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Building a robust benefits package

Building a robust benefits package

Nicolle Willson, J.D., CFP®, C(k)P®

Today’s companies want to do right by their people. This year, businesses spent a record amount on their employee benefits, averaging over $12,000 per person. The diversity of offerings was just as impressive — in addition to traditional health insurance, companies offered 401(k) plans, paid parental leave, gym stipends, fertility benefits, and more.

While startups and small businesses don’t have the budgets to offer every perk under the sun, they know benefits drive workplace satisfaction and retention. That means it’s critical to provide the right benefits at the right time.

1. Health insurance usually comes first

Workers value both retirement and health benefits, but the latter ranks as a higher priority in most surveys. Even so, while larger companies almost universally offer some form of health insurance, only 55% of businesses with less than 100 employees do. If you’re a small business owner, that makes offering health insurance a compelling recruiting and retention differentiator.

There are also regulatory reasons why you’d choose to offer health insurance first. The Affordable Care Act (ACA) requires companies with 50 or more full-time employees to provide health insurance. For ACA purposes, the IRS defines “full-time” as working at least 30 hours per week. If you’re a fast-growing company under that threshold, making the upfront investment now could save you from having to scramble for coverage later on.

There’s another advantage to offering coverage before the 50-employee mark. Companies with 25 or fewer employees and average salaries of $50,000 or less may be entitled to a small business healthcare tax credit if certain eligibility requirements are met. The tax credit could amount to as much as 50% of what your company pays for employee premiums, making it a powerful incentive for small businesses to start building a total rewards package that goes beyond compensation.

2. Retirement plans drive employee satisfaction

Healthcare is the keystone of your overall benefits package. But if offering health insurance eases your employees’ concerns about what could come today, 401(k) plans similarly address their futures.

A Guideline survey of 1,500 U.S. workers found that less than half are confident that they’ll be able to retire comfortably. At companies without a retirement plan, just 32% believed they’d be able to. Anxieties around Social Security’s long-term solvency only exacerbate those concerns, particularly among younger workers. Millennials — the largest generation in the workforce — mostly doubt that the government entitlement program will be around when they retire.

As an employer, offering a retirement plan bolsters employees’ confidence in their future and you. Employees enrolled in a 401(k) account are twice as likely to be satisfied with their company’s overall benefits package, including healthcare coverage. Because of this outsized impact, offering a retirement plan is a natural second step for companies looking to expand their total rewards package.

Compared to most other benefits, retirement plans are also customizable. Adding features like profit sharing and employer matching can make your 401(k) plan even more attractive, with employees preferring the latter over a pay raise. Perks like these also come with employer tax benefits, as matches are 100% tax-deductible — making them a great alternative to bonuses and other cash rewards. Thankfully, the tax benefits don’t end there.

3. Offering both is likely more affordable than you think

Budget-conscious teams don’t have to choose between offering health insurance or a retirement plan. Thanks to the SECURE Act, a landmark retirement law signed last year, offering a 401(k) plan is probably more affordable than you think.

The SECURE Act offers a series of tax incentives — as much as $16,500 in tax credits over three years — for eligible businesses looking to start offering a retirement plan. To qualify for these tax credits, your company needs to meet certain requirements, including but not limited to the following:

  • You have 100 or fewer employees who made at least $5,000 in the prior year.
  • At least one of your employees isn’t a highly-compensated employee.
  • You didn’t sponsor a retirement plan for the same employees within the last three years.

Learn more about other requirements here.

Let’s put those savings into perspective. For companies with fewer than ten employees, the tax credits could potentially  cover the cost of a 401(k) plan for three years, depending on your plan and who your provider is. If you have 20 or fewer employees, offering a 401(k) plan could cost less than the price of insuring health benefits for just one employee. Last year, the average cost of employer-sponsored health insurance for an individual or family was $7,188 and $20,576, respectively. In comparison, a Guideline retirement plan for an entire company with 20 employees could cost as little as $199 per month.

If you’re in the middle of budgeting for employee benefits, use our tax calculator to estimate how much you could save.

Healthcare and retirement benefits aren’t nice-to-haves — they’re offerings that top talent expect. But if you’re a small business, offering both can be challenging. Legacy retirement providers aren’t designed to support startups and small businesses, charging higher fees that eat into budgets and employees’ savings.

Thankfully, you don’t have to choose between your employees’ health and retirement security. With transparent pricing and a full-stack solution, Guideline’s retirement plans are designed for startups and small businesses who want to do both. To learn more, schedule a call with one of our retirement consultants today.

This content is for informational purposes only and is not intended to be construed as tax advice.  You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.

This illustration is hypothetical and for informational purposes only. It does not take into account an entity’s specific circumstances and thus does not represent the actual costs you may incur as a Guideline client. Accordingly, it is not intended to provide, does not provide, and should not be relied on for, tax, legal or accounting advice. This estimate assumes a new 401(k) plan with a Start-up plan choice and 20 eligible employees.