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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Small business employee benefits
Written by: New York Life Editorial Team
Reviewed by: New York Life Compliance Team
Updated: October 29, 2026
A challenge small business owners face is attracting and retaining top talent. While some companies may offer more in terms of salary, you may find that employee benefits is an area where you can compete. So, whether you’re looking for high-caliber workers or fighting to keep those you already have, small business benefits can make your staff feel valued and supported.
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 may help small businesses support employees in a cost-effective manner.
Small business employee benefit types
Small business employee benefits generally fall into two categories: benefits employers are required to provide and optional benefits they may offer to support their workforce. Requirements depend on where your business operates, how many people you employ, and other factors. Before building your package, check current federal, state, and local rules.
Required small business benefits
Some employer responsibilities apply broadly, while others are based on your company’s size or location. Working with qualified legal, tax, and benefits professionals can help you understand which requirements apply to your business.
Social Security and Medicare
Employers generally must withhold Social Security and Medicare taxes from employees’ wages and contribute the employer portion of these taxes.1 Together, these payroll taxes help fund federal programs that provide retirement, disability, survivor, and health benefits.
Unemployment insurance
Most employers pay federal and state unemployment taxes that help provide temporary income to eligible workers who lose their jobs.2 Your responsibilities and tax rate may depend on factors such as your location, payroll, and claims history.
Workers’ compensation
Workers’ compensation can help cover medical expenses and a portion of lost wages when an employee experiences a work-related injury or illness. Requirements are established at the state level, so coverage rules and exemptions vary.3
Disability and paid leave requirements
Some states and localities require employers to provide disability coverage or paid family, medical, or sick leave. Federal family and medical leave requirements may also apply to certain employers based on workforce size and employee eligibility.4 Review the laws in every location where you employ people.
Key small business benefits
Once you understand what your business must provide, you can consider optional benefits that reflect your employees’ needs and your company’s budget. Start with benefits that provide meaningful financial protection, then expand the package as your business grows.
Health, dental, and vision insurance
Health coverage remains a central part of many employee benefits packages. In March 2025, 59% of private-industry employees at establishments with fewer than 100 workers had access to employer-sponsored medical care. Access was lower for dental coverage at 30% and vision coverage at 21%, according to the U.S. Bureau of Labor Statistics.5
Providing coverage can be challenging as healthcare costs rise. In 2025, average annual employer-sponsored health insurance premiums reached $9,325 for individual coverage and $26,993 for family coverage, increases of 5% and 6%, respectively.6
Compare plan costs, employee contributions, provider networks, deductibles, and out-of-pocket limits before selecting coverage. If traditional group insurance is beyond your current budget, a benefits professional can help you explore other approaches that may be available to your business.
Life insurance
Employer-provided life insurance can help employees create an added layer of financial protection for the people who depend on them. Coverage is not as widely available at smaller workplaces. In March 2025, 42% of private-industry employees at establishments with fewer than 100 workers had access to a life insurance plan, compared with 72% at establishments with 100 to 499 workers.5
Group life insurance may allow a business to provide a base level of coverage, sometimes with an option for employees to purchase more. Plan design, eligibility, and cost can vary, so weigh the available options against your employees’ needs and the amount your business can commit.
Short-term and long-term disability insurance
An illness or injury that keeps an employee from working can also interrupt their income. Disability insurance may replace a portion of that income, helping employees continue meeting everyday expenses while they recover.
Short-term disability insurance generally provides benefits for a limited period, while long-term disability insurance may continue for several years or until a specified age, depending on the policy. In March 2025, 31% of private-industry employees at establishments with fewer than 100 workers had access to short-term disability coverage. Access to both short- and long-term coverage was significantly higher at larger establishments.7
Offering one or both types of coverage can strengthen an employee benefits package. Employers should also check whether their state requires disability coverage or paid medical leave.
Retirement benefits
A retirement plan can help employees prepare for the future while giving business owners another way to strengthen their benefits package. In March 2025, 59% of private-industry employees at establishments with fewer than 100 workers had access to retirement benefits, compared with 86% at establishments with 100 to 499 workers.⁵
The right plan depends on your company’s size, budget, and administrative needs. Options highlighted by the Internal Revenue Service include:8
Simplified Employee Pension (SEP): A SEP allows an employer to make contributions to traditional IRAs established for eligible employees. It can be relatively straightforward to establish and operate. Employers may adjust their contributions from year to year, but eligible employees generally must receive the same contribution percentage.
