What You Need To Know About Benefits
Managing a crew, drumming up sales, making sure everyone gets paid on time - we know small business owners wear a lot of hats. Recruiting and retaining quality employees is key to your success. The construction industry has never been known for its cushy benefits packages compared to Google or other Silicon Valley companies, but in today’s competitive labor market, you need to offer more than a week’s paid vacation to attract and retain great people.
If you’re just starting out, and wondering what benefits you should offer, there are a few key questions you’ll want to ask yourself:
How much can my company afford to offer above and beyond an hourly wage?
(We use our simple Labor Burden Calculator to figure out the costs)What would my employees appreciate and use?
(This varies depending on age, family situation, what may be available through a spouse)How would we track/administer this benefit?
CALCULATING THE COSTS
Putting together an annual operating budget is key to understanding what your company can afford for benefits, and how the additional expense will affect your overhead, project pricing, and compensation rates. It’s also important to know that offering benefits is not a black or white choice - as you can see below, there are many different options, and you can change and expand over time (that said, it can be hard to cut back on benefits - employees generally don’t like it if you reduce their vacation days or health insurance contribution, so you want to be fairly confident that you can continue to offer that level of benefits going forward).
When weighing various benefits options, it’s also worth considering which of these are calculated pre-tax. For example, if your employee has a portion of their wages deducted from their paycheck to go towards health insurance, it reduces the company’s taxable wage burden as well. These savings on payroll taxes can help to offset some of the new expenses related to benefits administration.
HEALTH INSURANCE
Keeping on top of health insurance options is a challenge, since the whole system has changed significantly over the past decade. With the advent of the Affordable Care Act (ACA) some companies have chosen to discontinue group health plans and let their employees buy health insurance directly through their state exchanges. Every state is different in terms of how health insurance options are structured, but we’ll try to address some of the more common scenarios.
Group health plans are the most conventional option. You work with a broker to select one plan (or a number of plans), usually from one insurer, to offer to employees. The company pays the bill every month. You can choose to cover 100% of the premiums, or a fixed dollar amount per person, and employees pay the remaining portion as a pre-tax paycheck deduction. As an employer, you need to decide how much to cover, and whether you are just covering just the individual or a plan for their entire family. If your group plans include HSA-compatible options, then the company also can offer contributions towards an employee’s Health Savings Account (HSA) (this can help offset high deductible plans and is not subject to payroll taxes).
One of the new options that has become available in the past few years is the QSEHRA (Qualified Small Employer Health Reimbursement Account). This is a great option for small businesses who want to contribute something towards their employees’ health insurance, but don’t want to offer a group plan. With a QSEHRA you can pick a fixed contribution amount per month, and employees are reimbursed either for premiums and/or deductible expenses like prescriptions or co-pays. Employees pick whatever health insurance plan they want. There are two potential downsides to the QSEHRA: owners/shareholders of the company are not eligible to participate, and if your employees receive subsidies on their health insurance through the ACA (Affordable Care Act), then the company QSEHRA contribution will reduce the amount they receive in subsidies.
