Employee Benefits for Small Businesses: Overcoming the Barriers

How can small businesses bridge the employee benefits gap? Common misconceptions about employee benefits for small businesses often stand in the way of a successful benefits strategy. When they overcome these misconceptions, small businesses gain an edge in the talent war.

Understanding the Employee Benefits Gap

Only 53% of small firms offer health benefits, compared to 98% of large firms, according to the KFF 2024 Employer Health Benefits Survey.

To see why this is a problem, consider it from the employee’s perspective. When you’re looking for a job, compensation is a major concern – and that includes benefits. In a survey by the U.S. Chamber of Commerce, 96% of employees said their health insurance is either very or extremely important to them and 89% said they prefer to obtain their health insurance through work.

If you don’t offer benefits, many job seekers may not even bother to apply. Indeed says salary transparency has become more common in job postings as more states pass laws requiring it, but many employers are also including benefits information. In 2020, only 40% of job postings included information about at least one benefit. By October 2024, this had risen to 61% of job postings.

If small businesses want to compete against larger companies for the best workers, they need to offer competitive benefits – and, contrary to what many small business owners believe, this is possible.

Moving Past Misconceptions to Create a Successful Benefits Strategy

If employee benefits play such a vital role in a company’s talent strategy, why don’t more small businesses offer benefits? In most cases, it comes down to the following misconceptions.

Misconception #1: You need an HR department to offer benefits.

Small businesses often lack a dedicated HR department. At many small businesses, nobody is available to handle the administrative tasks involved in offering benefits, meaning this responsibility would fall to the business owner. If the business owner lacks the time or experience needed to navigate benefits and the compliance issues that come with them, this may feel impossible.

While these are valid concerns, it’s easy to overcome them by working with an outside professional. Small businesses often lack the internal resources they need to carry out many essential functions – whether that’s print fulfillment or website design. However, this doesn’t mean small businesses forgo these functions: they simply find a partner.

When searching for an employee benefits partner, look for an independent broker who offers a wide range of options while also providing full compliance support and assistance with administrative tasks.

Misconception #2: It’s too expensive.

When the news is filled with headlines about the rising cost of health insurance, it’s easy to assume that employee benefits are simply too expensive. However, there are affordable options that allow small businesses to offer benefits.

First, there are tax advantages for offering some benefits. Both employers and employees can save on taxes by using pre-tax dollars on benefits. This makes a compensation package that includes both benefits and salary more cost effective than one that only offers a salary.

Second, employers control how much they contribute to premiums. When employees are responsible for premiums, they can deduct the costs from payroll. Even though the employees are paying, this arrangement is beneficial for them because they enjoy substantial group rate discounts while also receiving the aforementioned tax advantages. Employers should provide a comprehensive benefits package that includes many voluntary benefits to enable employees to select the benefits they need.  

Misconception #3: Benefits are too confusing.

The market has changed a lot in recent years. Employers now have access to many exciting new products, including captive insurance programs and level-funded plans. It’s great to have these options, but this may be overwhelming for small business owners who are just embarking on their employee benefits journey.

This isn’t a reason not to offer benefits. Businesses can start small with a couple of basic options (such as group health with dental and vision) and go from there. When you are ready to explore more advanced options, your insurance partner will be ready to help you expand.

Let Propel Do the Heavy Lifting

Propel specializes in providing employee benefits for companies of all sizes. We won’t just help you build an employee benefits package – we’ll also assist with educating your employees on their benefit plans and we will help you navigate compliance issues. We understand that every business is unique – we’ll craft a tailored and affordable solution that works for you.

Reach out to Debby Curtis at debby.curtis@propelinsurance.com or to your local Propel/Alera broker.