Benefits Basics

Benefits comprise the second half of the compensation equation (the first half is pay). While virtually every business has to offer some type of monetary compensation to employees, most benefits are optional.

So why offer benefits? Providing benefits to your employees also allows you to offer benefits to yourself, and contributions that you make for benefit premiums are often tax-deductible for your business. That's a powerful incentive in and of itself. However, if you need to attract employees with a special skill or talent, you're going to have to compete with other employers to get them, and that may mean you'll need to offer some benefits to succeed.

As you contemplate benefits as a possible addition to your compensation package, consider the following issues:

Retirement Plans
Health Plans
Dental Plans
Vision Plans
Life Insurance Plans
Paid Vacations
Paid Holidays
Paid Sick Leaves

So what do you have to do? While the benefits mentioned above are not required, you are required to:

Comply with all requirements of workers' compensation
&
Withhold for FICA and FUTA

As with most business decisions, there are pros and cons to consider when offering benefits. Evaluate these considerations with your particular situation in mind — they can help you determine if offering benefits is something you want to do now.

Tax Advantages — you can deduct plan contributions.

Recruiting Advantages — you can use benefits packages to attract good employees and you can structure them in such a way to reward and thus retain your best employees.

Personal Gain — you may be able to get benefits for yourself for less money, if you also offer them to your employees, than you would procuring them privately for yourself.

Alternatives To Pay — sometimes employees will accept benefits in lieu of higher salaries.

The Disadvantages. The biggest disadvantage of offering benefits is the cost. Benefits are costly to large employers and that burden becomes even more significant for the small employer. Conventional wisdom holds that smaller employers will:

•	Pay higher rates than larger employers for group health coverage because there are fewer employees among whom to spread risk.
•	Have more difficulty providing life insurance coverage to the employee group.
•	Have fewer design choices when offering a retirement plan because of high administrative costs.
•	Be less likely to offer fringe benefits due to administrative complexity

Once you've determined if benefits are something you want to offer, your next step should be deciding which benefits to offer.

There are many different types of employee benefits out there. To make matters worse, for each type of benefit, there is a vast array of plans, companies, and administrators that can offer you that benefit in different forms.

There's strength in numbers. The more employees you have, the better off you are when it comes to benefits. Consider your size when contemplating benefits. It's going to be expensive to offer a rich benefits package to your employees if you have only two or three people working for you. In that case, you'll want to focus on the one or two benefits that you and your employees will value most and that are most cost-effective.

So what should you do? The first step is to decide generally which benefits you want to offer. The benefits you decide on should hinge on a number of factors: