Employee health benefits: Definitive guide for small businesses

As a small business owner, you understand how important happy and healthy employees are to your business’ success. That’s why offering health benefits to hardworking, loyal employees can be key to employee retention. 

However, figuring out where to start is the hardest part. Between requirements and ever-changing rules, it’s easy to lose sight of what is required of small business employers in relation to employee health benefits.

Let’s look at what you can expect when it comes to group health insurance plans, how you can find the right plan for you and your employees, and how to implement an employee benefits package.

What are employee health benefits?

Employee health benefits are a part of the compensation package employers offer to help employees stay healthy and financially secure when facing medical expenses. These plans typically cover a portion of an employee's medical bills after they've paid a deductible (a set amount they must pay annually before the insurance kicks in).

Health benefits typically include health insurance but can include things like dental and vision insurance and wellness programs. By offering a robust health benefits package, employers can attract and retain top talent, improve employee productivity, and create a more positive work environment.

Types of health benefits you can offer

There are various health benefits you can offer. Here are the top health insurance and benefits included in most small business health packages: 

Health insurance

Health insurance plans typically cover a variety of medical expenses, from doctor visits and prescriptions to hospital stays and surgeries. Traditionally, group health insurance is the most common option for small businesses. It allows you to offer a variety of plans to your employees. There are different plan options to consider, such as: 

• Preferred Provider Organization (PPO) offers a large network of doctors and specialists you can see without a referral, but may come with higher out-of-pocket costs.
• Health Maintenance Organization (HMO) requires you to choose a primary care physician and specialists within the HMO network. HMOs typically have lower premiums but may limit your choice of doctors.
• High Deductible Health Plan (HDHP): HDHPs have lower monthly premiums but come with a higher deductible. 

Note that HDHP plans are often paired with a Health Savings Account (HSA), which allows you to save money pre-tax to cover qualified medical expenses.

Dental and vision insurance

Dental and vision insurance can help employees cover the costs of preventive care and other dental and vision services. This helps employees maintain their oral and eye health, reducing out-of-pocket expenses.

Disability insurance 

Disability insurance provides financial protection if an employee becomes unable to work due to illness or injury. This benefit helps ensure income security during challenging times.

Life insurance

Life insurance offers financial support to an employee's beneficiaries in the event of their death. This benefit can provide peace of mind and help surviving family members manage financially.

Mental health 

Mental health programs offer confidential counseling and support services to employees dealing with emotional or mental health challenges.

Wellness programs

Wellness Programs: Wellness programs can help employees improve their health and well-being. These programs can include things like health screenings, fitness challenges, and smoking cessation programs.

Tax-advantaged accounts 

There are also  tax-advantaged accounts that can help your employees save on healthcare costs: 

• Health Reimbursement Arrangements (HRAs) are accounts that you can set up to reimburse employees for qualified medical expenses. 
• Health Savings Accounts (HSAs) are accounts that allow employees enrolled in HDHPs to set aside pre-tax dollars to cover qualified medical expenses.
• Flexible Spending Accounts (FSAs) allow employees to set aside pre-tax dollars to cover qualified medical and dependent care expenses. 

Note that, unlike HSAs, funds in FSAs generally do not roll over from year to year. However, you can set up both HSA and FSA deductions directly in QuickBooks.

Pros and cons of offering employee health benefits

When it comes to offering health benefits to your employees, doing so can mean being more competitive. For example, health benefits can help you:  

• Attract and keep top talent: Health insurance is a major perk for employees, and offering it can give you a competitive edge in attracting and keeping qualified workers, especially in tight labor markets.
• Improve employee health and morale: When employees have access to healthcare, they're more likely to get preventive care and address health issues early, leading to a healthier workforce and potentially fewer sick days. Healthy employees tend to be happier and more productive.
• Capitalize on tax advantages: The portion of premiums you pay for your employees is typically a tax break. Additionally, some small businesses may qualify for tax credits for offering health insurance.

