Small Businesses and Benefits Packages

According to the U.S. Census Bureau, there are approximately 27 million small businesses (less than 100 employees) in America. These small businesses employ 36 percent of the country’s workforce — approximately 40 million people. Together, they take in $6 trillion in revenue each year.

Most small business payrolls are a lot leaner than bigger organizations. Yet small businesses still have all of the same human resource needs that larger companies have. They, too, must attract and retain quality employees and compensate them with competitive salaries and benefits —with considerably fewer resources at their disposal.

And since it can cost a company one-third of a person’s annual salary to replace him or her, it behooves large and small businesses alike to have programs and policies that help welcome and retain workers.

The Value of Benefits Packages

A recent survey by Aflac, a supplemental insurance company, suggests that a large majority of small business owners understand the value of attractive benefits packages, in spite of their costs. In fact, 63 percent believe that they enhance worker satisfaction and loyalty.

Workers too, are supportive of quality benefits. Another recent study, this one by MetLife Insurance Co., revealed that 43 percent of employees say their benefits are a very important reason why they stay with their employer.

Small business owners report that the top three objectives for their benefits programs are:
  • Taking care of employees.
  • Retaining employees.
  • Increasing employee satisfaction.

Yet they often face daunting challenges in providing the kind of benefits that could help them fulfill their well-meaning intentions.

For example, health insurance premiums for small business workers are often considerably higher — up to 18 percent — than the premiums for identical policies carried by larger companies for their workers. That’s because smaller companies lack the negotiating power of larger firms. Also, since small businesses are usually too small to self-insure and design their own flexible insurance packages, they are left at the mercy of major insurance companies that offer them higher-cost plans with fewer options.

Challenges for Small Businesses

Small businesses are at an additional disadvantage trying to provide affordable health insurance for their employees due to the lower wages that their workers generally earn compared with their counterparts at bigger companies. In order to cover health insurance premiums, those wages would have to be reduced even further, making health insurance coverage a somewhat less desirable option for both parties. So, while 48 percent of small businesses provide paid vacation and sick leave, only 43 percent provide health insurance.

In addition, small businesses that want to offer health insurance coverage are confronted with the costs of finding, comparing and choosing appropriate plans, often without the staff required for the task. Their frustration has only increased over the past several years due to the economic downturn. Many small businesses have been forced to lay off workers and decrease the benefits for those who remain, including reductions in health insurance coverage, retirement and saving plans, and employer-matching programs.

Affordable Care Act (ObamaCare) and Small Businesses

Now that the Supreme Court has voted to uphold the Affordable Care Act (ObamaCare), the health insurance component of benefits packages is likely to change dramatically.

While some small businesses are concerned that promised cost decreases for insurance premiums might not materialize, there are several benefits to small businesses and their employees under the law:
  • $40 billion in tax credits to help them offer health insurance coverage for their employees. More than 4 million small firms may be eligible.
  • Closing the large gaps in coverage that have typically been part of small business health plans. For example, insurance companies are prohibited from: placing lifetime or annual limits on coverage; dropping people when they get sick; and denying coverage to employees’ children with pre-existing conditions.
  • Beginning in 2014, health insurance exchanges will allow small-business owners and workers to pool their buying power in order to purchase the same affordable plans that are currently available only to larger companies.
  • Grants to help small businesses provide workplace wellness programs.

Between now and 2014, small businesses will likely re-examine, and conceivably redesign, the health insurance provisions in their benefits packages in order to take advantage of the new, government-regulated marketplace.

Other Employee Benefits

Many small businesses are exploring other ways of augmenting their benefits offerings, including:
  • Voluntary policies for accidents and critical illnesses.
  • Dental, vision and life insurance options.
  • Short- and long-term disability coverage.

Indeed, because of the distressed economy, more employees are counting on their employers to help them achieve financial security via these added benefits, even if they have to share the costs.

Younger workers, in particular, are generally more interested in benefits programs than their older counterparts, as they have entered the job market during a time of uncertainty. For those new workers, education programs that help with financial considerations like debt management, paying off student loans and saving for a home purchase are particularly welcome.

Other benefits that small businesses may offer include:
  • Preventative health and wellness programs.
  • Flexible work schedules.
  • Professional, career and educational support.
  • Financial rewards or bonuses.
  • Child care or eldercare support.
  • Social activities.

As small businesses continue to cope with the recession, they will likewise be challenged to optimize their operations by finding cost-effective ways to serve their customers and provide for their employees. How they structure their benefits packages, and specifically how they respond to the Affordable Care Act, will be an important and integral component of their overall business strategies.

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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