Employee Benefits: What Employers Should Know

Attracting and retaining top talent takes more than a competitive salary. The most sought-after professionals are choosing roles that support their total well-being. A well-structured employee benefits package reflects those values, offering the kind of workplace support that drives long-term loyalty.

It’s essential for employers to have benefits packages that comply with federal and state laws. For legal guidance, reach out to an employment law attorney.

Overview of Employee Benefits

Employee benefits are a form of compensation given separately from wage or salary. Benefits enhance compensation packages by supporting employee well-being, financial security, and work-life balance. There are differenty types of benefits:

• Voluntary benefits. Employers are not legally required to offer these kinds of benefits, but may choose to. Examples include health insurance, retirement plans, life and disability insurance, paid leave, and fringe benefits.
• Legally required benefits. Federal or state laws require certain benefits, including unemployment insurance, workers’ compensation, Family and Medical Leave Act (FMLA) leave, COBRA (for health plans), and paid Social Security and Medicare (FICA) taxes.

Employee Benefits Required by Law

Federal law mandates that employers provide specific benefits for full-time employees.

Social Security Benefits

Social Security and Medicare (FICA) taxes provide financial assistance to retirees, disabled individuals, and certain eligible family members of deceased workers.

Employers and employees must contribute to the system by paying taxes based on the employee’s wages. Employers and employees each contribute via FICA taxes. This is different from freelancers or independent contractors, where employers are not required to pay a portion of these taxes. The contractor pays 100 percent of the tax liability.

Unemployment Benefits

Employers are required to contribute to the Federal Unemployment Tax Act (FUTA). This is unemployment insurance that provides employees with a safety net. The benefits of this program are managed through state-run programs. Eligible employees typically receive financial assistance for up to 26 weeks.

Workers’ Compensation Benefits

Virtually all states mandate employer-provided coverage for work-related injury or illness, barring Texas, which makes it optional. Workers’ compensation provides medical care and wage replacement benefits under state-specific laws.

Coverages vary by state but can include reimbursement of healthcare costs and medical expenses, short-term compensation for work leave, and long-term assistance.

Family and Medical Leave Act (FMLA) Benefits

The Family and Medical Leave Act (FMLA) applies to employers with 50 or more employees. Qualifying employers must provide their employees with up to 12 weeks of unpaid leave. During this time, their position is protected. The goal is to provide the employee with time to attend to serious medical or family needs.

Health Insurance Benefits

The Affordable Care Act (ACA) requires large employers — defined as those with over 50 employees — to offer affordable, minimum-value health coverage to 95 percent of full-time employees and their dependent children through age 26. The penalties for ACA noncompliance are harsh, and companies are required to file with the Internal Revenue Service (IRS) the health insurance offerings they provide.

Employers with 20 or more employees are required to provide continued health insurance plan options to former employees. The Consolidated Omnibus Budget Reconciliation Act (COBRA) enables eligible employees and their families to temporarily continue employer-sponsored health insurance coverage after a qualifying employment termination event.

COBRA coverage may be continued for 18–36 months, depending on the qualifying event; beneficiaries may be charged up to 102 percent of plan cost. Employers must issue timely notices of rights and election periods; failure to comply can result in penalties and denied coverage rights.

Types of Employee Benefits

A comprehensive benefits program will have several types of benefits included. It will include legally mandated benefits, as well as a range of voluntary benefits.

Paid Time Off (PTO)

While not federally mandated, some states and local laws do require accrual policies based on tenure. Many companies choose to offer paid time off despite not being required to. It is one of the most sought-after benefits by individuals.

Typical offerings are around 10-20 PTO days annually, but the amount provided can be less or significantly more. Many companies opt to define the time off provided as vacation time and sick leave. This time off is separate from the federally mandated 12 weeks of unpaid leave required under FMLA.

Health Insurance Plans

Employers with 50 or more full-time equivalents must offer “minimum essential insurance coverage” or face penalties under the ACA employer mandate. This includes medical, dental, and vision insurance plans.

Many companies supplement their insurance benefit package by including disability insurance. It’s also common for companies to offer life insurance as an optional add-on.

Retirement Plans

One way companies can support their employees is by helping them plan for their retirement. Pension plans were once the popular benefit offering. Modern trends focus on 401(k) plans or profit-sharing structures.

A company could help employees with retirement savings by allowing employees to add money to the 401(k) with pre-tax salary deferrals. The company could also match the employee’s contribution, increasing the employee’s retirement savings. Profit-sharing plans allow discretionary employer contributions based on profits, giving it the potential to be incredibly valuable. When offering retirement benefits, employers should consult human resources or an employment lawyer to ensure compliance with regulatory requirements.

The Employee Retirement Income Security Act (ERISA) requires plans to provide participants with summary plan descriptions (SPDs) outlining benefits, rights, and claims procedures. If there is an update, the change must be communicated to employees within 210 days. Failure to do so could result in a fine of $110 per day per affected individual.

ERISA imposes a fiduciary duty on employers, plan sponsors, and investment advisors to avoid conflicts of interest and act solely in the participants’ best interests.

Work‑Life and Fringe Benefits

Modern employment trends have seen companies expanding their benefits offerings to include lifestyle fringe benefits. These are designed to increase employee satisfaction and reduce turnover. Examples include wellness programs such as gym memberships and mental health support or childcare and parental leave benefits.

Employers are also offering benefits that enable employees to invest in their own development. The goal is to encourage employees to grow with the company and stay long-term. Common examples of these benefits include tuition reimbursement, student loan payments, or professional development program assistance.

Some employers offer remote work and hybrid work arrangements. Other companies have since begun offering commuter benefits to employees.

Optimizing Benefits Packages

While having a comprehensive benefits package is important, it isn’t feasible for an employer to provide all possible benefits. Employers must strike a balance between competitive benefits and cost-effectiveness.

Instead of taking a one-size-fits-all approach, modern companies are creating flexible benefit plans that meet employee needs. This approach enhances employee retention by offering incentives that employees truly value. Job satisfaction increases as employees can choose to streamline benefits with the core offering or opt for enrollment in add-on benefit plans.

Companies should monitor their benefit offerings. In addition to maintaining employee satisfaction, laws change, and businesses may need to adjust their benefits to stay legally compliant.

Find Legal Help

Employee benefits play a central role in shaping workplace culture, improving retention, and attracting top talent. From legally mandated coverage to custom voluntary perks, the structure and scope of your employee benefits package can significantly impact the employee experience.

Because of the evolving legal landscape and the risks tied to noncompliance, working with an experienced employment attorney is essential. Legal guidance ensures your benefits plan protects both your workforce and your business. Find an experienced employment attorney with the Super Lawyers directory to assist with creating your employee benefits package.