According to the U.S. Small Business Administration, 99.9% of American businesses are considered small in terms of employment, with fewer than 500 workers on the payroll. While all companies struggle at times with hiring, retaining, and engaging talent, the challenge for small businesses can be greater due to having a comparatively leaner benefits program. However, as more creative benefits enter the marketplace, small businesses may find more viable employee benefit options.
Small Businesses Employment Challenges
Recent reporting by SCORE’s Employee Engagement and eHealth’s Small Business Health Insurance Insights reveals the following about small businesses:
- Over 80% are challenged by hiring new employees.
- 33% are concerned about retaining and motivating employees.
- Almost 50% have a hard time retaining the staff they already have.
- 90% of those offering health benefits find it beneficial for hiring and retaining talent.
- Health benefits costs worry those who provide coverage – 44% are “very worried,” and 37% are “somewhat worried.”
- Only 14% of those not offering health coverage can afford to contribute $200 monthly toward each employee’s premium.
Another potential challenge for small employers is a U.S. Department of Labor final rule, effective March 11, 2024, that addresses misclassification of employees as independent contractors. For some small employers, that may mean they must offer benefits to those previously deemed ineligible.
What can small businesses do?
Small businesses that must offer benefits due to governmental regulations or employee demands may face prohibitive financial and time commitment challenges. Here are some options that may help control both costs and time constraints.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
QSEHRAs offer small employers an attractive benefit option. This account permits employers to make non-taxable reimbursements of some healthcare costs, like premiums and other IRS-approved expenses, up to an annual limit. Employees must submit qualified out-of-pocket receipts for tax-free reimbursement by the employer.
One provision of this benefit option is that there is no mandated reimbursement minimum, only a maximum – so employers can offer a benefit that truly fits their budgets.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
ICHRAs provide a way for employers to contribute to employee premium costs for an individual health plan, along with other IRS-approved healthcare products and services. With ICHRAs, there is no minimum or maximum limit on employer funding and reimbursement. Employees pay out-of-pocket and submit a claim, and reimbursements do not count toward taxable income.
An attractive provision here is that the employee acquires an individual health plan, which means the employer is not tied to the health plan. This separation frees up employer administration time and costs of sponsoring a group plan.
Emergency Savings Account (ESA)
CNBC recently reported that 61% of small businesses support raising minimum wages in their states, but only 19% believe it will help their hiring efforts, and 38% believe it will harm their businesses. Further, USA Today reports that only 44% of Americans are prepared for a $1,000 emergency.
With wages and savings challenging business owners and employees alike, ESAs may help. Employers who offer ESAs divert an employee-specified portion of each participating worker’s payroll into a savings account set up for that purpose. The theory behind this process is that many people find it easier to save funds that never reach their regular bank account.
Employer contributions to ESAs are not a requirement, although they are an option. As such, employers have complete control of their benefits budget while helping employees meet a significant financial need.
Small Business Benefits Success
Your small business clients need all the help they can get to offer an affordable, competitive benefits program. While TPAs and brokers may not deal with all the components of the compensation package, there are more options than ever to support employee health and wellness needs. If you are not offering some or all of these benefits yet, talk to us. We can help you provide your small businesses with very viable benefit options.
For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDH, HSA, Well-Being, COBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.