If you’re an entrepreneur who is growing a business, you may reach a stage where you want to offer employee benefits to cover your own health, dental, and insurance needs, and those of your staff. When you’re a small company, offering a Benefits plan for your employees can be a challenge. But it is possible; you just may have to address it in stages. Read on to find out what you need to know about employee benefits for small business, and how you can get started with the right plan for your company size and needs.
Two types of benefits to consider
The majority of Employee Benefits plans include a few key items that can be split into two different bundles. One bundle contains Life Insurance, Accidental Death & Dismemberment (AD&D), and Disability benefits (both short and or long-term disability). These benefits are focused on unexpected life circumstances that could happen sometime over the long term. The other bundle contains Health & Dental benefits; these are focused on taking care of employees’ regular health and dental care needs.
Employers place different levels of importance on these two bundles. Some feel the most important thing is to ensure that employees and their families are covered in case of an unexpected illness, injury, or death. Others want to prioritize taking care of employees’ day to day health. And some employers want to provide a bit of everything.
Life Insurance, AD&D and Disability Benefits
Carriers calculate the cost of life insurance, AD&D, and disability benefits based on a company’s industry, their employees’ occupations, and employees’ ages. These benefits work a lot like other types of insurance; carriers use the company’s risk rating to establish a basic level of costs, while employees’ ages will determine remaining costs.
Your company’s industry and employee occupations are very unlikely to change over the years. Of course, your employees will get older, but employee turn-over and new hiring may mean that the average age in the company could remain more or less constant. As a result, your life insurance, AD&D, and Disability Benefits costs are likely to remain relatively stable and predictable. This is a good thing for most small businesses, and a reason why many begin by offering these benefits.
Health & Dental Benefits
What do employees want most in an Employee Benefits Plan? Health & Dental benefits. These benefits cover basic health and dental care needs, and they offer immediate value to employees. But while Health and Dental benefits are usually more popular with employees, they can be more challenging for small businesses owners to provide. That’s because they are not truly an insured benefit. Carriers calculate Health & Dental costs based on dollars in versus dollars out; they have to collect enough of a premium to cover their costs and to pay all of the claims. As a result, Health & Dental benefits can have the most volatile rates, and the total cost of claims paid in a year will determine next year’s premiums.
Minimum company size
Group plans usually require at least three full time employees. There are a couple of carriers that consider two individuals a group, but most require three. For less than three people, companies have to look at individual coverage for each employee’s Health & Dental.
Even though three people may be considered a group by carriers, such small plans can struggle to collect enough Health & Dental premium to pay the claims plus the carrier’s expenses. This can be true even for groups as big as 15 – 20 employees. We’ve frequently seen annual claims exceed annual premiums for groups of this size. As a result, these companies are often faced with significant cost increases.
Affordable Employee benefits for small business
It can be a challenge for small businesses to provide all the benefits they want while still keeping the costs within their budget. But there are ways to design a Benefits plan to help accomplish this goal. Companies could consider setting drug or paramedical maximums to keep claims down. Or they could include certain benefits at first, and add others later as their business grows.
Another option for very small groups between 3-15 employees is to join a pooled plan. A pooled plan puts small groups together in a larger pool. The provider will review the larger pool at renewal time, and premium changes will be based on the larger pool. Carriers vary in how they distribute those premiums.
Health spending accounts (HSAs) are another great option for small businesses. With an HSA, companies know exactly what their maximum spend will be, and employees can use their HSA up to the maximum.
Start small, and grow your benefits with your company
Providing employee benefits for small business isn’t always easy, but with a little bit of planning and strategy, you can design a plan that will give you and your employees some great perks, and set you up to grow your benefits plan along with your business. In our experience, many small businesses find success managing their benefits costs by using one or more of the strategies we’ve shared.
Most begin by providing the more stable Life Insurance, AD&D, and Disability benefits, and combine those with a Health Spending Account. This provides a financially predictable start to offering benefits, while still offering employees some of what they want most. Once business grows, companies can always add additional benefits or change an HSA into an insured Health and Dental plan. No matter your company size, there is an option that can work for you!
If you’re a small business looking for help designing an employee benefits plan, talk to us!