Employee Benefits Guide: What Growing Companies Should Offer
Which benefits are legally required, which are optional, and how to build a competitive package as your team grows.
Benefits are one of the most misunderstood areas of People Operations for growing companies. Get them wrong and you face compliance penalties, recruiting losses, and employee resentment. Get them right and they become one of your most powerful retention tools. Here is exactly what you need to know.
The line between required and optional
Before you decide what to offer, understand what you are already legally required to provide. Many company leaders are surprised to learn how many 'benefits' are not optional at all.
Required benefits exist at the federal level and are supplemented by state law. If you are operating in a state with additional mandated benefits and are unaware of them, you are already out of compliance.
Benefits you are required to provide by law
These apply to virtually every employer with W-2 employees, regardless of company size:
- Social Security and Medicare (FICA): Employers generally withhold and contribute payroll taxes for Social Security and Medicare. Rates, wage bases, and exceptions can change; confirm current requirements with the IRS or a payroll professional.
- Federal and state unemployment insurance: You pay Federal Unemployment Tax (FUTA) at 6% on the first $7,000 of each employee's wages, with a credit of up to 5.4% if you pay state unemployment taxes on time. State unemployment insurance (SUI) rates and wage bases vary significantly. New employers typically start at a set new-employer rate until sufficient payroll history exists.
- Workers' compensation insurance: Workers' compensation requirements vary by state, employer, and worker. Coverage generally addresses on-the-job injuries and illnesses, but confirm requirements with the relevant state agency before relying on a general summary.
- State-mandated disability and paid leave: California, New Jersey, New York, Rhode Island, Hawaii, and Washington require employers to participate in state short-term disability or paid family and medical leave programs. If you have employees in any of these states, this is not optional.
- Compliant break and meal periods: Many states (including California, New York, and several others) mandate paid rest breaks and unpaid meal periods based on shift length. These are legally required and failure to provide them creates wage claims.
The Affordable Care Act (ACA) employer mandate
Under the ACA, Applicable Large Employer status and employer-shared-responsibility rules depend on full-time employees, equivalents, and other facts. Coverage and penalty amounts are indexed and can change, so check current IRS guidance before making a benefits decision.
If you are under 50 FTE, offering health insurance is optional. But 'optional' does not mean 'unimportant.' Health insurance is consistently ranked as the most valued employee benefit in SHRM surveys, and failing to offer it at a competitive level is one of the most common reasons candidates decline offers from early-stage companies.
Health insurance: how to structure your offering
For companies under 50 FTE that choose to offer health insurance voluntarily, the most common structures are:
- Group health plan through a carrier or broker: The traditional model: the company selects a plan (or menu of plans) through an insurance carrier and subsidizes a portion of the premium. Employer contributions are tax-deductible and excluded from employee wages. An employer may cover 70% to 100% of employee-only premiums and 50% to 70% of dependent premiums. The employee pays the remainder via pre-tax payroll deductions.
- Health Reimbursement Arrangement (HRA): An employer-funded account can reimburse employees for individual health insurance premiums and qualified medical expenses. QSEHRA eligibility and annual contribution limits are set by current law and indexed; verify them with the IRS before designing a plan.
- Individual Coverage HRA (ICHRA): A newer, more flexible alternative with no contribution limits. Employees purchase their own individual insurance and get reimbursed. Can be used by employers of any size. Requires careful design to maintain ACA compliance and non-discrimination testing.
Retirement benefits: 401(k) basics
Offering a 401(k) plan is optional for most employers, but it can support recruiting and retention. Contribution limits are set by the IRS and change periodically; use current IRS guidance and the plan document when communicating limits. Employers can offer matching contributions subject to plan rules.
Small businesses have access to a simplified plan structure called a SIMPLE 401(k) or a Solo 401(k) for companies with only the owner. Standard 401(k) plans require annual nondiscrimination testing to ensure the plan does not disproportionately benefit highly compensated employees. Safe Harbor 401(k) plans avoid this testing requirement in exchange for a mandatory minimum employer contribution.
401(k) plans are governed by ERISA and require a named plan administrator, annual Form 5500 filings with the Department of Labor, and compliance with strict rules around participant disclosures and investment options. Most small employers use a third-party administrator (TPA) to manage this.
What the market actually offers at your stage
Benefits availability varies by company size, industry, workforce, and geography. Use current, clearly sourced survey data if you need to benchmark an offering rather than relying on a static percentage.
For smaller teams, common benefits beyond health insurance include a 401(k) with employer match (even a modest 3% match is meaningful), flexible PTO or generous vacation, remote or hybrid work options, professional development budget, and equity.
A company that cannot yet afford comprehensive health coverage can still compete by being transparent about the roadmap, offering an HRA to cover individual insurance costs, and excelling in non-insurance benefits like flexibility, equity, and growth opportunity.
COBRA: the post-employment obligation many employers miss
If you offer a group health plan and have 20 or more employees, you are subject to COBRA continuation coverage requirements. When an employee (or covered dependent) loses health coverage due to a qualifying event (termination, reduction in hours, divorce, etc.), they must be offered the right to continue coverage for up to 18 months at their own expense.
COBRA notice deadlines and penalties depend on the applicable federal rules, plan administration, and facts. Confirm current requirements with the U.S. Department of Labor, IRS, plan administrator, or qualified benefits counsel.
Smaller employers may be subject to state continuation laws that vary significantly. Confirm the applicable state rule for each workforce location before communicating eligibility or deadlines.