Understanding federal business regulations can be an overwhelming task for employers, and failing to comply can result in a penalty or lawsuit, so it’s no surprise that many companies hire a benefits consultant.
Benefits consultants are experts in their field, and will provide insightful advice to the company that hires them. Their area of expertise lies mainly in the area of understanding employee benefits, and identifying how employers can offer a competitive benefits package in order to attract top talent.
Employee benefits are divided into two categories: required, and optional. Required employee benefits are those included in federal regulations, and failing to provide them is illegal. Optional benefits are exactly that: optional. Once they have met the criteria of government guidelines pertaining to employees, an employer doesn’t have to offer anything else. However, some companies choose to do so in order to entice the best job candidates. Hiring the best candidates results in a more efficient, and therefore a more profitable business, so some companies believe that optional employee benefits are a business investment that will provide a return in the long-run.
Hence, turnover rate for companies that provide optional employee benefits is an important additional factor to consider, because greater complications can result when the turnover rate is high.
Now that we’ve introduced the basics of employee benefits, including why an employer might want to include optional ones, let’s examine five employee benefits that are required by the government:
Workers Compensation is a series of laws and benefits that affect an employee if they become unable to work due to a work-related injury. It is a process that is monitored by state law (not federal), so the specifics depend on which state you live in. However, contributing to the workers compensation system is compulsory, as mandatory employer contributions are what finances it. Each state has an entirely individual set of laws in place, so if you’re an HR professional it’s essential that you learn about the specifics of the state you work in.
First, the guidelines of unemployment insurance are established by federal law. Federal law gives a lot of leeway regarding the implementation of the law, however. Eligibility for the insurance, how much is awarded, and the duration of the insurance, all fall under the authority of state law. Unemployment insurance is a form of insurance that includes a payout for employees who become unemployed through no fault of their own. In order to avail of unemployment insurance, an employee has to meet the state requirements for time worked or money earned. Moreover, the employee in question must file the claim themselves by contacting their local unemployment insurance agency: it doesn’t happen automatically.
The employer contributions to unemployment insurance are calculated using the guidelines for a base wage, multiplied by a tax percentage. These figures, again, are different from state to state. There are ways companies can reduce payout of unemployment insurance, including implementing procedures that include relevant documentation which allows for successful disputed claims.
Unlike workers compensation and unemployment insurance, social security is an entirely federal program. This means that the employers and employees in every state make the same contributions. Employees and employers each pay half of the total social security amount, although employers can claim tax back on the half they pay. The calculation changes every year due to the change in tax rates, and a change in the amount that is taxed at this rate. For example, in 2005 social security amounted to 12.4% of the first $90,000 an employee earned, and a maximum tax rate of 15.3% on any additional money earned. Fast forward to 2017, and social security amounts to 12.4% of the first $127,200 earned, and a maximum of 15.3% thereafter. Because the first percentage is almost always 12.4% (although in 2011 and 2012 it reduced to 10.4%) , an employee pays 6.2%, and an employer pays 6.2%.
Family and Medical Leave
The Family and Medical Leave Act protects the job of an employee during certain circumstances, including childbirth, adopting or fostering a child, caring for a seriously ill relative, emergencies that arise due to a covered military member on active duty, and personal (serious illness). It actually doesn’t cost a penny, because the act only states that employers have to give the employee 12 weeks of leave over a year if one of these emergencies happen: it doesn’t require the leave to be paid. Thus, this required employee benefit doesn’t impact the financial outgoings of a company.
Employees and employers share the annual Medicare cost, which is currently calculated at 2.9% of the total wages earned: the employer pays 1.45%, and the employee pays 1.45%. It is a federal guideline, so, like social security, the tax rate is the same in every state. Regardless of whether you live in California or Texas, you’ll contribute to Medicare.
Optional Employee Benefits
There are a number of optional employee benefits that employers often get confused about: for example, an employer is not required to pay for an employee’s health insurance. Sometimes it is thought that health insurance coverage is required, when in fact it’s optional. This could be something to do with the fact that Medicare contributions are required. Medicare is a government health program for older citizens or seriously disabled younger persons. It is not the personal health insurance of the employee you’re hiring; it is a version of socialized medicine where everyone is required to contribute.
Group health plans offered by businesses are not required by law, although certain federal laws exist which monitor the specifics of offering such plans to employees.
The Upside of Hiring a Benefits Consultant
An employer must decide whether it is a sound business decision to include optional benefits in their employee package. They can do this by hiring a benefits consultant who has specialized knowledge in the area of employee benefits, and therefore can work with HR professionals in order to establish the most cost-effective employee package that will simultaneously improve worker retention rates.