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What Basic Benefits Must a Company Provide Employees?

Employee Benefits

Paid time off, health insurance, long-term disability coverage, tuition reimbursement, and retirement savings plans are just a few of the many benefits employers may offer employees. But what basic (or statutory) benefits, required by state or federal statute, must a company provide its workers? This information is particularly important for small businesses, which have to allocate benefit dollars carefully while complying with relevant laws.

Legally required benefits protect workers' health, income, well-being

Employee benefits fall into two categories: those required by law and those an employer chooses to offer voluntarily. The U.S. Bureau of Labor Statistics states that "[l]egally required benefits provide workers and their families with retirement income and medical care, mitigate economic hardship resulting from loss of work and disability, and cover liabilities resulting from workplace injuries and illnesses." Mandated basic benefits include:

  • Social Security, Medicare, and Federal Insurance Contributions Act (FICA) – FICA is a federal payroll (employment) tax used to fund Social Security and Medicare. Both employees and employers are required to contribute to these funds. Employers are required to withhold Social Security tax at 6.2 percent of gross compensation, up to the Social Security Wage Base ($117,000 for 2014). Employers must also withhold Medicare tax at 1.45 percent of gross compensation, and an additional 0.9 percent if an employee’s compensation exceeds $200,000 (there is no wage base for Medicare). Employers must also match 6.2 percent for Social Security, up to the Wage Base and 1.45 percent for Medicare. Employers do not have to match the additional 0.9 percent if an employee’s compensation exceeds $200,000.
  • Unemployment insurance – Assists workers who lose their jobs.
  • Workers' compensation insurance – Gives financial support to people unable to work as a result of a workplace injury or illness.
  • Health insurance – For companies with 50 or more employees. Under the Affordable Care Act, large firms face fines if they do not make affordable coverage available by 2016.
  • Family and medical leave – Employees in private firms with 50 or more employees, and all public employees, are eligible for up to 12 weeks of job-protected, unpaid leave during a 12-month period for qualifying family and medical reasons, and to handle qualifying exigencies, as well as up to 26 workweeks of unpaid, job protected leave in a single 12-month period under the Military Caregiver Leave.

State requirements for these benefits may vary and may provide greater coverage and/or a greater benefit to eligible employees.

Other job perquisites are at the discretion of the employer. These can include paid leave, life and disability insurance, 401(k) retirement savings plans, education assistance, wellness programs and child care assistance.

Costs modest for mandated benefits

Basic employee benefits are not necessarily expensive. The Bureau of Labor Statistics found that legally required employee benefits made up only 7.8 percent of employee compensation nationally in September 2013. In context, wages and salaries averaged $21.54 per hour worked and accounted for 69.1 percent of total compensation costs. Benefits averaged $9.61 and made up the remaining 30.9 percent.

From the employee's perspective, basic benefits can be invaluable. Although many Americans today may take Social Security, Medicare, unemployment and workers' compensation insurance for granted, these forms of assistance and compensation have been established for less than two generations. Not so long ago, wage-earners only earned wages, nothing more. In that context, basic benefits are a big deal.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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