Most employers want to offer benefits to their employees, but do not know which to choose. Budget, number of employees, and similar factors can also play a role in your decision. By building an attractive employee benefits package, you can attract and retain quality employees, improve employee health and morale, and gain certain tax advantages. When seeking employee benefits for your staff, consider some of the most popular options. What are the four major types of employee benefits? These include medical, life, disability, and retirement. Here is a closer look at these employee benefits and why they are often offered by business owners.
With the rising costs of healthcare, medical coverage is a must-have employee benefit. Unexpected medical expenses can have serious financial repercussions on uninsured employees, often leading to increased absentees and diminished employee motivation. Due to its critical importance, most talented employees have come to expect at least basic medical coverage. Employers typically pay all or part of the premiums for employee medical coverage. Usually, employees are responsible for a small percentage of the monthly cost if they opt in to receive medical insurance through their employer.
Medical insurance generally covers basic medical services, such as physician and surgeon fees, prescription drugs, and hospital room expenses. Some employers also offer additional healthcare options, such as eye and dental care. Medical insurance may only cover employees or may be extended to the employees’ dependents. Employers are required to provide healthcare to employees who work 30 or more hours per week. In some instances, part-time employees may also be covered by employer medical plans. To help with medical expenses, business owners may offer certain types of savings plans like Health Reimbursement Accounts or Flexible Spending Accounts.
Another common type of employee benefit is life insurance or accidental death and dismemberment (AD&D) insurance. In the event that one of your employees passes away, life insurance benefits are provided to the employee’s family in the form of monetary payments. These payments are often used to cover funeral costs and to assist the family with ongoing living expenses. With AD&D insurance, the family is provided with a lump sum payment if the death or dismemberment of the employee was caused by an accident. Life insurance benefits are usually equal to the worker’s annual salary. However, additional life insurance can be purchased through the employer’s insurance company.
Many employers offer free life insurance, which is typically known as group life. To obtain this type of life insurance, the worker must sign up. In some cases, enrollment is automatic. Average coverage amounts are $25,000, $50,000, or the employee’s annual salary. If this amount is not sufficient, you have the option of purchasing extra life insurance through your employer which can be more affordable and convenient than purchasing it elsewhere. As an added benefit, there is typically no medical exam needed. However, you may need to fill out a detailed questionnaire about your health.
Employers can choose to offer either short-term or long-term disability insurance to their employees. These types of benefits can be invaluable to employees who are unable to work due to a serious injury or lengthy illness. Disability insurance is designed to cover expenses up to a certain amount during the time that they are unable to work. With short-term disability, a percentage of an employee’s salary is paid temporarily. If the injury or illness prevents a worker from fulfilling his or her duties, long-term disability payments may be provided. Long-term disability can last two, five, or 10 years, or in some cases to retirement age.
Depending on the type of employment, disability benefits for employees usually account for between one-half and two-thirds of the worker’s pre-disability income. Employers can choose to pay all, part, or none of the premiums of the group disability insurance. As employees depend on their income for their livelihood, offering life insurance can be an attractive benefit for both new and existing employees. Life insurance functions as a safety net for employees and enhances the benefits package of employers. However, it is important that employees understand that disability insurance only covers a portion of their income.
Retirement benefits are funds that are set aside to provide employees with an income or pension later in life after they end their careers. There are two main types of retirement plans: defined benefit plans and defined contribution plans. Also known as pension plans, defined benefit plans include an amount that is pre-determined based on the employee’s salary and number of years of service. With a defined benefit plan, the employer takes most of the risk. In a defined contribution plan, such as a 401(k) plan, employee or employer contributions are specified and the benefit amount is often tied to investment returns.
A 401(k) plan is one of the most common types of retirement plans offered by business owners. This type of retirement plan usually has cash or deferred arrangement, meaning employees can choose to defer receiving a percentage of their salary before taxes. Oftentimes, employers will match employee contributions up to a certain dollar limit. Employees who choose to contribute to 401(k) retirement plans often direct their own investments and take responsibility for their retirement income. Other types of retirement plans to consider include Employee Stock Ownership Plans (ESOPs) and Cash Balance Plans.
Learn More About Employee Benefits
Business owners often want to provide their workers with an attractive employee benefits package. However, budget restrictions often make it difficult to provide employees with every type of benefit. Therefore, it is important to choose wisely when creating a benefits package. Medical, life, disability, and retirement are the most sought-after benefit options by talented employees. By offering these types of benefits to your staff, you will likely find it is easier to recruit talented employees and retain current workers. For more information about types of employee benefits or to start building your employee benefits package, contact the employee benefits brokers at BBG Broker.