Key takeaways
- A short list of benefits is required by law: Social Security and Medicare, unemployment insurance, workers' compensation, and certain leave and continuation coverage.
- Health insurance is not federally required under 50 full-time equivalent employees, but the ACA employer mandate applies at 50 and above.
- Several states now require employers without a retirement plan to offer a state auto-IRA program.
- Small employers have real alternatives to a traditional group plan, including PEOs, QSEHRAs, and ICHRAs.
- Benefits only help recruiting if employees understand them, so communication matters as much as plan design.
Employee benefits are compensation provided beyond wages, such as health coverage, retirement contributions, paid time off, and insurance. Some are required by federal or state law, and the rest are voluntary choices employers make to attract and keep people.
A 30-person design agency loses its third candidate in a row at the offer stage. The salary was fine. The work was interesting. But the candidate had a toddler, and the agency's health plan had a deductible high enough to wipe out the raise. The bigger firm across town offered a plan with a lower deductible and a 401(k) match.
Small companies lose this way all the time, and it usually isn't because they can't afford better benefits. It's because nobody stepped back and designed a package around who they are trying to hire. This guide walks through what you are required to offer, what employees actually weigh, and the options that let a small team compete.
Benefits US employers are required to provide
Federal law requires surprisingly few benefits. The mandatory list for most private employers is:
- Social Security and Medicare, funded through payroll taxes you and your employees pay.
- Unemployment insurance, funded through federal and state unemployment taxes.
- Workers' compensation, required by nearly every state for employers with employees. Texas is the notable state where private employers can choose not to carry it, with legal trade-offs.
- Family and Medical Leave Act leave for eligible employees once you have 50 or more employees. It is unpaid, job-protected leave. See our FMLA guide.
- COBRA continuation coverage if you have 20 or more employees and offer a group health plan. Many states have similar rules for smaller employers.
States add more. California, New Jersey, New York, Rhode Island, and Hawaii run state disability insurance programs, and a growing list of states require paid family leave contributions and paid sick leave. Check every state where you have employees.
Health insurance and the ACA
No federal law requires employers with fewer than 50 full-time employees, counting full-time equivalents, to offer health insurance. Once you reach 50, you are an applicable large employer under the Affordable Care Act. You must offer affordable coverage that meets minimum value to substantially all full-time employees and their dependents, or you may owe an employer shared responsibility payment. You also have to file Forms 1094-C and 1095-C with the IRS each year.
For ACA purposes, full time means an average of at least 30 hours a week. That catches many employers who think of 30-hour employees as part time.
Even when it is optional, health coverage is usually the benefit candidates look at first. They compare premiums, deductibles, and whether their doctors are in network, not just whether a plan exists.
Retirement plans
Retirement plans are voluntary under federal law, but the picture is changing at the state level. California, Oregon, Illinois, and a growing number of other states require employers that don't offer a retirement plan to enroll employees in a state-run auto-IRA program. The employer doesn't contribute, but it must facilitate payroll deductions.
The common private options are a 401(k), a SIMPLE IRA for smaller employers, and a SEP IRA, which is funded entirely by the employer. A 401(k) with a company match is the version most candidates recognize and value.
Paid time off and leave
No federal law requires paid vacation or paid holidays for private employers. Paid sick leave is a different story. Many states and cities require it, with their own accrual rates, carryover rules, and permitted uses. If you have employees in several states, your PTO policy has to meet the strictest rule that applies to each employee. Our PTO policy guide covers how to design one that works across states.
Voluntary benefits employees actually notice
Once the essentials are in place, smaller benefits can make a real difference, especially when they match your workforce.
- Dental and vision, which are inexpensive and widely expected.
- Life and disability insurance. Short-term disability matters most in states without a state program.
- Health savings accounts paired with a high-deductible plan, ideally with an employer contribution.
- Flexible spending accounts for health care and dependent care.
- An employee assistance program.
- Flexibility, such as remote work or predictable scheduling. For many employees, this ranks alongside pay.
Not every perk earns its cost. A gym stipend nobody uses is money that could have lowered everyone's deductible.
Options for small businesses
Small employers have more choices than they often realize.
| Option | How it works | Best for |
|---|---|---|
| Small group health plan | Buy a plan directly or through a broker | Teams that want to control plan design |
| PEO | Join a large co-employment group plan | Small teams that want big-company benefits and HR help |
| QSEHRA | Reimburse employees tax-free for individual coverage, up to annual IRS limits | Employers under 50 full-time equivalents with no group plan |
| ICHRA | Reimburse employees for individual coverage with flexible amounts by employee class | Distributed teams or employers wanting predictable costs |
Our PEO vs HRIS guide walks through the trade-offs in detail.
