Employee Benefits Basics – 10 things you need to know

Employee Benefits Basics – 10 things you need to know

Employee Benefits

Employee benefits are a major part of many compensation packages. If you own a business or manage the HR department for a company, you’ll need to know the in’s and out’s of employee benefits on at least a basic level. In today’s workplace, employee benefits mean much more than they used to, and in this post, we cover the basics of what you’ll need to know.

Why Offer Employee Benefits

Why do employers offer benefits? Sometimes they don’t actually have a choice. Certain laws require employers to offer some core benefits to all employees.

Another reason is that some employers are just trying to stay competitive. Some so many employers want to know how to attract or retain talent without paying employees more money. Sometimes it’s really not just about how much money you pay, but the total employee benefits package you provide.

Some of the employee benefits that you provide to your team will communicate certain values. Providing a 401k plan indicates that you’re invested in your employee’s financial stability at retirement age. Providing on-site daycare communicates that you care about your employee’s ability to balance personal and work responsibilities.

There are also employee benefits that may save employers money. For example, contributing to an insurance premium may lower the employer’s tax liability. 

Employee Benefits can also communicate something about a company’s brand. Certain employers are known for offering certain types of exclusive benefits or offering benefits that fit the company’s values very strongly. You want to make sure that you choose an employee benefits package that communicates your employer brand.

How to Decide What to Offer

Now that you know why to offer employee benefits, how do you decide what actually to offer? Lucky for you, we’ll reveal a plethora of benefits that you can potentially offer to your employees. Before adding any new benefits, you’ll want to conduct a survey of your employees to determine how they feel about their existing benefits package by ranking the importance of certain benefits.

You’ll also want to ask employees for their ideas and have them evaluate a list of ideas you would consider offering as well. This helps you present your findings to your employees, allowing you to explain why you chose certain benefits or why employees value specific benefits that are offered. It allows you to frame certain ideas around each benefit, set the culture, and communicate your employees’ values. 

What is Considered a "Benefit"?

What exactly falls under the benefits umbrella? Traditional benefits include paid time off, health and welfare, and retirement. Non-traditional benefits include any extra perks or other extras that you might offer. Sometimes these might be industry-specific, and typically they’ll be a little bit more creative in nature. Let’s take some time to talk about the major categories of benefits.

Paid Time Off (PTO)

Usually, when you use the term PTO or paid time off, it typically means you are referencing any vacation, sick, personal time, or any other time as one bucket of paid time off. The other option is keeping them all in separate buckets of time.

Many employers also offer paid holidays. These are not required by law, and there’s also no requirement to pay time and a half or double time for these either. This is a common misconception, but many employers choose to provide their employees with extra pay as a courtesy for having to work the holiday. 

There is also a growing trend of unlimited PTO becoming more popular today. It really depends on the type of work that your employees perform. Still, you will typically see this in professional organizations, indicating that the employer can trust the employees to manage their time appropriately.

When evaluating your PTO programs, you’ll want to look at paid versus unpaid time off. Some employers require that you use all paid time off before using unpaid time,

Employee Benefits Vacation

And it’s important to make sure that you have a policy regarding unpaid time.

Compensatory time is typically not permissible for non-exempt employees. You may decide to use compensatory time for exempt employees, but you will want to assure that they are always making their full salary. 

Please keep in mind that some states have requirements regarding termination, carry over, and accrual caps concerning your PTO policies. So definitely take the time to review those for each state that you operate in to ensure that you are compliant with state law.

Required Benefits

Most employers don’t even consider these benefits just because they’re required to provide them to their employees by law. We can also refer to these as core benefits. 

What do those entail, you might ask? Good question. The core benefits typically include social security, Medicare, unemployment insurance, and worker’s compensation insurance. These are all significant benefits to have when you think about it, but they’re often taken for granted. 

One of the most important things is social security benefits. Let’s go ahead and take a look at what that entails. 

Social Security

When you work, a portion of your wages is taxed and goes into Social Security. Most of us know Social Security is being paid to people as a retirement benefit. However, that money is used to pay benefits to people who have already retired, people who are disabled, survivors of workers who have passed away, and dependents of beneficiaries


In addition to social security, we also pay for Medicare through our payroll taxes. Medicare is a secondary insurance program that falls under Social Security. There are several different parts of Medicare. Keep in mind that similar to social security, the employer matches the employee’s contributions. 


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As an employee, if you lose your job, you have a little bit of a safety net called unemployment insurance. That means that if you are involuntary terminated, you may qualify for unemployment benefits through the state. 

On the employer side, things look a little different than you may imagine. When an employer files an unemployment claim, the employer does not directly pay the amount that the employee is eligible to receive. Many employers think that they’ll get a huge tax bill if a former employee files for unemployment and wins. Fortunately, that’s not how this works.

Employers are provided with an unemployment insurance tax rate every year affected by the number of former employees who have collected unemployment after leaving your organization.

While the tax increases with every unemployment claim, it’s based on a percentage rather than a total amount paid directly to the employee.

Workers Compensation

Workers Compensation is the oldest insurance program in the United States. It’s a form of insurance that employers are required to purchase in most states, and it offers benefits to employees who suffer work-related injuries and illnesses.

