Required Employee Benefits

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Required Employee Benefits

A Small Business Owner’s Guide: Required Employee Benefits | Part Three

Each state has unemployment programs, however federal government sets the overall guidelines Click To Tweet


Social Security Tax Withholdings

It will be your responsibility to verify that your employees’ Social Security numbers match their records. You can do this easily by registering with the Social Security Number Verification Service. You can do one or two names and Social Security Numbers and get results immediately, or you can input as many as 250,000 names and have your results the next business day.

Social Security Taxes are required withholdings for employers with a business of any size. The rate is one to one, meaning that employers must pay into Social Security just as much as they withhold from their employees.

The current rate of Social Security withholdings is 6.2%. This means that for every 6.2% that you withhold from the employee, you match it with an additional 6.2%. Therefore, the total Social Security contribution per employee is 12.4%.

To find out how much to withhold in a pay period, multiply the employee’s gross pay by 6.2.

Unemployment Insurance Benefits

Unemployment insurance, as you may know, is intended to provide short-term help for anyone who has lost a job for a reason outside of their control.

What you may not realize is that unemployment is a joint effort by each of the 50 states and the federal government. While each state has its own unemployment program, the federal government is responsible for setting the overall guidelines.

Unemployment tax rates for employers are directly related to the employers’ actions. Employers who lay off or fire employees frequently will experience increases in their unemployment taxes. On the other hand, some states will reduce your unemployment tax rate – even to 0% — if you use the proper channels and only fire or lay off employees when you must.

Be aware that you can dispute unemployment benefit claims if you do not think the worker is eligible in order to keep your unemployment rates low.

Workers’ Compensation Laws and Requirements

Workers’ compensation insurance is another benefit you are required to carry for your employees. Specific laws govern each state. Click here for a comprehensive chart of each state’s laws and requirements. Workers’ compensation something you can provide in a number of ways as long as your state allows.

  1. You can self-insure. This means that you, the small business owner, assume all responsibility for funding your employees’ workers’ compensation claims. Self-insuring can lower costs because you aren’t paying a monthly fee for something your employees may not ever need, and it also ensures that an injured employee gets compensation as soon as possible when you pay out of pocket.
  2. You can register through your state’s Workers’ Compensation Insurance program. Each state has different standards, but most are comparable.
  3. You can buy workers’ compensation insurance through a commercial company. The premiums can be bundled with other insurances you may have.

Long-Term and Short-Term Disability Insurance

Only a few states require businesses to offer disability insurance, but many businesses do regardless of what state they are located in. If you run a business that requires moderate to extreme levels of dangerous tasks, you should consider offering long-term disability insurance to them. If the work is not dangerous, you still might want to consider short-term disability insurance as an option for employees who may use it for purposes such as maternity leave.

Offering disability insurance can be a major draw for potential employees. Disability is something that an employee may require for a short time, for the rest of their lives, or until retirement age, and it can be employed in the case of injury or illness.

Your employee may need these benefits for their entire lifetime, but they may not. Periodically, the employee’s ability to work is evaluated. If his or her condition improves, the disability benefits cease. 

Employee Leave Benefits

Leave benefits will vary from one small business to another. Your willingness to offer leave to your employees is a personal decision. Of course, everyone likes time off, but you have to decide where your generosity and profit margin meet.

Ultimately, the leave benefits you offer your employees should be in place to encourage employees to work hard the rest of the time. The following are examples of leave benefits you may decide to offer your employees:

Holidays – usually not paid, even federal holidays. Some businesses do, however, offer holiday pay if they are open on certain holidays or the days immediately preceding or following the holiday.

Vacation – also usually not paid. You can work out an escalating scale for your employees if you wish, rewarding years worked with more vacation time.

Jury duty – some states require businesses to pay employees for jury duty.

Personal – some businesses provide both personal and sick leave benefits, while others only offer one or the other.

Sick – also an unpaid leave. You can set the number of sick days for employees, but be sure to have a policy in place about excused doctor’s visits after the number of sick days has been exhausted.

Funeral/bereavement – More companies are offering funeral and bereavement time for employees who lose an immediate family member. Again, have a policy in place before hiring your first employee.

Family and Medical Leave

The Family and Medical Leave Act, passed in 1993, requires all employers to grant leave to anyone with a qualifying family or medical reason. It is important that you educate yourself on which situations qualify for family and medical leave to best serve your business and your employees.

The time off is unpaid, but the employee’s job is protected during his or her FMLA time. Non-service member employees can get up to 12 weeks of FMLA leave in a 12-month period. Events such as the birth, adoption or fostering of a child or caring for an immediate family member qualify for FMLA leave time.

View the full list of eligible medical and family reasons and links to more information about the FMLA.

Employees who are immediate relatives of service members – or next of kin, if the service member has no immediate relatives – can get up to 26 weeks of FMLA time in order to care for the service member.


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Part One: Hire Your First Employee

Part Two: Contractor or Employee?

Part Three: Required Employee Benefits

Part Four: Pre-Employment Background Checks

Part Five: Employee Handbooks