A generous employee benefits package can be an excellent way to keep the talent you have, and to recruit the cream of the crop.
There are many ways to measure the success of an entrepreneur, including the number of new ideas launched, the revenue and profits earned, and the ways in which he or she serves an industry or a community. But perhaps the chief among these is the impact the entrepreneur is able to have on the lives of employees. Beyond tangible rewards such as pay, and intangibles such as mentoring, a business owner can profoundly shape a worker's life by providing a generous package of employee benefits. Indeed, many entrepreneurs acknowledge that the effect they have on the lives of workers is one of the most rewarding aspects of being a business owner.
It also has the potential to keep you up at night.
That's because in order to offer generous benefits, you must first practice careful financial planning. Most benefits packages do not come cheap and costs can rise exponentially as your company expands. Furthermore, once you offer a benefit, it is awkward to take it away should the economy turn south.
That said, if your company becomes known for offering good benefits, you will generally find it easier to recruit talented employees and you may even see some positive side effects with respect to marketing and sales. So what constitutes a solid employee-benefits package, and how do you set up various benefits plans? Here is an overview of the basics.
Employee Benefits: Health Insurance
The largest line item on your employee benefits budget is also typically the hardest to maintain due to rapidly rising premiums. More small businesses have opted to drop health insurance in recent years, a trend that in part prompted the health care reform legislation recently signed into law. For companies that are now looking to add or switch their health care provider, there are generally 5 options:
• Health Maintenance Organizations, or HMOs, are probably the most common option. Employees are expected to choose a primary care physician, who helps manage health care (and the related costs) by providing the worker with referrals to other doctors who are a part of the HMO network. The workers pays a copayment for each doctor's visit, and the insurance company covers the rest. The traditional value proposition for an HMO tends to be that a company and its workers give up a bit of freedom in return for lower costs; in practice, HMOs today tend to draw large networks of doctors, but they are no longer as cheap as they once were.
• Preferred Provider Organizations, or PPOs, are generally the most expensive option available to you. They are more common at large corporations than at small businesses. PPOs offer employees lots of choice in terms of doctors and hospitals; moreover, these plans allow workers to see specialist outside of the network, although a patient will usually be expected to pay some additional fees out of pocket.
• Point-of-Service Plans offer a compromise. Employees choose a primary care physician who makes referrals either within or out-of-network.
• High-Deductible Health Plans have grown in popularity in recent years, particularly among young companies with a high proportion of younger workers who are less likely to require health care on an ongoing basis. Most companies offer a high-deductible plan in tandem with a tax-advantaged Health Savings Account to help employees pay for basic medical needs.
• Self Insurance is a final option, and can be an attractive one. Companies agree to cover their own costs and work with a self-insuring company, which is not technically an insurance company, to set up coverage. There are usually fewer fees to pay, and no premium for risk. Most businesses that opt to self-insure will buy stop-loss insurance to limit exposure (both for individual workers and for your workforce as a whole) in the event of a catastrophic illness or tragedy. Self-insuring companie have more control over the design of their coverage, which means you, the entrepreneur, can create a plan that reflects your values—meaning it can be either limited in scope if you desire to be fiscally cautious, or it can be expansive if you have a strong commitment to wellness or holistic medicine and the like.
Dig Deeper: How to Choose a Health Care Plan
Employee Benefits: Dental Insurance
Dental insurance is a common benefit though not required by law. Like toothpaste, dental plans come in several flavors. Among them:
• Fully-Funded Employer Plans: A company covers 100 percent of its employees' costs.
• Partially-Funded Employer Plans: A company pays a share of its employees' costs, usually in the ballpark of 80 percent. Employees cover the remainder.
• Fully-Funded Employee Plans: Employees pay the entire cost of their dental benefits, while the company absorbs only the costs of administrative costs and payroll deductions.
Dig Deeper: How to Choose a Dental Plan
Employee Benefits: Flexible Spending Accounts
Flexible spending accounts, or FSAs, are a means of helping benefits set aside money on a pre-tax basis in order to cover basic medical expenses. An employee makes an election (up to a maximum dollar amount established by the employer) that is available throughout the plan year (January 1 to December 31) to pay for out-of-pocket medical, dental, and vision expenses. If you intend to offer employees FSAs, keep in mind that you should have cash on hand in order to reimburse employees for expenses, which, by law, you are required to fulfill from the first day of the year—even if the employee contribution is, at that point, less than the total amount of the expense.
Dig Deeper: Setting Up a Flexible Spending Account Program
Employee Benefits: A 401(K) Retirement Savings Plan
