Average cost of employee benefits for a small business

Average cost of employee benefits for a small business

Karen Solomon
By Karen Solomon
Apr 16, 2024
6 min read

Some benefits for full-time employees are required by law, while others can help you attract and retain talent. The average cost of employee benefits for a small business can seem daunting, but small business owners can create a benefits package that works for both you and your employees — and keeps costs under control.

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How much does an employee cost?

Civilian workers and employees in the private sector cost employers about $13-14 per hour, according to 2023 data from the U.S. Bureau of Labor Statistics. State and local government employees cost about $23 per hour for benefits.

To help keep costs and resources in check for small businesses, it is generally best to choose a third-party benefits administration provider for employee benefits and payroll. These costs can vary based on the location of your business, the number of employees you have, and the benefits you choose.

Since there are so many complex laws and regulations surrounding benefits for full-time employees, it can be best to leave it to the experts. Choose a company that lets you customize your benefits program in the way that makes sense for you.

There are three options to provide benefits when you work with a benefits administrator:

  1. Pre-set packages: Your benefits company will likely offer a few preset benefits packages to choose from. This is the easiest option, as you can compare packages side by side, including final pricing.
  2. Customized benefits: This option allows you to select from a menu of worker benefit options and build your own package. It can be a great way to create a package unique to your company that reflects your organization’s values.
  3. Employee-selected benefits: Not all employees are the same. Some are single with few financial obligations who might be attracted to free gym membership. Some have families with young children, and others care for aging parents or may be drawn to benefits that value retirement planning for themselves. Employee-selected benefits cater to employees as individuals. In this benefits arrangement, you provide a monthly budget for employee benefits and make it available tax-free to your employees. They can then spend it on health insurance, cell phone bills, education or whatever benefits them the most.

Full-time employee benefits required by law

While some employee benefits are federal mandates, what’s required for your business can vary state-to-state and county-to-county. These worker benefits are the ones most frequently required by law.

1. Workers’ compensation insurance

Workers’ comp coverage can help protect employees who are injured at work or develop a work-related illness, and the cost for a workers’ comp policy can vary based on your location, the type of work you do, and many other factors. It is mandatory in nearly every state; be sure you know the local law because each state’s requirements are slightly different. 

2. Unemployment insurance

Unemployment insurance pays those who are temporarily out of work. It’s governed by a complex web of federal and state laws, so check with your state workforce agency to ensure you are in compliance.

3. Social Security and Medicare contributions

Employers are required to pay a portion of employee contributions to Social Security and Medicare, and to withhold the employee’s portion of these contributions from each paycheck.

4. Family and Medical Leave Act (FMLA)

The FMLA requires employers with 50 or more employees to allow employees to take up to 12 weeks of unpaid leave each year to care for themselves or a relative with a serious health condition. This leave can also be used for pregnancy-related conditions or to care for a newborn or newly adopted child.

Employers must allow the employee to return to the same or an equivalent position at the end of the leave period. Special rules apply for military families. Note that some states require this leave to be provided even if the employer has fewer than 50 employees.

5. Time off for court appearances or to vote

All employers are required to provide time off for jury duty, and some states also require time off for employees appearing as a witness in a court case. In addition, about 30 states require employers to give employees time off to vote. Depending on your jurisdiction, you may or may not be required to pay employees for this time off. 

Optional employee benefits

These benefits for workers are not mandated by law, and you are free to choose which, if any, you want to provide. However, know that perks like these are a great way to attract employees and keep them on your team long term — which may end up being more cost-effective than offboarding and onboarding a revolving door of workers. 

A typical benefits package for a small business could include:

  • Paid time off
  • Health insurance
  • Dental and vision insurance
  • Life insurance
  • Disability insurance
  • Retirement accounts such as a 401(k)
  • Discounted memberships for gyms, childcare facilities and more

The average cost of these employee benefits for a small business can vary widely. For example, some employers keep health insurance costs down by splitting premiums with employees. You could provide a small amount of life insurance at your expense and allow employees to purchase more at your negotiated group rate.

Automatic pre-tax payroll deductions for employees’ share of benefits can help save money for both you and your employee. Talk to your payroll company or tax professional to ensure that you’re in full compliance with the law.

Low-cost employee benefits to help build team loyalty

Some extra perks at work can help boost employee morale and retention — and don’t cost that much to provide.

Get a sense from your workers about what they want to help make work more engaging and make them feel more special. Examples include, but are not limited to:

  • Free or discounted services from your company (meals, massages, or the service you provide to customers)
  • Flexible work schedules
  • Remote work options
  • An annual holiday party
  • Merit-based pay bonuses
  • Birthday surprises
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We’ll ask a few questions about your business and give you a quote. You can select your coverage options and purchase your policy — all in about 10 minutes. Your certificate of insurance will be available immediately, and you can access your policy 24/7 via web or mobile app.

If you have questions, our licensed, U.S.-based insurance professionals are available to help.

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Karen Solomon
About the author
Karen Solomon is a Senior Content Marketing Editor for NEXT. Her writing and editing has been serving small business owners and startups for several years.
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