Employee Benefit Options for Small Businesses
Employees of large companies get a wide range of benefits. Small companies, due to their limited budget, find it difficult to offer too many types of employee benefits. However, since benefits are a significant factor of attracting talented workforce, small companies have to plan their employee benefits package efficiently and effectively both for themselves and their employees.
Health insurance is the first and most important benefit that an employee looks at when taking a job. A good health insurance policy can go a long way in retaining the talented personnel and contribute in the growth of the company. Apart from health insurance there are other employee benefit options which can be used by employers of small businesses to satisfy their employees.
Dental insurance coverage is commonly offered by large companies along with regular health insurance but small companies are not too keen to offer dental insurance. The funds allocated for employee insurance in small companies is limited so they have to cover the most important aspects first. Employees, however, would appreciate an employer dental plan as they would get lower group rates and better coverage. Small business owners should consider the various options of group dental coverage which would cover the need for a dental plan at economical rates.
Small business owners may think about self-insuring the dental coverage considering the fact that sometimes the amount of premiums paid during the whole year for one employee may be more or equal to the claims by that employee. Still, going through an insurance carrier for the dental plans is more beneficial to the employees and the employer. Even if the employee has to pay a part of the premiums, he can do so through salary deduction before taxes – this helps to save some money. Also, money saved in the health savings account is deposited before taxes which also benefits the employee.
How to Design the Dental Coverage for Employees
It is very important to small companies to know the various options of dental coverage. This would help them to design a plan within their financial limits and yet be able to fulfill the needs of the employees. Larger companies, of course, are able to afford a wide range of coverage which is not possible for small companies or the ones which are relatively new. So, small businesses need to have a clear strategy about how to put the resources to best use.
Depending on the extent of benefit, dental plans have varying levels of coverage.Small companies can offer the preventive and basic coverage to start with. Most employees would need annual cleanings, x-rays, fillings and some other basic procedures. Wider coverage includes major procedures like,bridges, inlays etc. and orthodontal procedures for dependent children of employees. These can be brought under coverage as the company expands its budget for this insurance. Here, the number of employees is significant for the employer while choosing the insurance carrier. The business owner has to decide on an insurer which will insure very small number of employees, even if it is below ten. The employer can work out a good deal with the insurer where employees can get wide coverage at reasonable rates. Insurers generally give better coverage if the number of employees is more than ten.
Dental insurance plans for small companies are usually of the PPO type, where members can choose their own providers within the network or even out of the network of the plan. Taking services from in-network providers means discounted fees and lower out-of-pocket costs for the employees. Employers may also choose the variation of this type of coverage, known as passive PPO.
To keep the costs for dental insurance low, small business owners can ask for a partial contribution from the employees. The employer may also combine the dental insurance with the health insurance coverage which would make matters simpler to handle.
Key Person Insurance in Small Companies
This special type of insurance cover is not meant for all the employees of the company. It covers the life of the most important employees or the owner without whom the company may not function or begin to decline. In a small company, the owner or just a few people are solely responsible for the smooth running of the company. In the absence of any one of them, the company will disintegrate and may face closure or bankruptcy. Such a situation would jeopardize the jobs of all the other employees and severely affect the lives of their families too. Key person insurance protects the company from such a disaster in the event of the death of a key person.
The premiums for this insurance is paid by the company and it is the beneficiary of the insurance. If the insured passes away, the company receives the benefits. The company can choose how to utilize the money so as to get over the crisis period till the situation can be normal again.Another suitable replacement can be hired or more some additional temporary staff can be taken in till that happens. If the insured happens to be the owner, the benefit amount can be used to pay the debts or salaries of employees.
When small companies buy key person insurance, they should try to maximize the benefit amount as per their budget and also buy a term policy which will cover the working period of the key person.
Retirement Plans for Employees of Small Companies
Retirement plans are another significant attraction which employees are interested in. Good retirement plan options add to the hiring value of a company, especially a small company. A qualified retirement plan gives the security to the employees which motivates them to work efficiently in the present.
401(K) Plans for Employees of Small Companies
The most popular type of retirement plan for the employees of small companies is 401(K) plans. These are sponsored by the employers where employees also contribute their share. The contributions into the plan are made before taxes, mostly federal taxes. So, the employee does not have to pay any taxes immediately on the amount that goes into the plan. However, he or she, has to pay tax on the total amount at the normal rate when the funds are taken out after retirement.A penalty will have to be paid by the employee if the funds are taken out before the age of 59 ½.
Although there are regulations which define the eligibility and timing to join the retirement plan, it mostly depends on the internal company regulations. An employee must make himself or herself aware of the company rules in this regard. While designing the retirement plan, the company authorities keep in mind the goals of the company regarding the group which will get the preference.
Roth IRA Retirement Plan
This is another popular retirement plan for lower income earning people, ideal for the employees of small companies. This option can easily be offered to employees as there are no extra administrative processes involved. This plan requires the employee to contribute his or her share into the plan after taxes. So, the savings are done with after-tax dollars and the employees do not have to pay any tax when they take out the funds. This plan is very beneficial for those who would rather pay the present tax than pay a higher tax in the future.
While planning the retirement schemes for their employees, small companies have to adhere to the IRS restrictions and regulations to maintain impartiality to all employees and not benefit the highly-paid employees more. Small companies are required to pass the Average Deferral Percentage Test in order to be able to implement the qualified retirement plans as per the IRS. This regulation requires that the contributions of the highest paid employees of the company has to remain within a certain percentage more than the contributions of all the other non-high paid employees. The company has to make the necessary adjustments to achieve this percentage every year. The most common method used to reach this percentage if it is higher than the prescribed level is to return funds to the high-paid group. Small employers may also use the safe harbor method to pass the regulations set by the IRS regarding employee contributions into qualified retirement plans.
Profit-Sharing as Employee Benefit in Small Companies
Many large companies share a portion of their profits with their employees. Though not very common with small companies, profit-sharing is another way in which employers can extend the employee benefit package.Companies have the option to either give a fixed amount or variable one depending on the amount of profit every year. Small companies are better off with a flexible contribution and not go into a commitment of a fixed amount as their profits may not be too predictable each year. The cross-tested or comparability profit-sharing plan is being adopted by small companies as this has proved to be quite beneficial for them.Under this system, the employees of a company are put into rate groups based on some common criteria like, income, position in the company etc. Deciding on the most suitable method for profit-sharing requires a lot of analysis and planning which can be done with the help of professionals. The owners of small businesses need to understand what is best for the company, for themselves and the employees. To achieve that, they may have to give away a greater part of their profit in the short run to gain big in the long run. The requirements and desires of the employees have to be given due consideration while planning on retirement plans for them.
Retirement Plans for Employees of Not-For-Profit Organizations
The employees of companies who do not operate for making profits, not-for-profit organizations, can also have access to retirement plans. These companies do not have to pay any taxes as per the IRS regulations.These types of organizations have been offering the option of 403(b) or variable annuities as their retirement plan choices previously. Currently, they have been allowed to also offer 401(K) to their employees.This has streamlined the whole retirement plan process for these not-for-profit organizations.
These options of employee benefits should be adopted judiciously by small companies. The company owners and decision makers should make themselves acquainted with the all the features of the plan they are choosing. Wrong decisions can result in loss of resources and small companies cannot absorb too big a loss.
Small Business Owner Health Insurance