Employees typically receive benefits regardless of who is at fault for the injury or illness. In return, employers are typically protected from lawsuits stemming from an injured employee seeking pain and suffering.

Workers’ compensation provides income replacement when an employee cannot work and technically does not provide any job protection. However, please keep in mind that it’s against the law to retaliate against an employee for filing a workers’ compensation claim. 


Many states have required leaves that employers must provide leave to their employees. These will all vary drastically based on which states you operate in. Many of these leave require benefits continuation and/or job protection, and the laws surrounding these leaves vary widely by state. Some states require disability insurance.

Health Insurance

Does your company offer health insurance? Do you offer different plan options? If so, do you take the time to help your employees understand the difference between varying plan options? I’ve worked in many workplaces where employees have been in the workforce for 5-10 years and still didn’t understand how the different insurance plans affected them. 

Employee Benefits Health Insurance

When you consider the ACA and the affordability requirements, it may help you offer more than one plan to ensure that you meet that affordability requirement. 

Plans can include dental, vision, and pharmacy within the plan, or these can be offered through a completely separate carrier. 

Some plans also allow you to include naturopath services, acupuncture, and chiropractic care to your original plan. You’ll also want to look into funding options. You can consider a self-funded plan or a fully-funded plan. 

In a self-funded plan, the employer is the one that’s taking on the risk instead of the insurance company. 

Therefore, you would have an account from which you would pay the claims directly, typically through a third-party administrator. You would set the premiums to determine how much you want to charge your employees for their claims specifically.

Under a fully funded plan, the health insurance company sets the premiums, and they are the ones to take the risk. They’re the ones that pay the claims, and they set how much you as an employer will pay in premiums monthly to provide coverage.

If you do offer a funded plan, there are a few things that you can do to supplement your health insurance offerings. 

Health Savings Account (HSA)

Does your company offer a high deductible plan that pairs with a health savings account? This is a qualified plan with minimum deductibles and out of pocket maximums set by the IRS on an annual basis. And typically, they’re pretty high. Why is that?

The HSA is intended for young and healthy people and rarely ever go to the doctor and don’t really have any routine health needs. Typically, these are less expensive plan options that allow them to set aside funds into a health savings account because the premiums are much lower. 

The Health Savings Account or HSA is a personal, non-employer related medical bank account where employees can set aside funds to save for their medical expenses. So you can contribute to this on a pre-tax basis, accrue interest on a tax-free basis, and when spent on certain medically-related costs, it can be used tax-free. 

There are specific contribution limits set by the IRS on an annual basis and will be different for an individual versus a family. Once you hit retirement age, you can enroll any funds you have in your HSA into an IRA, so it becomes an actual retirement account. 

The company does have the option to contribute to this account. And upon leaving the company, any money that the employee has in that account belongs to them despite who contributed to it. 


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Health Reimbursement Account (HRA)

The employer typically provides these types of accounts with set limits that allow employees to be reimbursed for medical expenses. These accounts belong to the employer specifically and any funds not used are typically forfeited upon departure. 

Keep in mind that unlike the HSA, the HRA has contribution limits set by the employer, and the employer’s rollover rules are determined. The employee has no option to contribute to this plan. Only the employer can contribute, and it’s employer-owned.

Flexible Spending Account. (FSA)

Let’s wrap up the health and welfare benefits by talking about the flexible spending account. This is our last type of medical supplement account.

The flexible spending account allows employees to set aside a certain amount of funds at the beginning of the year to pay for certain medical and dental expenses on a pre-tax basis. Or a certain amount to use towards qualified dependent care expenses. 

The flexible spending account is usually using it or loses its account. Still, employers can allow employees to carry over a small number of funds for use next year for the medical account if they so choose. 

There’s a lot of stipulations around this. Once again, the contribution limits are typically set by the employer within the limits of the IRS. And the account itself is employer-owned, but the employee typically contributes to the plan. And if the employee does not use the account, they typically forfeit the accounts they’ve set aside to the employer. 

Retirement Plans

Retirement has changed drastically in the past 50 years. Gone are the days where we can expect to collect funds from social security if you are not retiring any time soon. Let’s take a minute to talk about retirement plans.

There are two main types of retirement plans. One is the defined benefit plan, while the other is the defined contribution plan. 

Defined benefit plans, better known as pensions, are becoming increasingly hard to find. These promise employees a specified monthly benefit at retirement.

The more popular option today is the defined contribution plan. The most common option is the 401k plan. In these particular plans, the employee, employer, or both, contribute to the employees’ individual account. The employee is the one who shoulders the investment risks rather than the employer. The value of the account will fluctuate based on the value of the investments. Upon retirement, the employee would receive the balance in their account, which depends on contributions plus or minus investment gains or losses. The employer can determine whether or not they want to contribute to the 401k plan.


Remember to be strategic about planning your benefits program. You’ll want to take the time to survey your employees and figure out what benefits will be the most beneficial and valued by them. Ensure that if you decide to offer benefits, they line up with the company goals, objectives, mission, and vision. Employee benefits can go a long way in reducing turnover and hiring the best employees when done correctly. If you need help deciding what benefits to offer your employees and how to offer them, make sure to contact one of our HR Service Partners. They are happy to help

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