The world of employee benefits can be difficult to navigate as a small business owner. Every state seems to have its own regulations and expectations that oftentimes conflict. However, if you don’t understand what employee benefits are mandatory, you could open yourself up to serious fines or potentially legal action.
To help you better navigate this and avoid these penalties, we are breaking down mandatory vs. voluntary employee benefits for small businesses in Indiana.
Mandatory Employee Benefits
There are both Indiana state-required and federally mandated employee benefits that you need to consider as a small business. Some of these, however, may vary depending on the size of your business.
Workers’ Compensation
Most small businesses with employees must provide workers’ compensation insurance. This coverage can protect both employers and employees from costs, fees, and litigation resulting from work-related accidents or injuries. It may help cover lost wages, disability costs, rehabilitation costs, medical treatment, and funeral benefits for qualifying injuries or illnesses.
Unemployment Insurance
Unemployment insurance is a joint state-federal program that may provide cash benefits to eligible workers. Indiana administers a separate unemployment insurance program, but all states follow the same guidelines established by federal law. Employers must pay federal and state unemployment taxes (FUTA and SUTA).
Unemployment insurance payments (referred to as “benefits”) are intended to provide temporary financial assistance to unemployed workers who are unemployed through no fault of their own.
Social Security, Medicare, and FICA
Employers are required to withhold Federal Insurance Contributions Act (FICA) taxes from all employees. These taxes are composed of Social Security taxes, which provide insurance for those who are elderly or disabled or are survivors, and Medicare taxes, also known as the hospital insurance tax.
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.
Family and Medical Leave
Businesses with 50 or more employees must provide unpaid family and medical leave under the Family and Medical Leave Act (FMLA). Enforced by the Department of Labor (DOL), the FMLA mandates that all eligible employees must be allowed to take leave for serious health conditions experienced by them or their family members, to bond with newborns or newly adopted children, and for specific military family reasons.
To be eligible for family and medical leave, employees must work for a covered employer and have worked for that employer for at least 12 months and completed at least 1,250 hours of service. In addition, they must work at a location where the employer has at least 50 employees within a 75-mile radius.
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
Under the Affordable Care Act (ACA), small businesses with 50 or more employees must offer health insurance. Additionally, employer-sponsored plans must meet minimum essential care requirements laid out by the ACA.
Businesses with fewer than 50 employees aren’t legally required to provide health insurance; however, since a healthy workforce is essential for the success of any business, many small businesses choose to provide health care coverage even when it’s not required.
Voluntary Employee Benefits
As the name suggests, voluntary employee benefits are not required by law. Employers may use voluntary benefits as an opportunity to strengthen their offerings and customize perks to meet employee needs. Although there is an additional cost to offering optional benefits, small businesses that provide voluntary benefits often experience greater employee retention, attraction, productivity, and satisfaction.
Disability Insurance
Disability insurance provides financial assistance or job protection to workers who become unable to work due to a serious illness or injury. Currently, disability benefits aren’t required at the federal or Indiana-state level.
There are two common types of disability protection:
- Short-term disability benefits generally last between 10 and 26 weeks and typically begin between one and 15 days of a qualifying injury or illness. This benefit provides guaranteed income for workers, often ranging from 40% to 75% of their original base pay.
- Long-term disability benefits may provide guaranteed income for more extended periods, ranging from two years to retirement age, depending on the policy. Although individual plans may vary, workers typically receive 60% to 80% of their base pay.
Dental and Vision
Traditional health insurance plans don’t offer dental and vision benefits. However, these plans are crucial to catch early signs of disease and chronic health conditions before they become more serious, resulting in lost productivity and missed work. Dental and vision insurance plans are generally less expensive than standard health insurance and can significantly improve employee health and satisfaction.
Retirement Plans
Retirement plans allow employees to invest in their future financial security. They are also one of the most sought-after benefits. A 2023 Retirement Trends Report found that 98% of employees said it’s important that their employer provides a retirement plan. These plans are crucial to ensure workers feel confident about supporting themselves financially in retirement.
Additionally, many retirement plans come with tax savings for both employers and employees. A strong retirement plan can boost employee well-being and increase loyalty. In the United States, 401(k)s are the most popular type of employer-sponsored plan, but there are many options available.
Life Insurance Benefits
Life insurance coverage is an optional benefit that can provide financial assistance to a worker’s family if they die unexpectedly. Many employers offer life insurance to provide peace of mind to employees whose families depend on them financially. Small businesses can also offer separate voluntary plans for workers’ spouses and dependents, increasing employees’ satisfaction with their benefits package.
Employee Wellness Programs
Small businesses that get creative with benefits offerings may be able to compete with the
comprehensive offerings of larger corporations. Many talented employees may prefer tailored benefits plans to higher salaries.
Here are some additional benefits for small businesses to consider:
- Offering flexible work hours
- Encouraging work/life balance
- Providing the opportunity for remote work
- Offering tuition reimbursement plans
- Creating wellness programs
- Providing mental health support
- Offering discounted gym memberships
Navigating mandatory and voluntary employee benefits can be complex, but understanding the differences and requirements is essential for small business owners in Indiana. By complying with mandatory benefits like workers’ compensation, unemployment insurance, and FICA taxes, as well as including voluntary benefits, you protect your business from legal risks while supporting your employees’ basic needs.
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.