SIMPLE IRA plan: A SIMPLE IRA allows eligible employees to contribute through payroll deductions. Employers generally make either a matching contribution or a nonelective contribution, based on IRS requirements. These plans are designed for small employers and typically have fewer administrative requirements than a traditional 401(k).
Payroll deduction IRA: Employees establish and contribute to their own IRAs through payroll deductions. The employer facilitates the deductions but does not make contributions or sponsor a retirement plan. This can give employees a convenient way to save while limiting the employer’s administrative responsibilities.
Other possibilities include 401(k), profit-sharing, and defined-benefit plans. A financial professional and tax professional can help you compare contribution rules, costs, tax considerations, and administrative responsibilities.
Additional employee incentives and benefits
Insurance and retirement plans can form the foundation of an employee benefits package, but they are not the only ways to support your workforce. Lower-cost benefits can also be valuable when they address needs employees experience in their daily lives.
Flexible work options
Flexible schedules, remote or hybrid arrangements, and compressed workweeks can give employees more control over when or where they work. These options may be particularly useful for small businesses that cannot compete with larger employers on salary alone. Before introducing a policy, consider the needs of the role, your customers, and your team.
Health and wellness support
Wellness benefits can range from employee assistance programs and mental health resources to fitness reimbursements and wellness stipends. In March 2025, 28% of private-industry employees at establishments with fewer than 100 workers had access to wellness programs, while 40% had access to employee assistance programs.⁵ Focus on resources employees can realistically access and use.
Family support
Paid parental or caregiving leave, childcare assistance, and dependent-care flexible spending accounts can help employees manage work and family responsibilities. If your budget is limited, predictable schedules or additional flexibility may still provide meaningful support. Eligibility rules and tax considerations vary by benefit.
How to 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.
Ask employees which benefits they value, review what similar employers offer, and establish a budget before comparing plans. Look beyond premiums or up-front expenses to consider employee contributions, administrative costs, and participation, and how easily employees can use each benefit.
You do not need to introduce every benefit at once. Start with required coverage and one or two high-priority options, then add benefits as your workforce and budget grow. Review the package regularly to see whether costs, participation, or employee needs have changed.
No matter the size of your business, a New York Life financial professional can help you explore life insurance and other financial solutions that may support your benefits strategy. Coordinate with benefits, legal, and tax professionals before establishing or changing a plan.
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.
Small business employee benefits FAQs
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.
Employee priorities vary, but health coverage, retirement benefits, and paid leave are often central to a competitive package. Surveying your employees can help you identify which benefits are most useful to your workforce.
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.
Related Articles
1“Understanding Employment Taxes,” Internal Revenue Service, updated April 6, 2026. https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes
2“Federal Unemployment Tax,” Internal Revenue Service. https://www.irs.gov/individuals/international-taxpayers/federal-unemployment-tax
3“Workers’ Compensation,” U.S. Department of Labor. https://www.dol.gov/general/topic/workcomp
4“Fact Sheet #28: The Family and Medical Leave Act,” U.S. Department of Labor. https://www.dol.gov/agencies/whd/fact-sheets/28-fmla
5“Employee Benefits in the United States, March 2025,” U.S. Bureau of Labor Statistics, September 25, 2025. https://www.bls.gov/news.release/ebs2.htm
6“2025 Employer Health Benefits Survey,” KFF, October 22, 2025. https://files.kff.org/attachment/Employer-Health-Benefits-Survey-2025-Annual-Survey.pdf
7“Insurance Benefits: Access, Participation, and Take-Up Rates for Private Industry Workers by Establishment Size,” U.S. Bureau of Labor Statistics, March 2025. https://www.bls.gov/charts/employee-benefits/percent-access-participation-takeup-insurance-benefits-by-establishment-size.htm
8“Retirement Plan Resources for Small Employers and Self-Employed,” Internal Revenue Service. https://www.irs.gov/retirement-plans/retirement-plan-resources-for-small-employers-and-self-employed
This article is provided for general informational purposes only. Neither New York Life Insurance Company nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions