Small business employee benefits: How to attract and retain top talent

Small businesses often run lean, so competing against larger companies for talent can feel like an uphill climb. That’s why it’s important to find creative ways to offer meaningful small business employee benefits—the kind that help people feel valued and motivated to grow with your team.

Benefits do more than cover the basics. They reflect your company culture, indicating what your people can expect day to day and what kind of support they’ll find along the way. When built with care, a benefits package can make all the difference in who joins, who stays, and how your team performs.

This guide breaks down the essentials, including what benefits can make the biggest impact and how to shape a benefits package that fits both your people and your business.

Are employee benefits required for small businesses?

Small businesses are subject to benefit requirements set by regional laws. They cover: 

Health benefits

Under the Affordable Care Act in the United States, businesses with 50 or more full-time equivalent team members have a legal obligation to offer health coverage. The coverage must meet minimum value standards and extend to both full-time team members and their dependents.

While businesses with fewer than 50 team members are not legally required to offer health insurance, many still choose to do so. This can help them stay competitive and take care of the people who are helping them build the business.

In the United Kingdom, small businesses aren’t obligated to offer private health insurance on top of what the Health Service (NHS) already offers. The NHS covers core health needs, but private coverage can offer faster or more specialized treatment options.

Workers’ compensation and liability insurance

Workers’ compensation insurance covers medical expenses and lost wages for team members who suffer work-related injuries or illnesses. In the United States, most jurisdictions require this coverage, regardless of business size.

Premiums vary depending on your industry, payroll, and claims history. High-risk industries like construction or manufacturing typically face higher premiums than low-risk sectors like tech or consulting. Fostering a strong culture of safety and wellbeing can help manage both risk and cost.

In the United Kingdom, employers must hold Employers’ Liability Insurance, which covers claims from team members injured or made ill through work. This is a legal requirement under the Employers’ Liability (Compulsory Insurance) Act and failure to comply can result in significant fines.

Social Security and pensions

All businesses in the United States withhold Social Security and medicare taxes from wages and match these contributions. The current rate for federal taxes includes 6.2 percent for Social Security (up to the annual wage base limit) and 1.45 percent for Medicare (with no wage base limit).

Accurate withholding, reporting, and timely payments are critical. The IRS requires businesses to maintain employment tax records for at least four years to ensure audit-readiness and avoid penalties.

In the United Kingdom, employers and team members contribute to National Insurance, which funds state pensions, statutory benefits (like maternity or paternity leave), and the NHS. Businesses pay contributions on top of wages, and the rate varies based on earnings and employment category.

Unemployment insurance

Unemployment insurance provides temporary financial assistance to team members who lose their jobs through no fault of their own. Employers are required to pay federal unemployment taxes (FUTA) and, in most cases, state unemployment taxes.

In the United Kingdom, although there’s no direct equivalent to unemployment insurance contributions like in the United States, team members may be eligible for Jobseeker’s Allowance or Universal Credit. Employers indirectly support these systems through National Insurance contributions.

Creating a people-first workplace with strong onboarding, fair treatment, and open communication helps reduce turnover and keep tax rates manageable.

Employee benefits examples for small businesses

Small businesses offer a range of benefits to attract and retain talent, from health and financial perks to more unique or lifestyle-oriented offerings.

Many also offer flexible benefits, or “flex benefits,” which allow team members to choose from a menu of options based on their individual needs. This approach gives people more control over their benefits while helping small businesses manage costs effectively. 

Health benefits

Health benefits remain the most valued employee benefit across industries and demographics. Small businesses can offer various health-related benefits, including:

• Medical insurance: Traditional group health plans that cover medical expenses, with employers typically covering a portion of the premium costs
• Dental insurance: Coverage for routine cleanings, fillings, and other dental procedures
• Vision insurance: Coverage for eye exams, glasses, and contact lenses
• Health savings accounts (HSAs): Tax-advantaged accounts paired with high-deductible health plans
• Flexible spending accounts (FSAs): Accounts that let team members set aside pre-tax dollars for eligible healthcare expenses
• Telehealth services: Virtual healthcare options provide convenient access to medical professionals
• Mental health benefits: Resources like employee assistance programs (EAPs) and therapy coverage

Financial benefits

Financial benefits help team members build security while planning for their futures. Small businesses can offer several options that provide significant value:

• Retirement or pension plans: 401(k) plans, SIMPLE IRAs, or SEP IRAs with potential employer matching in the US, or contributions to a workplace pension scheme in the UK
• Workers’ compensation and liability insurance: Protection covering medical expenses and lost wages if a team member is injured or becomes ill due to their job, along with liability coverage for legal or financial claims related to workplace incidents
• Unemployment insurance: Government-mandated support that provides temporary income to team members who lose their jobs through no fault of their own, helping them stay financially stable while seeking new employment
• Life insurance: Basic coverage providing financial protection for team members’ families in the event of the insured family member’s death
• Disability insurance: Short-term and long-term coverage replaces income when a team member is unable to work due to disability
• Financial wellness programs: Educational resources helping team members manage their finances effectively
• Student loan assistance: Programs helping team members pay down educational debt
• Profit-sharing: Distributing a percentage of company profits to team members
• Employee stock ownership: Offering ownership stakes to boost engagement and retention

Fringe benefits

Fringe benefits cover additional perks beyond traditional compensation and core benefits. These often support improved quality of life and work-life balance and may include:

• Paid time off: Vacation days, sick leave, and personal days
• Flexible scheduling: Options like flexible start/end times or remote work arrangements
• Parental leave: Paid time off for new parents
• Professional development: Tuition reimbursement and learning and development opportunities
• Wellness programs: Initiatives promoting physical and mental health
• Commuter benefits: Transit passes, parking allowances, or bike-to-work incentives
• Childcare assistance: Childcare stipends or backup childcare services

Unique employee benefits

Creative, unique benefits can set your small business apart and address specific team member needs without breaking the bank. These types of benefits include:

• Pet insurance: Coverage for veterinary expenses
• Volunteer time off: Paid time off for community service
• Sabbaticals: Extended leave after reaching service milestones
• Technology stipends: Allowances for home office equipment
• Subscription services: Access to useful services like meal delivery or productivity tools

How much do employee benefits cost for small businesses?

Employee benefits are often a significant investment for small businesses, with health insurance often being the most expensive. These costs vary significantly based on industry, location,  demographics, and the specific benefits offered, and 58 percent of small businesses cite inflation as a top concern when budgeting for benefits.

Several strategies can help small businesses manage benefit costs while still providing valuable offerings, including: 

• Cost-sharing arrangements: Having team members contribute a portion of premium costs
• Alternative funding models: Exploring level-funded or self-funded insurance options
• Professional employer organizations: Joining PEOs to access enterprise-level benefits at lower costs
• Tax incentives: Utilizing credits available to small businesses that offer certain benefits
• Regular benefit audits: Eliminating underutilized offerings and optimizing spending

Small businesses can purchase coverage through various channels, including insurance brokers, professional employer organizations, small business associations, or public marketplaces. Working with a knowledgeable benefits consultant can help identify the most cost-effective options.

Also, when evaluating benefit costs, consider their impact on recruitment, retention, and productivity. A well-designed benefits package can reduce turnover costs and increase employee engagement, providing a substantial return on investment (ROI).

Tax implications of employee benefits 

Understanding the tax implications of different benefits helps both small businesses and their people maximize their value. Some benefits receive favorable tax treatment, while others are taxable as income.

Tax considerations for common benefits:

• Pre-tax benefits: Health insurance premiums, retirement contributions, and FSA/HSA contributions
• Taxable benefits: Cash bonuses, personal use of company vehicles, and certain gift cards
• Tax-exempt benefits: Certain small gifts, achievement awards, and qualified educational assistance
• Fringe benefits with special rules: Company meals, transportation benefits, and wellness programs

Consult with tax professionals to build an optimal structure for your benefit program. A tax professional can also help you with proper documentation to ensure you comply with IRS regulations while maximizing tax advantages.

How to create an employee benefits package for your small business

Creating an effective employee benefits package requires thoughtful planning and alignment with both your business goals and your team’s needs. For small businesses, this often means balancing limited budgets and lean HR capacity with the desire to offer competitive, meaningful benefits. The process involves several key steps to help you attract talent, improve retention, and stay financially sustainable.

1. Assess your people’s needs

Start by identifying which benefits would be most valuable to your specific workforce. If you’re a startup or small business, you may be working with a younger team or a smaller group with diverse needs. Younger team members might value student loan assistance and professional development, while those with families might prioritize comprehensive health insurance.

