Employee benefits guide for small business owners

Seventy-six percent of employees have concerns about saving for retirement.¹ Businesses may help allay those worries by providing benefits options to help employees subsidize future retirement costs.

• Defined contribution (DC) plans allow employees to put money away in a tax-advantaged retirement account. Among the types of DC plans are 401(k) plans; 403(b) plans, which are for employees of public schools and certain nonprofit organizations; and 457 plans, which are for state and local government employees and those who work for certain charities.
• Defined benefit (DB) plans — commonly known as pensions — provide a regular source of income for employees once they retire.

Some employers offer student loan reimbursement, which in 2025 gives employees up to $5,250 per year in tax-free student loan assistance.

Other employers offer emergency savings accounts, which let employees put aside a portion of their paychecks in a fund that can be tapped for unexpected expenses.

Health insurance and similar products are some of the benefits most sought-after by employees.

Health insurance tops the list of most valuable employee benefits, according to the Society for Human Resource Management (SHRM).² It helps employees pay for medical expenses, though employees may still be responsible for deductibles, copayments and a portion of the premiums, depending on the plan. There are different types of health insurance plans you can offer. For example, preferred provider organizations (PPOs) give employees access to a network of healthcare providers they can see without a referral, while health maintenance organizations (HMOs) limit coverage to providers within a network and typically require patients to have a referral from their primary care physician to see certain specialists. High-deductible health plans (HDHPs) require employees to pay more of their medical costs before coverage kicks in. In exchange, the premiums are typically lower for HDHPs.

Health savings accounts (HSAs) and medical flexible spending accounts (FSAs) are benefit options that can help employees save for healthcare expenses that insurance does not cover.

Dental insurance offers coverage for oral health services such as teeth cleanings, x-rays and checkups. Vision insurance typically covers eye exams, glasses and contact lenses.

Life insurance provides a financial benefit for family members or other designated beneficiaries in the event of an employee’s death, whereas disability insurance replaces a portion of an employee’s income if health problems prohibit them from working. Increasingly, insurance benefits have come to include pet insurance, which shields employees from the high cost of healthcare for their dogs, cats and other animals.

Eighty-one percent of workers say having the ability to take paid time off (PTO) for vacations, childcare or simply a mental health day is important.³

PTO benefits can include paid sick leave, paid vacation, extended leave, family leave and parental leave. While the Family and Medical Leave Act (FMLA) guarantees employees of companies with 50 or more employees the right to take up to 12 weeks of unpaid leave for family and medical reasons, PTO ensures employees can take time off and still receive a paycheck.

Research shows that a lack of work-life balance can lead to burnout and the departure of employees.⁴

Mental health resources, childcare vouchers and remote/hybrid policies are among the benefits that may improve morale by helping employees better balance their personal and professional lives.

To boost emotional wellness in the workplace, some employers offer assistance programs that provide employees with counseling and other confidential mental health services.

Recognizing that childcare is a big concern for many workers with families, some companies offer benefits that subsidize a portion or all of the costs associated with daycare. Others provide family planning benefits such as reimbursement for fertility treatments and adoption services.

Additionally, many employers offer remote and hybrid work policies that give employees the flexibility to work from home some or all of the time.

Federal, state and local laws require that certain benefits are offered to employees. For example, employers must pay a portion of employees’ Social Security and Medicare benefits, which provide financial support and healthcare services for retired and disabled workers. Employers must also pay unemployment insurance, which supports employees who have been laid off, and in some cases workers’ compensation insurance , which pays for medical costs and lost wages if an employee is injured on the job. Other benefits are required of employers of a certain size. For example, in general, companies with 50 or more employees must offer health insurance and unpaid leave for family and medical reasons.

Among the most common employee benefits are medical benefits, retirement benefits and paid sick leave. In 2023:

• 96% of private industry union workers and 69% of private industry nonunion workers had access to medical care benefits.
• 94% of private industry union workers and 68% of private industry nonunion workers had access to retirement benefits.
• 86% of private industry union workers and 77% of private industry nonunion workers had access to paid sick leave.⁶

Employers can give employees the option of choosing the benefits that are most suitable for their needs. For example, if a business offers multiple types of health insurance plans, some employees might prefer to pay higher premiums to have a PPO, while others might prefer to pay less for premiums and get their coverage through an HDHP. By maintaining an open dialog with employees, a business can better determine which benefits are most desired among the workforce.

Employee benefits are subject to federal taxes unless they are specifically exempt from tax under the tax code. If they are taxable, they are typically included in an employee’s gross income and are subject to employment taxes and income tax withholding. They may also be subject to state and local taxes. Please consult your tax and/or legal advisors for more information.

Fringe benefits are those not mandated by law that employers offer employees to supplement their salaries.