid time off (PTO) benefits can take many different forms, but all of them offer employees a break from work. They can be used for things like taking care of a sick family member, visiting a loved one in the hospital, or just taking a much-needed vacation. Some employers also provide special paid time off benefits for parents with young children, employees who have to take care of an elderly parent, or those who are required to work during national holidays.
Having a clear, flexible, and generous PTO package helps your company stand out and shows employees that you value them as people. While we have broken down each type of paid time off benefits below, many small businesses will simply have one PTO policy that covers every type of paid time off.
Related: Read our article to learn how to create a robust PTO policy.
Most Common PTO Benefits
What is it?
Paid time off given to employees to use how they wish; typically a certain number of days per year
Leave provided to employees when they, or their loved ones, are ill
Time off provided for observed holidays throughout the year, generally decided by each individual employer
Family and Medical Leave
(Required) Up to 12 weeks of unpaid, job-protected leave for births, injury, illness, and caregiving
Paid time off given to employees upon the death of an immediate family member
Paid or non-paid time off given to employees to complete their civic duty in court
Retirement benefits are offered by employers to employees to make retirement more financially secure. They can come in different forms, such as traditional pensions, 401(k)s, 403(b)s, or individual retirement accounts (IRAs). Each has its own benefits and drawbacks. Knowing which type of retirement benefit is best depends on many factors, including your employees’ age, career path, and income.
Most Common Retirement Benefits
What is it?
Retirement funds provided by an employer to employees; received at the time of retirement
401(k) and IRA
Individual retirement accounts; generally contributed by both the employee and employer
Tax-deferred annuity plans used by nonprofits to help employees save through a combination of pre-tax and post-tax contributions.
Companies often use nontraditional benefits to define and reinforce their company culture. These can include everything from a company car to free lunch on Fridays.
Businesses that promote the idea of fun and camaraderie at work may have an in-house arcade or planned events on company time. Those promoting teamwork might sponsor peer-reward programs like Kazoo, which combines employee recognition, performance management, and surveys into one platform. Health-conscious companies might have fresh fruit, a juice bar, or treadmill desks.
Nontraditional benefits can be fluid and are limited only by your imagination, so you can try anything. If it’s not a good fit, then change it. Traditional benefits, however, are generally static and built into job agreements.
Examples of Nontraditional Benefits
What is it?
Flexible Work Options
Employees can choose their work hours (typically a 40-hour workweek)
Employees work from home (or other location with suitable Wi-Fi)
Company provides reimbursement of tuition for eligible courses (can be a write-off to deduct up to $5,250 per employee)
A compensation package paid by the company to assist employees in relocating to a different job site (typically another city, state, or country)
Company provides free or discounted products to employees
Company reimburses employees for items such as Wi-Fi, computers, office equipment, etc.
Employee Referral Bonus
Payments for the referral of an employee (typically after 90 days)
In-house gym, gym memberships, etc. (check out our article on wellness program ideas for more options)
Reimbursement of commuter items (e.g., train passes, rideshare, parking, etc.)
Company pays up to a certain amount (e.g., $1,000 after five years of employment) for an employee to take a vacation
Company pays a specific amount to a new hire to help ensure they will remain with the company for a certain period of time (typically after 90 days); bonuses can be as little as $100 to as much as a few thousand dollars, depending on the position
Company pays a percentage of the profits (generally quarterly or annually) to eligible employees
Much like tuition assistance, the company pays for courses that could lead to certifications in the employee’s field of work
Importance of Offering Employee Benefits
A competitive benefits package tops the list of things high-quality applicants look for in an organization—and not providing one can take you out of the race. For instance, older generations, like Boomers and Gen X, are attracted by FSAs that let them plan for medical expenses, as well as retirement benefits that recognize that they don’t have 30 years to save.
Click through the tabs below for the advantages of providing employee benefits for the employer and the employee.
Employee benefits, especially the four major types of employee benefits, are an essential part of your personnel budget and can have a direct impact on hiring top talent and employee retention. You should consider which benefits to include, whether traditional or nontraditional, as these can reflect your company values, promote loyalty, and help your employees with work-life balance.
We recommend Gusto for small businesses that need payroll services as well as HR options and benefits. If you are interested in a PEO option with strong benefits management, then consider Rippling, which brings all HR and payroll functions into one automated platform.