Small businesses wrestle with the idea of benefits. An added expense, benefits only increase the overall cost of labor. As labor is one of the largest expenses for any business, you might be reticent to increase that cost with benefits. While some small businesses might find it difficult to provide benefits, others might find that the cost of not providing benefits is far greater.

Positives of Providing Benefits

Carefully consider the positive side of providing benefits to your employees. Remember that many of your competitors -- especially your larger ones -- are already providing benefits. Consider the benefits of providing benefits in more than terms of just pure dollars and cents:

  • Benefits attract top-notch employees, especially health insurance and retirement plans.
  • There are tax advantages to benefits plans. The IRS allows you deduct a number of expenses related to benefits.
  • You can often get employees to accept a lower salary when you provide benefits. This is known as alternative compensation.
  • As a small business owner you can often secure benefits for yourself at a lower price because you buy them in a group with your employees.
  • Health insurance has one distinct benefit: It greatly reduces absenteeism. Further, healthier employees are more productive companies. Thus, health insurance can easily pay for itself with a happier, healthier, more productive workforce.

Negatives of Providing Benefits

Of course, there’s more than just positives to providing benefits for your employees. Here’s some of the down side of furnishing your employees with a benefits package:

  • Small businesses tend to pay more for group benefits like retirement plans and health care plans. This is because there are fewer people in the group to spread the cost around to.
  • In particular, group life insurance plans can be very hard for small businesses to obtain at a reasonable price.
  • Retirement plans offered to small businesses tend to be more restricted than those to larger companies. This is because of the high administrative costs associated with retirement plans for small businesses.
  • There is an administrative complexity associated with fringe benefits. Even very small businesses might need to hire a full-time human resources manager to help handle the benefits. This is in addition to the costs associated with furnishing the benefits in the first place.
  • Unless you bundle benefits together with the same company, you will incur administrative costs related to every benefit you offer.
  • Health insurance costs are rising at high rates every year, making it very hard to budget from one year to another.
  • You might also incur legal costs associated with administering benefits.
  • Incorrectly administering benefits can lead to lawsuits and civil fines, underscoring the need for administrative and legal oversight -- and the related costs.

Deciding What’s Best For Your Business

There’s no easy answer to the question of whether or not your business can or should provide benefits to your employees. If nothing else, you should be aware of the pros and cons. On the one hand, you have increased productivity, happier employees and a greater ability to attract new talent. On the other hand, you have significantly increased costs of operation.

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