Employee Benefits
There are two types of employee benefits: (1) those the employer must provide by law; and (2) those the employer offers as an option to compensate their employees. Examples of required benefits include social security and workers' compensation, while optional benefits include health care and retirement. Both required and optional benefits have both legal and tax implications for the employer. SBA's Managing Employee Benefits explains types of health and retirement plans and provides tips on setting up an employee benefits plan.
This guide helps employers understand what they need to do to supply employee benefits required by law, as well as steps they need to take to comply with regulations covering optional employee benefit plans.
For requirements specific to third-party employee benefit plan administrators and fiduciaries, visit Requirements Plan Sponsors, Administrators and Fiduciaries
Required Benefits
Social Security Taxes
Every employer must pay social security taxes at the same rate paid by their employees. The Social Security Administration offers information about how to file an employer W-2 form, how to hire employees not covered by social security, and other information for employers:
Unemployment Insurance
Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state's workforce agency. The State Taxes page includes links to your state's agency.
Workers Compensation
Businesses with employees are required to carry Workers' Compensation Insurance coverage through a commercial carrier, on a self-insured basis, or through the state Workers' Compensation Insurance program. Visit your state's Workers' Compensation Office more information on your state's program.
Disability Insurance
Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury. Currently, if your employees are located in any of the following states, you are required to purchase disability insurance:
- California - Employment Development Department
- Hawaii - Unemployment Insurance Division
- New Jersey - Dept of Labor and Workforce Development
- New York - New York State Workers' Compensation Board
- Puerto Rico - Departamento del Trabajo y Recursos Humanos / Department of Labor and Human Resources
- Rhode Island - Rhode Island Dept of Labor and Training
Leave Benefits
The majority of common leave benefits offered by employers are not required by federal law, and offered to employees as part of the employer's overall compensation and benefits plan. These leave benefits include holiday/vacation, jury duty, personal leave, sick leave, and funeral/bereavement leave. However, employers are required to provide leave under the Family and Medical Leave Act.
Family and Medical Leave
The Family and Medical Leave Act provides an entitlement of up to 12 weeks of job-protected, unpaid leave during any 12-month period to eligible, covered employees for the following reasons: 1) birth and care of the eligible employee's child, or placement for adoption or foster care of a child with the employee; 2) care of an immediate family member (spouse, child, parent) who has a serious health condition; or 3) care of the employee's own serious health condition. FMLA requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. FMLA applies to private employers with 50 or more employees, and to all public employers. The following resources provide employers with information on how to comply with FMLA:
Health Plans
COBRA Benefits
Consolidated Omnibus Budget Reconciliation Act (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. Businesses are required to provide COBRA when employees are terminated or laid off. The following resources describe an employer's requirements under COBRA.
Retirement Plans and Pensions
Selecting a Plan
Types of Plans
- Simplified Employee Pension (SEP) Plans Retirement Plans for Small Business
This booklet provides information on SEP Retirement plans as an option for small businesses. The publication describes the plan's features and provides assistance to establish and maintain the plan.
- SIMPLE IRA Plans for Small Businesses
This booklet explains the SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA Plan. SIMPLE IRAs provide employers and their employees with a simplified way to contribute toward retirement.
- Payroll Deduction IRAs For Small Businesses Want to help your employees save for retirement but don't want the responsibility of an employee benefit plan? Think about a payroll deduction IRA program.
- 401(k) Plans For Small Businesses
This publication jointly from the Department of Labor and Internal Revenue Service provides information on 401(k) plans as a retirement plan option. The publication provides assistance in how to establish and maintain the plan and discusses the various features of this type of savings plan.
- 401(k) Plan Fees Disclosure Form (PDF Version)
This form was created by the Investment Company Institute, the American Bankers Association, and the American Council of Life Insurers for an employer to provide to prospective service providers to its retirement plan to assist the employer in making 'apples to apples' comparisons of services and fees.
- 401(k) Plan Fees Disclosure Form (Microsoft Word Version)
This form was created by the Investment Company Institute, the American Bankers Association, and the American Council of Life Insurers for an employer to provide to prospective service providers to its retirement plan to assist the employer in making 'apples to apples' comparisons of services and fees.
