My Portal Login

Employee Manager

What Benefits Must Small Businesses Legally Offer Employees?

Starting a business is full discoveries and learning experiences. Once you hire your first employee, you discover there are a variety of rules and regulations you do have to follow, including the benefits you’re required to provide your employees. 

To be clear: by “benefits,” we don’t just mean value-add perks that help you recruit and retain top-level employees (like a keg of cold-brew in the break room). We’re talking about benefits mandated by state and local governments, like paying into unemployment insurance.

So which benefits are optional and which are you legally required to provide?

Which are mandated by the state and which by the federal government?

Read on for a guide to make sure you’re offering the right benefits to your employees and staying in compliance with the laws where you live.

Legally Required Employee Benefits: Federal Level

The federal government requires businesses to provide the following benefits to employees.

  • Social Security and Medicare: The Federal Insurance Contributions Act (FICA) details how employers and employees must contribute to Social Security and Medicare funds. Broadly, the employer and employee must each contribute 6.2 percent of an employee’s gross salary toward Social Security. That means you withhold that 6.2 percent from your employee’s paycheck and you fork over an equivalent amount above and beyond the official salary you pay your worker. One note, though: that percentage only applies up to a certain wage threshold ($127,200 as of 2017), meaning Social Security taxes for one employee will never be more than 12.4 percent of that threshold (for 2017, $15,772.80). Medicare works in a similar way, but at a lower rate: 1.45 percent for both employers and employees (though with additional contributions for employees making more than $200,000).
  • Unemployment insurance: Money for unemployment also comes as a portion of the wages you pay employees. Requirements can be found in the Federal Unemployment Tax Act (FUTA) and your state’s unemployment tax laws. As of now, the federal rate is six percent for up to the first $7,000 an employee earns; after that, you don’t have to pay further federal unemployment taxes. But if you’re paying state unemployment taxes as well, those can offset the amount you pay federally to as little as .6 percent of wages. (Illinois unemployment taxes are outlined here, for reference.) You’ll report these taxes in federal tax form 940.

  • Workers’ compensation insurance: Required in every state but Texas, workers’ comp offers benefits to employees who are injured or sickened on the job. Each state has different requirements about when you’re required to purchase this coverage, usually based on industry and number of employees. The good news: rates are based on the type of work your employees do, so if your business is in a relatively “safe” industry (think: office work), you can expect to pay less than if it’s in a more dangerous one (think: construction).

  • Health insurance: Since the passage of the Affordable Care Act, employers with 50 or more full-time workers must provide health insurance that meets certain regulatory guidelines. But even if you have fewer than 50 employees, you may find that offering access to health insurance helps you recruit and retain employees. That’s especially true now that unemployment is down to 4 percent and competition for workers is as high as it’s been in more than a decade.

  • Family and medical leave: The Family and Medical Leave Act (FMLA) requires employers with 50 or more full-time employees to offer job-protected, unpaid leave of up to 12 weeks to care for a sick family member or attend to a newly born or adopted child, once an employee has been with the company for a full year.

Legally Required Employee Benefits: State Level

Unlike Federal, your legal requirements will vary depending on the state or states you operate and hire employees in.  For the requirements within your state, it's best to contact the state labor department. 

Below, we'll take a look at Illinois requirements because we’re based in the Chicago area. Regardless of where you’re based, the general rule of thumb is that, if a state and federal requirements differ in what you have to provide employees, you generally have to provide the benefit that is more advantageous to your workers.

Here’s an overview of what Illinois requires in addition to federal benefits (check out a more detailed version over at SHRM):

  • Family military leave: If you have at least 15 employees, you’re required to offer unpaid leave to family members of those in the military.

  • Blood donation leave: If you have more than 50 employees, you’re required to give an hour off every 56 days for employees who wish to donate blood. (I recommend also providing cookies and juice!)

  • Voting leave: You must offer two hours of paid leave for all workers in all elections (normal and special), unless those workers have two hours before or after their shifts during which polls are open.

  • Jury duty leave: You cannot fire or threaten to fire employees for taking time off for jury duty, but you are not required to pay them while they’re serving.

  • School leave: For education-related events that cannot be scheduled during non-work hours, you must provide up to eight hours of unpaid leave per year, with no more than four hours used in a single day. One note: employees must first use PTO (including vacation or sick time) before being eligible for this benefit.

Comply with a Little Help from Your Friends

If all this sounds like a lot to manage on your own, that’s because it is. And that’s exactly why we started our business. As a PEO, our clients outsource all this to us, so they don’t have to worry about it.  If you’re eager to move some of the HR related work off your plate, like staying  in compliance with state and federal regulations (and avoiding the penalties that occur when you aren’t in compliance), drop us a line. We’d love to see how we can help!

Disclaimer: The information contained in this blog post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. Congos HR does not practice law and does not give legal advice. The information contained on this site and in other recommended human resources “best practices” is not legal advice.