On the other hand, offering health benefits can come with: 

• High costs: Health insurance can be a significant expense for small businesses. You'll need to factor in the cost of premiums, deductibles, and co-pays, as well as the administrative burden of managing the plan.
• Limited plan options: Small businesses may have fewer plan options to choose from compared to larger companies. This can make it challenging to find a plan that fits your budget and employee needs.
• Less flexibility for employees: Employees may have less choice in terms of coverage options compared to individual plans they might purchase on their own.

Note that the needs of your workforce will play a role as well. Younger and healthier employees may be less interested in health benefits than older employees or those with families.

Should you offer employee health benefits? 

You must offer your employees health insurance if you have 50 or more full-time employees. However, for small businesses, figuring out whether to offer employee health benefits can be a business decision.

Small businesses that offer health insurance may also qualify for a tax credit. For example, you can get a tax credit for up to half of the costs you pay for your employees’ premiums. The requirements for the Small Business Health Care Tax Credit include: 

• Have less than 25 full-time employees 
• Pay 50% of your full-time employees’ premium costs 
• Have an average employee salary of $56,000 or less 
• Offer health insurance to all full-time employees 
• Enroll in a Small Business Health Options Program (SHOP) plan 

Once you decide to offer health benefits, here are some questions to ask when deciding on your plan specifics: 

• What’s the cost share? The amount you can afford to pay toward your employees’ healthcare premiums is one of the most important considerations. 
• What’s covered? The lower the monthly premium, the less coverage they have.
• What is the plan type? Health insurance is not a one-size-fits-all. HMO plans are usually the budget option, while PPOs are the higher-end plans. 
• How much are deductibles? A deductible is a set amount of money that the employee must spend before the insurance plan will cover any expenses. 
• What’s the co-pay? A co-pay is the out-of-pocket amount someone pays for an office visit with any physician or specialist.
• How much is co-insurance? A co-insurance is also an out-of-pocket cost, but it’s calculated by using a percentage of the appointment’s cost and not a flat rate. 
• What are the premiums? Premiums are the monthly amount you and the employee pay for the plan. 

When considering whether you should offer small business employee health benefits, consider the other employee benefits you will or already offer. For example, you may currently offer fringe benefits, like flex work schedules, paid time off, or retirement benefits.

Best practices for offering health benefits

Once you decide to offer health benefits, you’ll want to list the types of benefits you want to include. 

Some tips for when you’re preparing to offer health benefits: 

• Integrate premiums into payroll: You can either deduct health insurance premiums from an employee’s salary pre-tax or post-tax. Making these deductions directly from their paychecks (which you can do directly in QuickBooks) can make it easier for you and your employees. 
• Reach out directly to insurance companies: Not all health insurance companies will work directly with businesses, but some do. Make sure to conduct due diligence and check out ratings on sites like the National Committee for Quality Assurance (NCQA).
• Work with an insurance broker: Licensed insurance brokers are a great resource for small business owners and can help you with paperwork and the popular pitfalls of finding an employee health insurance plan. 
• Consider a Professional Employer Organization (PEO): PEOs are similar to purchasing alliances in that they help to lower the overall costs of healthcare benefits. 
• Consider a Quality Small Employer Health Reimbursement Arrangement (QSEHRA): If you have less than 50 employees, this is an option for small businesses looking to reimburse them for medical expenses and personal premiums. 

You can also purchase health insurance plans as an add-on to QuickBooks Payroll offerings—or still get dedicated support and automated deductions if you already have a health insurance plan. 

Keeping your employees happy and productive

Deciding whether to offer employee health benefits is not a quick decision to make—and you don’t want it to be. You will be making a significant financial commitment, and it makes sense to take time to make that decision.

However, offering your employees health insurance benefits makes you competitive in the job market and can qualify you for tax breaks. Payroll services like QuickBooks Payroll can streamline your employee benefits and make offering them and tracking deductions even easier.



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