In today’s competitive job market, employers need every advantage to attract and retain top talent. Health insurance remains the most valued benefit among employees, yet rising healthcare premiums make it challenging for smaller businesses to provide this essential coverage.
With employees’ priorities evolving and benefit costs increasing, employers face a complex landscape. Smaller and growing companies, in particular, need the right information, guidance and tools to retain employees and attract good people. Offering the right balance of compensation and benefits helps employers stand out.
ADP’s 2024 Employee Benefits Survey found that while compensation is a top priority, benefits come in a close second. Together, they form the total compensation package that employees consider when evaluating job offers or deciding to stay.
Employees want to feel valued, and offering strong medical and non-medical benefits is a key way for employers to meet that need. The survey revealed that over three-quarters (78%) of employees feel valued because of their medical benefits, while an even higher 82% attribute that sense of value to non-medical benefits like 401(k), dental, vision, life insurance and disability coverage.
Flexible, Personalized Benefits
Employee benefits should deliver real value, making employees feel supported and appreciated. However, a one-size-fits-all approach often falls short, as employees have diverse needs. Increasingly, they seek flexible, personalized options that consider their unique circumstances, including their family’s needs. In fact, three-quarters of those surveyed expressed interest in personalized benefits recommendations.
For smaller employers, cost can be a barrier to offering tailored benefits, but the key is maximizing the impact of their offerings. By focusing on benefits that truly align with employees’ needs, companies can create a more satisfied, engaged workforce while ensuring every dollar spent delivers meaningful value.
Small Businesses Have Options
Fortunately, smaller companies have many health plan options to offer their talent today, much more than was available in the past, and beyond the typical group insurance. Many of these alternatives also offer tax advantages for both employer and employee. Let’s begin with the traditional group health insurance plan, then discuss health reimbursement arrangements (HRAs), premium-only plans (POPs), health savings accounts (HSAs) and flexible spending accounts (FSAs). These options can exist on their own or in concert with other plans.
Traditional group health insurance offers a range of options, including HMOs, PPOs and high-deductible health plans. Employers may benefit from tax-deductible premiums, while employees can make pre-tax contributions, reducing payroll taxes by exempting them from Social Security, Medicare and federal unemployment taxes.
Small businesses with fewer than 25 full-time equivalent employees and average wages below a set threshold may also qualify for the Small Business Health Care Tax Credit, helping offset insurance costs when providing eligible group health coverage.
Health reimbursement arrangements (HRAs) allow employers who meet specific criteria to reimburse employees for eligible medical expenses, including health insurance premiums. Individual coverage health reimbursement arrangements (ICHRAs) and qualified small employer health reimbursement arrangements (QSEHRAs) are the two types of HRAs.
HRAs offer employers a flexible way to provide health benefits without the constraints of traditional group plans. Instead of selecting a single plan for all employees, businesses set a tax-free allowance, allowing workers to choose and purchase their own health insurance.
Two HRA options benefit small employers in particular:
- Qualified Small Employer HRA (QSEHRA): Designed for businesses with fewer than 50 employees, it has annual contribution limits and works with various insurance plans, including a spouse’s plan.
- Individual Coverage HRA (ICHRA): Available to employers of all sizes, it has no contribution limits and allows different reimbursement levels based on job classifications (e.g., full-time, part-time or salaried).
HRAs help employers manage costs predictably while giving employees access to Affordable Care Act (ACA)-compliant health plans through state exchanges or Healthcare.gov. Unlike group plans, HRAs have no participation requirements, making them ideal for businesses with part-time or remote workers.
Employers can set up an HRA at any time, triggering a special enrollment period for talent to select coverage. Plans renew annually on January 1, with Open Enrollment occurring in November and December. By offering HRAs, small businesses can provide quality benefits in a cost-effective, scalable way.
Premium-only plans (POPs) enable employees to pay a portion of traditional group health insurance premiums with pre-tax dollars. Premiums are the sole eligible expenses under this type of Section 125 plan. These pre-tax contributions provide immediate tax savings for employees and reduce employers’ payroll taxes.
Health savings accounts (HSAs), paired with high-deductible health plans (HDHPs), can help employees cover qualified medical expenses. Employees’ pre-tax contributions lower payroll taxes, and HDHPs generally have lower premiums than other plans, making them an attractive option for cost-conscious employees.
Flexible spending accounts (FSAs) are often used with traditional group health plans to help employees cover healthcare expenses. Employees can contribute pre-tax dollars to their FSAs, and depending on the plan, the employer may also contribute, reducing payroll taxes. FSAs may also have a “use-it-or-lose-it” rule, meaning unused funds may be returned to the employer.
Employees need additional tools to find the best care options at the best cost. Features such as price comparison tools and detailed coverage information during the plan search process can greatly improve their experience.
Conclusion
To be an employer of choice today means offering a comprehensive compensation package including benefits that meet the needs and expectations of employees. Small businesses today have more choices to offer their employees. The goal is to deliver a better overall employee experience and make employees feel valued – all to drive employee retention and attract the best people.
Deanna Rosenbaum, VP of Channel Sales, Insurance Services at ADP.
Top talent stock image by Ink Drop/Shutterstock
