Vacation, 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 benefits, required by state, federal, or local 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 ($127,400 for 2018). Employers must also withhold Medicare tax at 1.45 percent of gross compensation, and an additional 0.9 percent of compensation in excess of 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 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.
- 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 full-time employees, including full-time equivalent employees. Under the Affordable Care Act, applicable large employers risk a potential assessment if they do not offer adequate and affordable coverage to their full-time employees and their dependents.
- 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.
Note: Some states and local jurisdictions require paid family leave and/or paid sick and safe leave. Refer to your area’s regulations to see whether they apply to your business.
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 vacation life and disability insurance (in some states, short-term disability leave is mandatory), 401(k) retirement savings plans, education assistance, wellness programs, and child care assistance.
From the employee's perspective, basic benefits can be invaluable. Although many Americans today may take Social Security, Medicare, unemployment, and worker's compensation insurance for granted, these forms of assistance and compensation have been established for less than two generations. Prior wage earners only earned wages, nothing more. In that context, basic benefits are a big deal.
A previous version of this article was published on Aug. 26, 2014.