As A Small Employer What Do I Need To Know About Employee Benefits?
The employer must pay in whole or in part for certain legally mandated
benefits and insurance coverage, including Social Security, unemployment
insurance, and workers' compensation. Funding for the Social Security
program comes from mandatory contributions from employers, employees and
self-employed persons into an insurance fund that provides income during
retirement years.
Full retirement benefits normally become available at age 66 for people
born after 1943, and age 67 for those born in 1960 or later. Other aspects
of Social Security deal with survivor, dependent and disability benefits,
Medicare, Supplemental Security Income (SSI) and Medicaid. Unemployment
insurance benefits are payable under the laws of individual states from
the Federal-State Unemployment Compensation Program.
Workers' compensation provides benefits to workers disabled by occupational
illness or injury. Each state mandates coverage and provides benefits.
In most states, private insurance or an employer self-insurance arrangement
provides the coverage. Some states mandate short-term disability benefits as well.
A comprehensive benefit plan might include the following elements health
insurance, disability insurance, life insurance, a retirement plan, flexible
compensation, and sick, personal, and vacation leave. A benefit plan might
also include bonuses, service awards, reimbursement of employee educational
expenses and perquisites appropriate to employee responsibility.
As an employer, before you implement any benefit plan, it's important to
decide what you're willing to pay for this coverage. You may also want
to seek employee input on what benefits interest them. For instance, is
a good medical plan more important than a retirement plan? Furthermore,
you must decide whether it is more important to protect your employees
from economic hardship now or in the future. Finally, you must decide
if you want to administer the plan or have the insurance carrier do it.
What Types of Medical Plans are Available for Employees?
Today, most health insurance falls under what is called "managed care"
in which you pay monthly premiums, as well as co-pays and deductibles.
The four main types of health insurance are briefly described below. For
more information contact your plan administrator.
In addition, due to the passage of the Affordable Care Act of 2010, which
was upheld by the Supreme Court in July 2012, starting in 2014 states
may opt to create a "healthcare exchange" that enable individuals
and small businesses to compare health plans, get answers to questions,
find out if they are eligible for tax credits for private insurance or
health programs like the Children's Health Insurance Program (CHIP), and
enroll in a health plan that meets their needs.
Health maintenance organizations (HMOs) provide health care for their members
through a network of hospitals and physicians. Comprehensive benefits
typically include preventive care, such as physical examinations, well
baby care and immunizations, and stop-smoking and weight control programs.
The choice of primary care providers is limited to one physician within
a network; however, there is frequently a wide choice for the primary
care physician.
A preferred provider organization (PPO) is a network of physicians and/or
hospitals that contracts with a health insurer or employer to provide
health care to employees at predetermined discounted rates. PPOs offer
a broad choice of health care providers.
Point of Service (POS) health care plans are similar to HMOs in that you
choose a primary-care doctor from the plan's network, but you must have
a referral in order to see in-network specialists. You can also see out
of network providers as long as you get a referral first.
Another option to consider is a high-deductible health insurance combined
with a health-savings account (HSA) or a health reimbursement arrangement
(HRA). By law, the two must be linked.
Note: HSAs should not be confused with FSAs (Flexible Spending Accounts). Money
that you set aside in a health savings account or a health reimbursement
arrangement to pay for certain medical expenses is tax-free. HSAs must
be linked to a high-deductible health insurance plan, and HRAs often are.
(For preventive care, such as cancer screenings, you might not have to
pay the deductible first.) Typically, a special debit type card is used
for the HSA or HRA account to keep track of expenses and payments.
What Types of Disability Benefits do Companies Provide to Employees?
A disability plan provides income replacement for the employee who cannot
work due to illness or accident. These plans are either short term or
long term and are distinct from workers' compensation because they pay
benefits for non-work-related illness or injury.
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Short-term disability (STD) is usually defined as an employee's inability to perform the duties of
his or her normal occupation. Benefits may begin on the first or the eighth
day of disability and are usually paid for a maximum of 26 weeks. The
employee's salary determines the benefit level, ranging from 60 to 80
percent of pay.
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Long-term disability (LTD) benefits usually begin after short-term benefits conclude. LTD benefits
continue for the length of the disability or until normal retirement.
Again, benefit levels are a percentage of the employee's pay, usually
between 60 and 80 percent. Social Security disability frequently offsets
employer-provided LTD benefits. Thus, if an employee qualifies for Social
Security disability benefits, these are deducted from benefits paid by
the employer.
What Types of Life Insurance Plans are Available for Employees?
Traditionally, life insurance pays death benefits to beneficiaries of employees
who die during their working years. Most employers purchase a group life
policy for their employees. Typically an employee is provided with life
insurance coverage that is at least equal to their yearly salary. For
example, an employee who makes $50,000 per year would receive $50,000
of coverage. The employer is responsible for the premium but may require
employees to pay part of the premium cost.
What is a "Cafeteria Plan?"
The idea behind cafeteria plans is that amounts which would otherwise be
taken as taxable salary are applied, usually tax-free, for needed services
like health or child care. Besides saving employee income and social security
taxes, salary diverted to cafeteria plan benefits isn't subject to social
security tax on the employer. With a cafeteria plan, employees can choose
from several levels of supplemental coverage or different benefit packages.
These can be selected to help employees achieve personal goals or meet
differing needs, such as health coverage (family, dental, vision), retirement
income (401(k) plans) or specialized services (dependent care, adoption
assistance, legal services--legal services amounts are taxable).
