Mandatory (Statutory) Benefits a Company Must Provide Full-Time Employees

Vacation, health insurance, vision and dental coverage, life insurance, tuition reimbursement, and retirement savings programs are just a few employee benefits employers may offer. But what benefits are required by law? And do these requirements change for small businesses?

Candice Hearne, a Client HR Business Partner at Paychex, shares that “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.”

Understanding mandatory benefits laws will help you evaluate the most appropriate policy that satisfies employees and your bottom line.

This article addresses benefits employers may be legally required to offer certain employees under applicable U.S. federal laws and select state-laws. Employers may wish to consult with legal counsel and are advised to review their obligations under all applicable federal, state and local laws, which may address mandated benefits for covered employees.

What Are Statutory Benefits?

Statutory benefits are employee benefits required by law and may apply to both full-time employee 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 voluntarily offer. According to the U.S. Bureau of Labor Statistics, "legally required benefits provide workers and their families with retirement income and medical care, mitigate economic hardship resulting from the loss of work and disability, and cover liabilities resulting from workplace injuries and illnesses.”

While often referred to as “benefits,” the following are federal or state programs funded through employer payroll taxes or compliance obligations, rather than 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.

State-Level Differences To Keep in Mind

While some of these benefits are required at the federal level, states may require additional statutory benefits. For example, California mandates a paid family leave that runs concurrently with FMLA. Employers should also be aware of local laws that may apply.

Let's break down which employee benefits are required by law in more detail.

Social Security, Medicare, and FICA

By law, your employer must pay Social Security and Medicare taxes. The Federal Insurance Contributions Act (FICA) is a federal payroll (employment) tax used to fund Social Security and Medicare programs, which provide benefits for retirees, disabled individuals, and children.

The law states that employees and employers must 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 2025 wage base limit of $176,100, and 1.45% for Medicare. Employers do not have to match the additional 0.9%.

Unemployment Insurance

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

Unemployment insurance 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, benefits are only granted if the individual meets the state’s eligibility requirements. Common qualifying circumstances include layoffs, company closures, or reductions in workforce.

“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 supporting unemployed workers,” says Hearne. 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, it helps reduce pressure on employers to retain staff during downturns, mitigates reputational risk, and can help prevent legal disputes related to layoffs or terminations.

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 can provide 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 any employees who incur extended injuries or illnesses on the job, and the employer can 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

Some employers must offer health insurance to full-time employees or risk a potential assessment. Under the Affordable Care Act (ACA), applicable large employers (ALEs) risk a potential assessment if they do not offer adequate and affordable healthcare coverage to their full-time employees and dependents, and at least one full-time employee receives an ACA premium tax credit. 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 9.02% of their income for plan years beginning in 2025. To meet the "adequate" standard of coverage, also known as the minimum value standard, the policy should provide access to a reasonable network of providers and specialists and should be designed to pay at least 60% of the total cost of medical services a plan will cover. The coverage should also meet minimum essential coverage requirements and minimum value.

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, job-protected 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. Employers should review their obligations under applicable state and local laws.

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, which requires them to miss more than one week of work.

While disability insurance is not a mandatory employee benefit in most states, it is one of the legally required benefits for employers in the following states, as well as Puerto Rico:

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

In these states, 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.

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 mandate disability coverage should review their obligations under applicable state laws.

Why Are Statutory Benefits Important?

Statutory benefits help to provide a critical safety net for both employees and employers. These benefits offer financial protection during some of life's most challenging events — such as illness, injury, unemployment, or the birth of a child. Programs such as Social Security, Medicare, unemployment insurance, and workers' compensation provide workers with critical support during times of hardship, whether due to illness, job loss, or injury.

Employers are required to comply with their obligations related to these statutory benefit offerings in order to reduce their risk of penalties, lawsuits, or reputational issues. An employer’s compliance helps demonstrate their commitment to ensuring a baseline level of care and responsibility toward the workforce and commitment to employee well-being, which can support retention and build trust in the workplace.

Employee Benefits Not Required by Law

Voluntary employee benefits are 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.

Business leaders are always reevaluating their benefits offerings; 41% of business leaders will focus on improving their employee benefits packages this year, according to our 2025 Priorities for Business Leaders survey. Since today's employees increasingly report that company-provided benefits are a significant consideration when evaluating job offers, many employers include these as a part of their basic benefits package to gain a competitive edge in recruiting and retaining a high-caliber workforce.

In some states, employers must offer an employer-sponsored retirement plan state-facilitated retirement savings program.

Statutory (Mandatory) vs. Voluntary (Fringe) Benefits

What is the difference between statutory and voluntary benefits? While statutory benefits from employers are required by law and ensure certain protections for employees, voluntary benefits are offered at the employer’s discretion and are not mandated by law. These may include offerings like life insurance, gym memberships, or tuition assistance. 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.

They can be made in the form of property, services, cash, or cash equivalents. Cash equivalents, such as savings bonds, 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 may 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?

Some federal rules outline benefits requirements for part-time employees.

• Affordable Care Act (ACA): While most employers don't consider an employee "full-time" for benefits qualification unless they work at least 40 hours per week, under the ACA, applicable large employers must, in general, offer affordable and adequate health insurance to any employees who average at least 30 hours per week, or at least 130 hours per month to avoid a potential assessment if at least one full-time employee receives a premium tax credit. Keep in mind that regulations provide two different methods of identifying full-time employees.
• Employee Retirement Income Security Act (ERISA): The "1,000 Hour Rule": Even if part-time employees are not eligible for other benefit offerings, this provision of ERISA requires employers to allow any employees who complete 1,000 hours of service within 12 months to participate in any retirement plan offered to other employees.
• SECURE Act (Long-Term, Part-Time Rule): Beginning in 2024, 401(k) plans must allow employees who work at least 500 hours per year for three consecutive years to make elective deferrals. Starting in 2025, this requirement shortens to two consecutive years. Employers may choose whether to include these employees in employer contributions.
• Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors: If an employer accepts work as a federal contractor, that employer must provide paid sick leave to all employees, even those considered part-time.

When state and local laws enact more beneficial requirements than federal laws, the more beneficial state and local laws must also be applied. So, it is essential to always check your state and local jurisdictions for additional requirements that may apply to part-time employees.

Do Small Businesses Have To Provide Statutory Benefits?

According to employee benefit law, small business owners have legal obligations to provide specific benefits for full-time employees, such as workers' compensation and unemployment insurance. Depending on state and local laws, you may also be required to offer paid sick leave or other types of leave.

You may also be wondering: do small businesses have to provide workers with benefits like health insurance? The healthcare law requires certain organizations and parties to report providing health coverage to their employees, including:

• Health insurance companies
• Self-insuring employers of any size

ALEs must report on the health insurance coverage offered to their full-time employees.