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What Are Employee Benefits In The United States?
In the U.S., employee benefits are divided between legally required employee benefits and supplemental benefits that vary depending on the state or the employer's discretion. Federally mandated benefits apply to all 50 states across the United States under federal law whereas benefits at a state level are dependent on the respective laws of the 50 states.
Federally mandated benefits are benefits that companies with full-time employees are legally required to provide to their workers. State-level requirements refer to benefits that may differ from one state to another. For example, employers in certain states (such as Colorado and New York) must provide paid leave to their employees due to state law.
Federal law and state law mandate certain benefits for full-time employees, while others, like voluntary benefits, are commonly offered to attract and retain talent.
Full-time employees are entitled to all statutory benefits, while part-time employees may qualify for limited benefits, such as workers' compensation or unemployment insurance. Benefit entitlements can also vary based on employer size and location.
As an employer, it is important to be able to distinguish the types of employees in your workforce. Full-time employees are =employees who work more than 35 hours a week whereas anyone who works less than 35 hours per week is considered a part-time employee.
These characteristics may differ from one business to another. In some cases, the law outlines the maximum number of hours an employee can work to be considered part-time. Once exceeded, they will be afforded the same benefits as full-time workers For example, the Fair Labor Standards Act (FLSA) states that non-exempt employees are entitled to overtime pay any time they work more than 40 hours per week.
Statutory Employee Benefits Required By Law In The U.S.
Employers should take the time to understand what each mandatory benefit means to remain compliant with the law and provide the legally required employee benefits to their workers. These benefits were put in place to protect workers’ rights. Statutory employee benefits can be broken down into four subgroups namely:
- Social Security and Medicare
- Federal Unemployment Insurance
- State Unemployment Insurance
- Workers’ Compensation Insurance.
Social Security and Medicare
Social Security is a federally mandated benefits program that provides income support for retired workers (and their dependents) as well as for workers with disabilities and survivor benefits. Both employers and employees contribute 6.2 percent of the employee's wages and self-employed individuals pay 12.4% of their earnings.
Medicare is a public health insurance program primarily for individuals aged 65 and older. Social Security taxes and contributions made by employers and employees fund this program.
Workers’ Compensation Insurance
This is a nationally mandated benefit that covers medical care for retired individuals and provides financial support to individuals affected by loss of work and disability. It also covers liabilities resulting from workplace injuries and illnesses. This disability insurance is mandatory in nearly all 50 states in the U.S. and protects employers from lawsuits related to workplace injuries.
Family and Medical leave
The Family and Medical Leave Act (FMLA) states that eligible employees are entitled to 12 weeks of unpaid annual leave for specific family and medical reasons. These reasons include the birth of a child or caring for a family member with a serious illness.
To qualify for family and medical leave, an employee must have worked for their employer for at least 1,250 hours in the past 12 months and their employer must have 50 or more employees.
Unemployment Insurance
Unemployment insurance provides temporary financial assistance to workers who lose their jobs but are willing and able to work. It is funded through employer taxes of 6% on the initial $7,000 of an employee’s annual salary.
The 6% employer-only contribution exists at a federal government level, but the taxes paid towards the State Unemployment Tax Act (SUTA) differ between states.
Supplemental Employee Benefits In The United States
It’s often not enough for an employer to only offer their workers statutory benefits. In order to attract the best talent in the U.S. and beyond the country’s borders, employers should think about which supplemental benefits are best suited to their workforce’s needs.
Retirement Contributions
While employees in the U.S. are ensured social security benefits, most employees appreciate increased coverage from popular retirement plans such as 401(k)s. These retirement savings plans allow employees to save comprehensively for their futures, often through contribution-matching policies with their employers.
Private Healthcare
Certain businesses are required to provide health insurance coverage to their employees under the Affordable Care Act (ACA). Employers may go beyond this statutory requirement by providing broader coverage such as private health insurance to their employees. Offering private healthcare is highly valuable to employees given the high cost of healthcare in the States. According to the Centers for Disease Control and Prevention (CDC), 12.2 % of Americans in the workforce did not have health insurance in 2022.
Paid Time Off (PTO)
This highly desirable benefit typically includes paid vacation days, sick leave, and personal days for employees. While this benefit is not legally required, it certainly helps improve employees’ work-life balance and general well-being.
Vision and Dental Insurance
A basic employee healthcare plan may not include vision and dental coverage. If this is the case in your business, consider offering your employees this additional coverage that will give them access to optometric and dental care.
Equity Benefits
Equity benefits are an investment opportunity that employers can present to their employees in the form of non-cash payments. When implemented, this benefit makes employees partial owners of the company they work for. As an added bonus, employees tend to be more motivated to ensure the company’s growth if they have a personal stake in it.
Tax Implications Of Employee Benefits In The United States
Employee benefits in the U.S. can have tax implications. For instance, fringe benefits like health insurance and retirement contributions are often tax-deductible for employers. Additionally, some benefits may qualify for tax breaks or incentives, helping companies, like small businesses, manage the cost of offering comprehensive benefits packages.
The Internal Revenue Service (IRS) clearly outlines that any benefit provided by an employer is subject to employment taxes and must be included in the employee’s pay unless it is categorized as an excluded benefit by the IRS.
Legal Considerations For Employee Benefits In The United States
Failure to provide required benefits can result in severe penalties for employers. The consequences for neglecting to provide employees with benefits vary by state and type of benefit.
For example, failing to provide adequate Workers’ Compensation Insurance is considered a criminal offense in California, New Jersey, and Pennsylvania. Offenders can be subject to fines of $10,000 and prison time in some cases.
Some employers intentionally misclassify their workers to avoid providing them with mandated employee benefits. In such cases, employers will be subject to steep fines, lawsuits, and reputational damage.
Additional Benefits In The United States To Attract Talent
There are other perks you could add to your benefits package to make it more attractive to top talent such as:
- Additional PTO
- Lunch vouchers
- Flexible hours
- Wellness programs
- Tuition assistance
- Childcare
These perks go beyond basic benefits and contribute to a positive work environment that can set your company apart in a competitive talent market.
How Benefits Impact Employee Cost
Offering statutory benefits can significantly increase the cost of hiring employees. On average, legally required benefits like Social Security, Medicare, and workers' compensation account for around 10-15% of total employee costs. According to the Bureau of Labor Statistics (BLS), employee’s benefits cost between 20-40% of their salary.
Having a clear grasp on the costs associated with employee benefits is essential for accurate budgeting as an employer. For a detailed comparison of employee costs across different countries and U.S. states, check out Playroll’s free employee cost calculator.
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