Statutory Benefits for Employees: What's Required by Law

Benefits obligations for businesses aren't one-size-fits-all. As Candice Hearne, a Client HR Business Partner at Paychex, explains: "The size or number of employees an organization has, and the state they are located in, can drastically impact an employer's obligation to provide certain benefits."

So which benefits are actually required by law, and do those requirements change for small businesses? Employers may offer a variety of employee benefits, including PTO, health insurance, vision and dental coverage, life insurance, tuition reimbursement, and retirement savings programs. Only some of these are legal obligations, and which ones apply depends on where you operate and how many people you employ. Understanding mandatory benefits laws will help you determine the most appropriate policy to satisfy employees and your bottom line.

This article examines the benefits employers may be legally required to offer under applicable U.S. federal laws and select state laws. To ensure compliance, you should review your obligations under all applicable federal, state and local laws that address mandated benefits for covered employees, and you may wish to consult with legal counsel.

What Are Statutory Benefits?

Statutory benefits are employee benefits required by law and may apply to both full-time and part-time employees, depending on the specific program and jurisdiction. Employee benefits can fall into one of two categories: those required by law (statutory benefits) and those that an employer may choose to offer voluntarily (fringe benefits).

According to the U.S. Bureau of Labor Statistics, legally required benefits exist to protect workers financially and provide support during significant life challenges. They provide income in retirement, help cover medical costs, offer economic support in the event of a job loss or the onset of a disability, and cover the costs of injury and illness that occur in the workplace.

While often referred to as benefits, the following federal or state programs are funded through employer payroll taxes or compliance obligations, not direct benefits offered by employers:

• Social Security, Medicare, and FICA: Employers must withhold and match payroll taxes under FICA. These are federal tax obligations, not direct benefits.
• Unemployment Insurance (UI): Funded by employer-paid taxes, UI is a state-administered benefit, not something employers directly offer.
• Workers' Compensation Insurance: This insurance is required in most states, not federally mandated. Coverage rules vary by state, and not all employers are required to provide it.
• Family and Medical Leave Act (FMLA): Covered employers must provide eligible employees with up to 12 weeks of unpaid, job-protected leave for qualifying reasons.

Social Security, Medicare, and FICA

The Federal Insurance Contributions Act (FICA) is a federal payroll (employment) tax used to fund Social Security and Medicare. These programs are required by law and provide benefits for retirees, disabled individuals, and children.

Both employees and employers contribute to these funds. Employers must withhold Medicare tax at 1.45% of gross compensation and an additional 0.9% of compensation more than a threshold amount based on the employee's filing status if an employee's compensation exceeds $200,000 (there is no wage base for Medicare).

Employers must also match 6.2% for Social Security, up to the 2026 wage base limit of $184,500, and 1.45% for Medicare. The maximum Social Security tax employers and employees will each pay in 2026 is $11,439, up from $10,918.20 in 2025. Employers do not have to match the additional 0.9%.

Unemployment Insurance

Unemployment insurance (UI) is designed to assist workers who lose their jobs through no fault of their own. Employers must contribute to unemployment insurance programs through payroll taxes at the state and federal levels.

UI benefits may be available to both part-time and full-time employees who meet specific eligibility criteria. Any separated employee can file a claim with their state workforce agency; however, they will only receive benefits if they meet the state’s eligibility requirements. Common qualifying circumstances include layoffs, company closures, or reductions in workforce.

While the primary purpose of unemployment insurance is to support displaced workers, the system can also indirectly benefit employers. By providing a structured, state-managed safety net, UI helps reduce pressure on employers to retain staff during downturns, mitigates reputational risk, and can help prevent legal disputes related to layoffs or terminations.

“Although employers are the primary source of funding for unemployment insurance, it serves as a balance by providing some level of protection for employers, especially during challenging economic periods and when supporting unemployed workers,” says Hearne.

Since individual states administer unemployment insurance, the cost and requirements vary by state. While all states have minimum coverage standards, an employer’s specific tax rate is often based on their individual claims history and experience rating. Employers must participate in their state program and meet at least the minimum required contribution levels.