OPTIONS TO CONSIDER
We’ve put together a list of some of the most commonly offered employee benefits here:
| Employee Benefits | How It Works | Approx. monthly cost | Annual Limit |
|---|---|---|---|
| Health Insurance | Employers often share costs with employees | $500 and up | |
| Dental Insurance | Employers may contribute or employees pay premiums. | $15-$30 average | |
| Vision Insurance | Employers may contribute or employees pay premiums. | $5-$10 average | |
| Health Savings Accounts (HSA) | Either employer or employee can contribute; subject to annual limits. Only available in conjunction with HSA-compatible group health plans. | $50-$200 is common | Self: $3,500 Family: $7,000 |
| Flexible Spending Account (FSA) | Either employer or employee can contribute; subject to annual limits. Can be used for a variety of expenses depending on the type (Health, Dependent Care, Health Premiums, Adoption Assistance). | Health: $2,700 Limited Purpose: $2,700 Dependent Care: $5,000 | |
| Health Reimbursement Account (HRA or QSEHRA) | Employers can contribute pre-tax dollars towards reimbursement of health expenses (premiums, copays, out of pocket); set an annual cap. Employer decides whether funds can roll over to the next year. | $420 per month per single or $854 per month per family (2018) | |
| Retirement Account (Simple IRA, 401(k), SEP) | Employers can choose to match an employee's contributions, or contribute a fixed percentage of gross wages. | Varies, based on rate and earnings | Simple IRA: $13,000 401k: $19,000 SEP: 25% of compensation or $56,000 |
| Commuter Benefits | Employees are reimbursed for commuter expenses. Can include parking passes, EZ Pass, public transit passes, gas. | $265 | |
| Life Insurance | Some employers pay for a fixed benefit amount such as $50,000, providing an option for employees to purchase additional coverage. | $25-$35, varies | Disability Insurance | Short term or long term. Employer can choose to cover a portion of the premium. Depending on the policy, some can be pre-tax payroll deductions. | Varies depending on age, health, etc. | Cafeteria Plan | Employers contribute a set amount per month; employees get to choose what benefits to use it on (health insurance, retirement, vision, dental, child care, etc). | Employer can pick a fixed amount to contribute | Dependent Care Coverage | A day care reimbursement FSA can be part of a cafeteria plan. At the beginning of each plan year, each participating employee will determine an amount to set aside for the plan year on a non-taxed basis to pay day care expenses. | $5,000 | 529 College Savings Plan | Unlike a 401(k), a 529 plan is funded with after-tax dollars. Employees who receive matching contributions to their 529 plan will owe federal and state income taxes on the amount contributed. | $14,000 | Health Advocate | Often included in a PEO (Professional Employer Organization) package, this allows for employee access to health advice over the phone, help picking the right insurance package. | Employee Assistance Program | Assists employees with personal problems and/or work-related problems that may impact their job performance, health, mental and emotional well-being. | Typically less than $10 per person per month | Paid Time Off | This can include holidays, vacation, sick time, paid family leave, paid volunteer time. Use time tracking software or payroll service to track. | Tuition Assistance | Education assistance for trainings, classes, paying off student loans. | $5,250 | Performance Bonuses | Cash bonuses (subject to payroll taxes). | Profit Sharing | Treated as bonus for purposes of payroll unless the employee is also an owner and takes it as a draw. Can be project-based, or determined by annual or quarterly company profits. | Tool Allowance | Annual amount employees are allowed to spend on tools paid for by the company. | $100-500/year | Company Vehicle | Work vehicle provided for employee use. If vehicles are company-owned, the the employer can pay for gas (usually with a fleet credit card). | Mileage Reimbursement | If personal vehicles are used for work purposes, the employer can choose to reimburse for mileage. Reimbursements made at the standard IRS rate are not considered income, so they are not subject to tax. |
*note: annual limits often change from year to year - this chart is based on 2019 limits
OPTIONS FOR BENEFITS ADMINISTRATION
Unless you have a dedicated HR team, you may want to lean on third party benefits administrators to help coordinate your benefits package. These third party companies often will charge a monthly or annual fee per employee for the service. There are some that work nationally, others may be specific to your state. We recommend checking with your local Chamber of Commerce, business associations, and other companies you know for recommendations.
Knowing what types of benefits you want to offer can help narrow down the options when it comes to picking a Third Party Administrator.
Some services are tied to payroll (Gusto, Payflex, Zenefits, Justworks are some of the big players that have an easy to use cloud-based interface). Others are more specific to insurance only (TakeCommandHealth) or managing various reimbursement accounts (MyCafeteriaPlan, PeopleKeep) and some also combine health benefits with retirement (Sentinel Benefits).
WHY BOTHER?
Offering a robust, comprehensive benefits package is good for your employees, can attract and retain great people, and helps you stand out from your competition. Taking care of People is a critical part of the Triple Bottom Line.
Note: The landscape of employee benefits is changing every day, and varies from state to state. Our intention is to provide a general overview for small business owners, but we recommend consulting with a benefits administrator or HR consultant to ensure compliance with all state and federal regulations.