Assessment strategies:

• Survey your team: Create anonymous surveys asking about benefit preferences
• Analyze demographics: Consider age ranges, family status, and career stages
• Research competitors: Understand what benefits similar businesses offer
• Review utilization data: If you already offer benefits, see which ones get used the most

This data helps prioritize benefits that address your team’s most pressing needs rather than implementing trendy perks that go unused.

2. Research benefit providers

Once you’ve identified priority benefits, research providers that specialize in serving small businesses. Compare costs, coverage options, service quality, and technology platforms across multiple vendors.

Consider working with a benefits broker who understands the small business market. These professionals can negotiate better rates, explain complex options, and help design packages that maximize value while controlling costs. Their expertise often pays for itself through better pricing and appropriate benefit selection.

3. Consult with a legal team

Benefits administration involves complex regulations at the federal, state, and local levels. Consulting with legal experts helps ensure your benefits package complies with all applicable laws, such as the United States’ Employee Retirement Income Security Act (ERISA), ACA, Health Insurance Portability and Accountability Act (HIPAA), and tax regulations.

Legal advisors can also help structure benefits to maximize tax advantages for both your business and your people. They can review contracts with benefits providers, assist with required documentation, and help create compliant communication materials.

4. Stay within budget

Determine a sustainable budget for your benefits program based on your business’s financial situation. 

Prioritize benefits that provide the greatest value relative to cost. Consider implementing tiered options where your people can “buy up” more comprehensive coverage if desired. Explore creative funding approaches like defined contribution models, where you provide a fixed dollar amount that your people can allocate across benefit options.

5. Communicate the benefits package clearly

Even the best benefits package loses value if people don’t understand or utilize the offerings. Develop a comprehensive communication strategy that clearly explains available benefits, enrollment procedures, and how to maximize value from each program. Clear communication increases perceived value and utilization rates, maximizing your return on investment in benefits.

Effective communication approaches:

• Multi-channel messaging: Use digital resources, written materials, and in-person explanations
• Benefits guides: Create simple, visual explanations of complex benefits
• Year-round communication: Schedule regular “benefits check-ins” throughout the year
• Feedback loops: Collect input about the benefits program and make adjustments based on utilization data

Build a competitive benefits package for your small business

Building a standout benefits package doesn’t take unlimited resources—it takes intention. When you understand what matters to your people, align with legal requirements, and communicate consistently, you can create a program that delivers real impact.

The most effective benefits strategies for small businesses strike a balance between supporting people, managing costs, and advancing your company’s goals. With the right approach, benefits become more than a perk—they become a strategic advantage for attracting and retaining top talent.

Small business employee benefits FAQs

What does a good benefits package look like for small businesses?

A good benefits package includes health insurance, retirement options, paid time off, and work-life balance provisions tailored to your specific team’s needs and priorities. These core benefits help attract and retain talent, support employee wellbeing, and make your business more competitive, even with a smaller budget or team.

Can a small business offer health insurance to some employees and not others?

Small businesses can offer health insurance selectively based on job categories or full-time status, but they must follow applicable non-discrimination rules uniformly.

How do I set up benefits for my small business?

Start by assessing your team’s needs through surveys or informal conversations to understand what matters most to them. Then, research benefit providers that offer small-business-friendly plans, comparing coverage options, costs, and ease of administration. Consult legal experts to ensure compliance with federal and state regulations. Determine a realistic budget for your program, and consider working with a benefits broker or joining a professional employer organization to access more affordable, comprehensive options.

Do startups typically offer benefits?

Startups increasingly offer competitive benefits to attract and retain talent in a tight labor market. Their benefits often prioritize flexibility and long-term incentives over traditional perks. This might include flexible work arrangements and equity compensation that offers a stake in the company’s future. While startups may not match the depth of benefits offered by larger companies, they tend to focus on personalized, high-impact offerings that appeal to younger professionals.

What are some creative employee benefits for small businesses and startups?

Creative, low-cost benefits for small businesses and startups may include unlimited PTO, four-day workweeks, pet-friendly offices, wellness stipends, and professional development budgets. These unique benefits can improve work-life balance, reduce burnout, boost morale, and support continuous learning, making your business more appealing to prospective hires while keeping existing team members engaged and motivated.