Workers' Compensation Insurance

Workers' compensation insurance provides financial support to employees who experience a work-related injury or illness. If an employee experiences an injury or illness due to their regular on-the-job duties, most states mandate that an employer-sponsored insurance plan includes medical bill coverage and a limited amount of income for the employee during the recovery period. While there are limitations, waiting periods, and varying amounts and types of coverage, most U.S. states agree that employers should protect the health and wellbeing of their employees while on the job.

Employers looking to obtain workers' compensation insurance can typically meet the state requirements in one of three ways:

• Self-Insurance: The employer opts to pay directly for any medical bills and ongoing income for employees who incur extended injuries or illnesses on the job. The employer must demonstrate the financial resources to do so if a workplace injury or illness occurs.
• State-Run Insurance: The employer purchases an insurance policy from the state-run program that covers all their employees in the event of a work-related illness or injury.
• Private Insurance: Almost all states allow employers to purchase an insurance policy from a private insurer. This allows the employer to obtain comparative quotes from multiple insurers and find the right coverage for their business.

Health Insurance

Applicable large employers (ALEs) must offer health insurance to full-time employees. Under the Affordable Care Act (ACA), these employers risk a potential assessment if they do not offer adequate and affordable healthcare coverage to their full-time employees and dependents, and if at least one full-time employee receives an ACA premium tax credit as a result. In general, ALEs are companies with an average of 50 or more full-time employees, including full-time equivalents, during the prior calendar year.

The affordable coverage threshold is adjusted annually for inflation, but the employee's portion of premiums for individual health coverage should not exceed 9.96% of their income for plan years beginning in 2026. Employers with non-calendar-year health plans continue using the 9.02% threshold until their next plan year begins.

To meet the adequate standard of coverage, also known as the minimum value standard, a policy needs to satisfy two conditions. It should provide access to a reasonable network of providers and specialists, and it should pay at least 60% of the total cost of medical services the plan covers.

Family and Medical Leave Act Protections

The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. Covered employers include private-sector employers with 50 or more employees, all public agencies, and public and private K-12 schools, regardless of size.

Qualifying reasons for FMLA leave include the birth or adoption of a child, a serious personal health condition, or caring for an immediate family member with a serious health condition. Eligible employees may take up to 12 weeks of unpaid leave in a 12-month period. Additionally, the FMLA provides up to 26 work weeks of unpaid leave in a single 12-month period to care for a covered service member with a serious injury or illness (Military Caregiver Leave).

Note: The FMLA provides unpaid, job-protected leave and does not include wage replacement or financial benefits. However, some states and local jurisdictions require employers to provide paid or additional family and medical leave. See the next section for a discussion of what that landscape looks like in 2026.

State Paid Family and Medical Leave (PFML) Programs

Paid Family and Medical Leave (PFML) is a state-level program subject to individual state paid family and medical leave requirements and distinct from both FMLA and state disability insurance. The federal FMLA program provides unpaid leave to protect an employee's job, but it doesn't replace wages. State disability insurance replaces wages, but only for an employee's own non-work-related illness or injury.

PFML fills the gap between the two. It replaces wages when an employee needs extended time off for family and medical reasons. Qualifying reasons may include the birth or adoption of a child, an employee's own serious health condition, family caregiving, and other family-related circumstances.

As of 2026, roughly a dozen states plus Washington, D.C. have active PFML programs. These include:

• California
• Colorado
• Connecticut
• Delaware
• Maine
• Massachusetts
• Minnesota
• New Jersey
• New York
• Oregon
• Rhode Island
• Washington

Maryland and Virginia have enacted PFML programs, but have not yet begun paying benefits.

Contribution structures, wage-replacement rates, and leave durations vary significantly by state. Employers and employees typically split PFML premiums, using payroll deduction to withhold the employee portion.

Most PFML laws apply even if you have only a single employee working in that state. If you have workers in multiple states, you should confirm the requirements in each one using your state compliance resources or consult with legal counsel.

State Disability Insurance

State-mandated disability insurance can provide partial wage replacement for employees who experience an illness or injury sustained outside of the workplace. To qualify, an employee must miss more than one week of work.

Disability insurance is not a mandatory employee benefit in most states. However, the following states, as well as Puerto Rico, do require disability insurance:

• California
• Hawaii
• Rhode Island
• New Jersey
• New York

Employers may choose to cover some or all of the cost of the policy or pass the cost to employees through payroll deductions. Employees must typically satisfy a mandatory waiting period before receiving benefits. Several of these states also require PFML alongside state-mandated disability insurance.