Running open enrollment without chaos
Open enrollment is when most employees actually read about their benefits, so treat it as a communication project. Start four to six weeks out. Explain changes in plain language, with examples of what common situations will cost. Host a short session employees can watch later. Give a firm deadline and say what happens if someone misses it. After enrollment closes, check that every election reached payroll and the carriers, because enrollment data errors cause billing problems for months.
What candidates compare first
Candidates rarely read a benefits summary from top to bottom. They scan for the handful of numbers that affect their real life, and those numbers decide whether your offer feels generous or stingy.
For health coverage, that means the employee's monthly premium share, the deductible, the out-of-pocket maximum, and whether their doctors are in the network. Parents also look at the cost of family coverage, which is where many small employers fall short, because covering 80 percent of an employee-only premium and nothing for dependents leaves a family with a large bill. For retirement, people look at whether there is a match and how long vesting takes. For time off, they look at the number of days, not the policy name.
So put those numbers in the offer packet. A one-page summary that says "your share of family coverage on our base plan is about this much per paycheck" answers the question the candidate is really asking.
Setting a benefits budget
Start with your total compensation budget, not with a list of perks. Decide how much you can spend per employee per year on everything beyond wages, then split it between health coverage, retirement, time off, and smaller benefits based on what your workforce values most.
A workforce of recent graduates and a workforce of mid-career parents need different packages. Younger teams often care more about retirement matching, student loan help, and flexibility. Parents care about family premiums, dependent care accounts, and leave. If you don't know what your people value, ask them with a short anonymous survey before renewal, then explain afterward which requests you acted on and why.
Benefits paperwork you are responsible for
Offering a health or retirement plan brings disclosure duties under federal law, mostly under ERISA. Plan participants are generally entitled to a summary plan description that explains how the plan works. Group health plans must provide a summary of benefits and coverage, a standard short document that lets people compare plans. There are also annual notices to deliver, such as the notice about prescription drug coverage for Medicare-eligible people and notices about special enrollment rights.
Your broker, carrier, or PEO usually prepares most of these documents, but the employer is still responsible for making sure employees receive them. Keep a simple calendar of what goes out and when.
Benefits for part-time and hourly employees
Part-time and hourly employees are often left out of benefits planning, and that is a missed opportunity in industries where turnover is the biggest cost. Under the ACA, anyone averaging 30 or more hours a week counts as full time for the employer mandate, so a large employer cannot simply label them part time. Below that line, inexpensive benefits such as paid sick leave above the legal minimum, an employee assistance program, on-demand pay, and predictable schedules can matter more to hourly workers than an expensive health plan they would struggle to afford. Ask them what would make them stay. The answers are often cheaper than you expect.
Where benefits software helps
Benefits administration software handles enrollment, life events, carrier connections, and payroll deductions. It removes the paper forms and spreadsheet trackers that cause most enrollment errors. See our benefits administration buyer guide and the ACA compliance guide if you are near 50 employees.
Employee benefits planning checklist
Work through this list with your team. The printable PDF version has space to tick each item off.
- Confirm workers' compensation coverage in every state with employees
- Check state disability and paid family leave program requirements
- Check state and local paid sick leave laws
- Count full-time and full-time equivalent employees for ACA status
- Confirm COBRA or state continuation obligations
- Check whether your state requires an auto-IRA if you have no retirement plan
- Survey employees on which benefits they value most
- Compare small group, PEO, QSEHRA, and ICHRA options
- Model total cost per employee for each option
- Prepare plain-language benefits summaries with cost examples
- Schedule open enrollment communications four to six weeks out
- Verify elections reached payroll and carriers after enrollment
Where to go from here
Wherever you are in the process, there is a next step that fits.
Compare software categories
Email templates for this topic
Ready-to-edit emails with subject lines, compliance notes, and a free PDF.
- Open enrollment announcement email templateKick off benefits open enrollment with dates, what's changing, costs, and how to enroll.
- Open enrollment reminder email templateA short final reminder before the open enrollment window closes.
- New hire benefits enrollment email templateTell a new employee when their benefits start, how long they have to enroll, and where to get help.
- Condolence and bereavement leave email templateOffer sympathy to a grieving employee and explain bereavement leave without making them ask.
Frequently asked questions
Are employers required to offer health insurance?
What benefits are legally required in the US?
What is the difference between a QSEHRA and an ICHRA?
Is paid vacation required?
When should open enrollment start?
Sources
We checked the facts in this guide against these primary sources. Laws and thresholds change, so confirm current rules before you act.
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.