Navigating the world of employee benefits can be challenging for small business owners. Understanding statutory benefits and ensuring compliance with legal requirements is crucial for maintaining a productive workforce and attracting more talent down the line.
Here’s a comprehensive guide to help you understand the fundamental legal requirements for employee benefits in small businesses.
Workers’ Compensation Insurance
Workers’ compensation insurance covers medical expenses and a portion of lost wages for employees who are injured on the job. This insurance is designed to protect both employees and employers should a work-related incident occur. Even though this is required in every state other than Texas, the specific requirements may vary from state to state.
Social Security, Medicare, and FICA
Social Security, Medicare, and the Federal Insurance Contributions Act (FICA) are federally mandated programs that provide benefits for retirees, children, and disabled individuals. Legally, both employers and employees must add to these funds.
The combined rate for Social Security and Medicare is 15.3%, with 12.4% going to Social Security and 2.9% to Medicare. Employers and employees each pay half, so employers must contribute 6.2% for Social Security and 1.45% for Medicare.
Unemployment Insurance
Unemployment insurance provides temporary financial assistance to workers who have lost their jobs through no fault of their own. Employers must pay federal and state unemployment taxes (FUTA and SUTA). How much a small business pays into this program depends on your state’s requirements.
Family and Medical Leave Act (FMLA)
The Family and Medical Leave Act (FMLA) requires businesses with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave per year for certain family and medical reasons such as the birth of a child or a serious illness.
While this federal law does not apply to small businesses with fewer than 50 employees, small businesses have the option to offer this benefit.
Health Insurance
Just as with FMLA, the Affordable Care Act (ACA) requires businesses with 50 or more full-time employees to provide health insurance to their employees. Small businesses with fewer than 50 employees are not required to provide health insurance but may still choose to offer it as a competitive advantage in attracting and retaining talent.
If small businesses choose to offer health insurance, they can utilize the Small Business Health Options Program (SHOP) to find affordable and effective health insurance plans. Plus, if you have fewer than 25 employees and choose to use SHOP, you could potentially qualify for the Small Business Health Care Tax Credit, which could help offset costs by up to 50%.
Disability Insurance
Disability insurance is not federally mandated, but some states require employers to provide short-term disability insurance. These states include California, Hawaii, New Jersey, New York, and Rhode Island. Disability insurance provides income replacement to employees who are unable to work due to a non-work-related injury or illness.
Understanding and complying with the legal requirements for employee benefits in small businesses can seem daunting, but it’s a crucial aspect of running a successful business. Providing essential benefits not only ensures legal compliance but also helps attract and retain talented employees. Staying informed about federal and state laws and seeking professional advice when necessary can help small businesses navigate this complex landscape effectively.
Please let us know if you have any questions. We understand that local companies have unique needs that most national firms don’t consider or struggle to identify. This leaves your people with a less effective, one-size-fits-all benefits plan. However, our ability to cater to the needs of our clients comes from decades of client partnerships. This perspective allows us to fully address unique needs and generate creative benefits plans.
You shouldn’t have to worry about just being a number, offering a generic plan, or getting the unique support you need. Call us today.
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.