Perks are generally nonfinancial incentives or rewards—such as half-day Fridays or designated parking spots—that help make the workplace experience more enjoyable. Benefits, on the other hand, are usually financial in nature or provide a valued service, such as an employer-sponsored retirement plan or paid healthcare.
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The importance of small- business employee benefits
KEY TAKEAWAYS
- A competitive benefits package can help small businesses attract and retain talent, even when they can’t compete on salary alone.
- Health insurance, life insurance, and disability coverage are among the benefits employees value most, providing both financial protection and peace of mind.
- Available retirement plan options and other strategic benefits can help small businesses support employees while managing costs effectively.
One of the biggest challenges small business owners face is attracting and retaining top talent. While some companies will always be able to offer more in terms of salary, you may find that employee benefits is an area where you can give yourself a competitive edge. So whether you’re looking for high-caliber workers, or fighting to keep those you already have, small business benefits are essential for making your staff feel valued and supported.
Create a cost-effective employee benefits package
If money is tight, as it often is for small businesses, it’s important to focus your limited resources on the types of benefits that matter most to your workers. While free food can be a nice perk, it’s low on the list of what influences an employee to join a company. Instead, employees are most interested in benefits that provide protection, flexibility, and support. For example: Did you know that healthcare and life insurance were recently named the two most important workplace benefits by both employees and employers?1
Health, dental, and vision insurance
Of all workplace benefits, health insurance is by far the most valued by current and prospective employees.
67% of employees and 68% of employers believe employer-provided medical insurance to be the most important benefit¹
Not surprisingly, health insurance is also the most commonly provided benefit.3 Dental and vision insurance are sometimes included, but the rising cost of health insurance alone can be prohibitively expensive for many small business owners. In 2023, employer-sponsored health insurance costs increased 7.8% for employers with 50 to 499 employees. And In 2024, average per-employee health benefit costs reached $16,501—up approximately 5% from the previous year.2
It’s not easy to create an employer benefits package while meeting all the other financial obligations you face. If medical insurance is too great an expense for your company, you can look for other ways to reward your employees or build the cost of medical insurance into your future business goals.
Life insurance
While life insurance is a less common employer-provided benefit than medical insurance, it’s valued highly by employees. In fact, Forty-five percent of employees—and 43% of employers—named life insurance a top company benefit.1 Life insurance is more than just an attractive offering that employees want—it’s a promise to help shield and protect your staff and their loved ones. Like medical coverage, life insurance serves both a practical and symbolic function by showing employees that you care about their well-being and future. Best of all, there are a wide variety of life insurance solutions available, so it should be possible to find one that fits into your budget. If you would like to know more, a financial professional can walk you through all your options.
Short-term and long-term disability insurance
If you would like to make your benefits package even more attractive, you may want to consider including some type of disability insurance. While life insurance gives your employees financial protection in case they pass away, disability insurance helps replace some of the income that would be lost if they became disabled and were unable to work for an extended amount of time.
The Social Security Administration reports that 1 in 4 of today’s 20-year-olds will become disabled before reaching retirement age3
Short-term disability coverage, pays a benefit that typically lasts up to 12 months, while long-term disability coverage pays benefits over multiple years. By adding one, or both, of these products to your benefits package, you can keep up with your competition and let your employees know that you have their best interests at heart.
Retirement benefits
While it may seem difficult for a small business to offer a retirement savings plan, there are some relatively easy ways to help employees set money aside for retirement. Here are just a few options highlighted by the Internal Revenue Service.4
Simplified Employee Pension (SEP) – A SEP allows small employers to set up an IRA for themselves and their workers. It has low start-up costs and can be established using a two-page 5305-SEP form. Best of all, employers are free to change the amount they put into employee IRAs each year (even $0), so it’s easy to adjust as business conditions change.
SIMPLE IRA Plan – With this plan, employees contribute a percentage of each paycheck and employers are required to contribute either a fixed 2% of total compensation (even if the employee does not contribute), or a dollar-for-dollar match up to 3%. A SIMPLE IRA plan is also easy to set up and administration costs are low.
Payroll Deduction IRA – As the name suggests, this plan allows employees to set up their own IRA and use payroll deductions to fund it. Since there are no employer contributions or administration costs (once the deduction is set up), it is probably the easiest way to enhance your company benefits package.
Create a competitive benefits package
No matter the size of your business, a New York Life financial professional can guide you in structuring a benefit product package that may help attract top employees and keep the high performers you have. Connect with a small-business professional to learn more about how New York Life product solutions can play a key role in your business’s benefits package.
The content of this article is intended to be for your informational purposes only. Certain products may be available through one or more carriers not affiliated with New York Life Insurance Company, dependent on carrier authorization and product availability in your state or locality.
Frequently asked questions
This is a very important—but difficult question to answer. Since every business is different, it really comes down to what you can afford, and which benefits are the most meaningful to the people you are trying to attract. You may want to do a little research to see what your competitors are offering and be sure to speak with a New York Life small-business professional to explore your options.
In general, employee wages, employee benefits, and payroll taxes are all considered operating expenses.
There are lots of ways to educate your employees about their benefits. A good place to start is by making it a part of your onboarding or new-hire orientation process. Ongoing communication is also important, so you may want to schedule quarterly meetings to answer any questions and gather feedback. If you want, you can even have a small business professional distribute information and meet with employees one-on-one to explain their options. If that is something you’re interested in exploring, just let us know.
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1“Best Employee Benefits,” Forbes.com, October 30, 2024.
https://www.forbes.com/advisor/business/best-employee-benefits/
2“Boost benefits or manage cost? Employers did both in 2024,” Mercer.com, November 20, 2024.
https://www.mercer.com/en-us/insights/us-health-news/boost-benefits-or-manage-cost-employers-did-both-in-2024/
3“Disability Insurance Awareness Month: Protecting Your Paycheck and Your Future,” LIMRA, May 2, 2024
https://www.limra.com/en/newsroom/industry-trends/2024/disability-insurance-awareness-month-protecting-your-paycheck-and-your-future/
4“Individual retirement arrangements (IRAs),” IRS.gov
https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras