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Pro and Cons: Offering Employee Benefits

Employers are not required by law to offer benefits such as health insurance coverage, pension plans, and paid vacations. These types of benefits can be quite costly for small businesses, at least at first glance, so why do employers offer them? Since payroll is already the largest line item on most employers' balance sheets, and recruiting new employees costs time and money, you want to make sure you're able to attract and retain the best talent possible. This is particularly relevant in competitive fields where workers have multiple options. Employers who can afford to offer benefits usually have a wider selection of candidates from which to choose.

But small businesses must manage expenses and cash flow wisely, so business owners must approach these considerations cautiously and prudently. After all, great benefits only go so far if the company spends more money on them than it takes in. Also, employers who offer benefits also are bound by certain laws and regulations. Regardless of whether there are violations, employers often need to pay advisers and attorneys to help them create benefit plans that comply with the law.

Below are some considerations to weigh when deciding if providing employee benefits will also benefit your business. See FindLaw's Wages and Benefits section for additional articles and resources.

Offering Employee Benefits: The Pros

  • A benefits package, especially one that offers good health insurance coverage (including dental and vision), helps attract and retain quality employees. 
  • Businesses get the tax advantage of deducting plan contributions, including health insurance, life insurance, and pension plans.
  • Employees often will accept better benefits in lieu of a higher salary, which can be a savings to the business. 
  • Offering benefits to employees also can be advantageous to a business owner, who may be able to get personal benefits for less money than if he or she purchased them privately. 
  • Offering health insurance has been shown to decrease absenteeism and improve employee health and morale; those with coverage are more likely to seek preventative care and live overall healthier lives.

Offering Employee Benefits: The Cons

  • Providing benefits costs more for small employers than for large ones, both in terms of higher prices because of lesser buying power, and due to relatively higher costs of administration.
  • Small businesses have less choice in designing a retirement plan because of administrative costs. 
  • The more benefits a business offers, the more it must pay for administrative overhead.
  • The cost of health insurance has steadily risen, making it less and less affordable to employers, and making financial planning difficult from year to year (although the small business provisions of the Affordable Care Act have altered this balance by incentivizing employer-funded benefits).
  • Offering benefits creates concerns regarding legal compliance, which in turn causes a company to incur legal fees. 
  • Mistakes made in benefit plans can lead to costly lawsuits, or to regulatory fines.

Get Legal Help Before You Offer Employee Benefits

Employers who offer benefits to their employees typically attract better talent and cultivate more loyalty and productivity among their staff. But this also comes with greater scrutiny and exposure to state and federal employment laws. If you have any questions about legal compliance with respect to employee benefits, you should contact an employment law attorney who specializes in employers' issues.

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