Should SMEs and Startups Offer Employee Benefits?

Should SMEs and Startups Offer Employee Benefits?

Employee benefits are what employees look for when seeking a job. These include group insurance (life, health, dental, etc.), retirement benefits, loans (education, house, car loans, etc), paid time-offs, and flexible alternative arrangements. These perks don’t only boost their morale and job satisfaction but also ensure a healthy workforce. As a result, companies can keep talent, reduce turnover rates, and increase productivity.

Employee benefits can be costly for small and midsize enterprises (SMEs) and startups. Some of them alternatively reduced their compensation package to keep their costs manageable. However, many of their employees don’t like this cost-containment measure, resulting in workforce dissatisfaction and, worse, employee turnover.

The question is, should small and new companies offer employee benefits? And are there affordable options for them? We’ll all answer them here, but we’ll mainly focus on company-sponsored health insurance. Read on to learn more.

Employer-Sponsored Health Plans Aren’t Required 

No federal law in the United States makes it mandatory for companies to offer health care coverage to their employees. This rule applies to all businesses, regardless of their size and industry. Hence, depending on the business, employers can choose to offer plans like health insurance with no deductible, High Deductible Health Plan (HDHP), and the like.

However, big companies (at least 50 employees) usually offer health insurance to keep their workers healthy and avoid paying a big penalty tax. This law is called “pay-or-play” and is imposed by the Patient Protection and Affordable Care Act (PPACA or ACA) to improve the availability, affordability, and quality of healthcare in the country.

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Under “pay-or-play,” big companies have two options:

  1. Provide health insurance to at least 95% of their full-time workers and their dependents.
  2. Pay a fine, which can be between $2,880 and $4,320 per employee each year (as of 2023).

The cost of health insurance provided by employers can vary a lot, like any other insurance. In 2022, the average yearly cost was $7,911 for one person and $22,463 for a family. On average, employers covered 83% of the cost for individuals and 73% for families, making the average costs $6,584 and $16,357, respectively.

How About SMEs and Startups? 

SMEs and new, “small” businesses aren’t obligated to provide medical insurance to their employees. However, offering healthcare benefits can enhance their competitiveness. It plays a key role in promoting employee retention, wellness, and morale.

Moreover, small businesses that offer healthcare benefits enjoy financial advantages. These include tax relief through deductions and credits, which provides an additional incentive for businesses to offer this valuable benefit to their employees.

Are There Ways to Lower Employee Health Insurance Costs? 

The good news is that there are ways for small and new businesses to lower company-sponsored health insurance costs. As mentioned earlier, one of the most common ways is to lower coverage.

Although limiting coverage options may sound not good for employees, it’s not always the case. It’s actually giving workers options on whether they want to add more coverage, depending on what they or their family needs.

An example of this added coverage is voluntary or supplemental life insurance. It helps fill coverage gaps in private or employer-sponsored life insurance. Although it’s not a health plan, it may have medical benefits that employees may choose to add. Also, it can be bought, usually at a reduced rate, through the employer. However, it has limitations, thus, be sure to research it first.

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The employer can then help employees buy added coverage at a lower rate. It gives employees flexibility and reduces costs for employers because not all employees will have the same situations and preferences. It’ll only be a waste of money to buy coverage that employees don’t need.

Another option is through health reimbursement arrangements (HRAs), an IRS-approved health benefit funded by the employer. As its name implies, it’s designed to reimburse employees for their out-of-pocket medical expenses or individual health insurance premiums. For employers, the main advantage of providing it is affordability.

Unlike traditional health plans, an HRA allows small and new employers to manage their health costs by establishing their budgets. They can allocate a monthly allowance of “tax-free” funds and utilize it to reimburse employees for eligible healthcare expenses and individual insurance premiums. This approach allows employees to choose a plan that suits their needs, saving them money in the long run.

Moreover, one alternative to a company health plan is health stipends. It’s a go-to solution for smaller employers who don’t offer company-sponsored health plans. With this, employers provide employees a monthly allowance to cover their medical expenses. Typically, it’s provided to employees through a benefits expense card, expense reimbursement, or a lifestyle spending account (LSA).

A stipend functions similarly to a bonus or salary increase. In other words,  it’s subject to taxes. Despite this, it gives employers greater flexibility and full control over employee benefits.

Final Thoughts

Regardless of their size, employers should thoroughly research and explore their options to find the most suitable employee health plan for their business and employees. Taking the time to understand available choices and tailoring a well-crafted health benefits package can significantly contribute to the overall success and satisfaction of the workforce, ultimately fostering a healthier and more productive work environment.

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