In states where disability insurance is not required, employers can still choose to offer short-term disability insurance as a voluntary benefit. Many do so to support employee well-being and remain competitive in attracting and retaining talent.

Employers with workers in states that require disability coverage should review their obligations under applicable state laws.

State and Local Paid Sick Leave

Paid sick leave is another statutory benefit at the state and local level. No federal law requires private employers to provide paid sick leave to most employees. Instead, a growing number of states and cities require it.

Where these laws apply, employees generally earn a set amount of paid sick time based on hours worked, which they can use for their own illness, to care for a family member, or for other qualifying reasons the jurisdiction defines. Accrual rates, annual caps, and covered reasons vary widely.

Because these requirements exist at both the state and local level and new ones keep taking effect, you should confirm the rules in every location where you have employees.

Why Are Statutory Benefits Important?

Statutory benefits provide a critical safety net for both employees and employers during some of life’s most challenging events. Programs like Social Security, Medicare, unemployment insurance, and workers' compensation offer financial protection and support for workers during times of hardship due to illness, job loss, or injury.

Employers must comply with requirements related to these statutory benefit offerings to reduce their risk of penalties, lawsuits, or reputational issues. An employer’s compliance also demonstrates their commitment to ensuring a baseline level of care and employee well-being, which can support retention and build trust in the workplace.

Employee Benefits Not Required by Law

Voluntary employee benefits are offered at the discretion of the employer. These can include benefits such as paid vacation time, contributions to retirement savings plans, education assistance, wellness programs, and childcare assistance.

According to our 2026 Priorities for Business Leaders survey, 41% of businesses now offer wellbeing benefits to gain a competitive edge. That’s because health insurance is now table stakes, and it’s no longer enough to differentiate your business in today’s job market. Job candidates are looking for flexible schedules, mental health support, and wellbeing time off when evaluating offers, and these types of benefits have become the priority for recruiting and retaining a high-caliber workforce.

Some states also require employers to offer an employer-sponsored, state-facilitated retirement savings program.

What Is the Difference Between Statutory and Voluntary Benefits?

While statutory benefits are required by law and ensure certain protections for employees, employers offer voluntary benefits, or fringe benefits, like life insurance, gym memberships, or tuition assistance at their discretion.

While some voluntary benefits may be considered part of an employee’s total compensation package, not all are classified as compensation for tax or reporting purposes. Their treatment depends on the nature of the benefit and applicable IRS or labor regulations.

Voluntary benefits can be offered in the form of property, services, cash, or cash equivalents such as savings bonds, which can be turned into cash relatively quickly. Generally, fringe benefits are taxable to the employee, must be included as supplemental income on the employee's W-2, and are subject to withholding and employment taxes.

Examples of fringe benefits include:

• Bonuses
• Vacation, athletic club membership, or health resort expense reimbursements
• Value of the personal use of an employer-provided vehicle
• Amounts paid to employees for moving expenses over actual expenses
• Business frequent-flyer miles converted to cash

Are You Required To Offer Part-Time Employee Benefits?

Part-time status doesn't automatically exempt you from statutory obligations. Several requirements are tied to hours worked rather than job title, so some employees you classify as part-time may still qualify. Workers' compensation generally covers part-time and full-time employees alike, the ACA treats anyone averaging 30 or more hours per week as full-time for coverage purposes, and retirement plan eligibility can extend to part-time employees under ERISA and the SECURE Act based on their hours of service. State and local laws may add more, and where they're more generous than federal law, the more generous standard applies.

For a full breakdown of which benefits part-time employees can qualify for and how the hour thresholds work, see offering benefits to part-time employees.

Do Small Businesses Have To Provide Statutory Benefits?

According to employee benefit law, small business owners must provide some statutory benefits, such as workers' compensation and unemployment insurance, for full-time employees.

The Affordable Care Act (ACA) requires certain organizations and parties to report providing health coverage to their full-time employees, including:

• Applicable large employers (ALEs)
• Health insurance companies
• Self-insuring employers of any size

Depending on state and local laws, you may also be required to offer paid sick leave or other types of leave.