A Guide to Offering Small Business Employee Benefits For US Teams

Small business owners can no longer afford to overlook employee benefits. Today’s workers expect more than just a paycheck, and 70% of them are willing to change jobs to secure better perks.

However, delivering these benefits is challenging when running a lean operation. You’re likely to have a tight budget and lack the internal HR and payroll expertise to administer programs. This makes it hard to manage the costs, complexity, and compliance requirements that come with offering competitive benefits.

Faced with this challenge, thousands of small US businesses have turned to PEO services. This enables them to outsource key operations like HR, payroll, and benefits administration and access packages that would otherwise be out of reach.

Alongside easing their administrative burden, data shows that small businesses in partnerships with PEO providers tend to grow twice as quickly as before.

Is your small business struggling to manage employee benefits without stretching resources? Our guide explores what to include, how to set up your plans, and how a PEO service like Deel can support you throughout this process.

Legally-required small business benefits

When structuring your small business employee benefits package, make compliance your first step.

Even companies with only a handful of employees are still required to offer many types of contributions, coverage, and insurance plans under state and federal law.

Getting this step right can minimize the risk of legal issues and foster trust among small, tight-knit teams.

While requirements vary across states, here’s what you can expect to include in your mandatory benefits packages:

Social Security and Medicare

All employers must withhold and match Social Security and Medicare contributions under the Federal Insurance Contributions Act (FICA). This applies regardless of your business size or the state where you operate.

The US federal government updates these rates annually. As of January 2025, the rate is fixed at 2.9% for Medicare and 12.4% for Social Security, split evenly between employers and employees. Note that Social Security has a wage base limit of $176,100 USD, whereas Medicare does not.

Health insurance under ACA

Businesses with 50 or more full-time equivalent employees must provide health insurance under the federal government’s Affordable Care Act (ACA). Additionally, your plans must meet the Act’s minimum coverage and affordability standards.

Notice the wording ‘full-time equivalent’. If you have part-time employees, you still qualify as an ACA business if their combined hours are equal to or greater than the time worked by 50 people logging in for a full work week.

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires you to offer continued health insurance coverage after qualifying employees leave if:

1. You offer a group health plan
2. You have 20 or more employees

Not all contract terminations entitle employees to continued coverage under COBRA. They must experience a ‘qualifying event’ such as a reduction in their working hours or involuntary dismissal (for any reason but gross misconduct).

You can require departing employees to cover the premiums after they leave. However, these contributions cannot exceed the standard cost of coverage (including the administrative fees).

FMLA leave

Under the Family and Medical Leave Act (FMLA), businesses with 50 or more employees are required to provide up to 12 weeks of unpaid leave for:

• The birth, foster placement, or adoption of a child
• The employee’s recovery from a serious health condition
• The care of an immediate family member with a serious health condition
• Any emergency arising from the fact an immediate family member is on active military duty

New employees aren’t immediately eligible. They must work for your business for at least 12 months and log at least 1,250 hours during that time.

State unemployment insurance

State unemployment insurance (SUI) is a federal-run program managed at the state level. It typically involves registering with the local authorities and making contributions to a public fund via your payroll tax withholdings. The state uses this fund to provide financial relief to residents who have lost their jobs through no fault of their own.

The rules of the UI program vary by state. For example, some states have fixed percentages, while others calculate an individual rate for each business based on its total payroll withholdings and termination history.

Workers’ compensation insurance

Similarly, most states require you to obtain workers’ compensation. This insurance covers medical bills and lost wages for employees in the event of job-related illnesses and injuries.

Workers’ compensation tends to have more state-specific requirements and exemptions than UI programs. For example, you may only be required to register after your third or fourth hire. However, where these exemptions apply, state governments still often encourage new employers to register and secure coverage.

Disability insurance

A few states require you to obtain disability insurance on top of workers’ compensation. This insurance program covers employees who can’t work due to illness or injury, regardless of whether their job was the underlying cause.

While the program rules may differ between states, the costs are typically shared between the employer and employee. State governments also tend to set the contribution rates and limits annually.

Voluntary benefits

Once you’ve met the legal minimum standards, consider which benefits you can add to sell yourself as an employer to candidates and retain your best people.

The ideal benefits depend on your team’s needs and preferences. For example, a predominantly Gen Z workforce is more likely to appreciate student loan repayments than older demographics who have already paid off most of what they owe.

That being said, the following employee benefits are likely to have general appeal:

Health-related benefits

While your small business may already be offering mandatory health insurance, look for opportunities to extend and top up your plans. Recent studies show that 42% of employees would rather be put on an improved plan than receive a pay raise.

• Health insurance: Even if you’re exempt from providing health insurance under ACA, register for plans anyway. You’re likely to be eligible for the Small Business Healthcare Options Program (SHOP), which entitles you to a 50% tax credit on any employer contributions you make toward qualified plans

• Dental and vision: Most health insurance plans don’t include dental or vision, but employees consistently rank them in their top three benefits. Adding them can round out your package and help you appeal to candidates

• Mental health support: Mental health benefits are often excluded from standard insurance plans but high on employees’ wish lists. You can use a mix of options like Employee Assistance Programs (EAPs), teletherapy, and wellness programs depending on whether your team is on-site, hybrid, or fully remote

Financial wellness benefits

Recent research shows that people who feel financially secure are more likely to be satisfied with their jobs. However, a pay raise only helps them in the short term. Benefits like retirement plans and saving accounts help them plan ahead, manage costs, and feel more in control.

• 401(k)s or retirement accounts: 98% of employees said they expect their employer to offer some kind of retirement benefit. While you may have a tight budget, even a modest investment shows you’re prepared to meet their needs and make a long-term investment in your team

• Saving accounts: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) help employees cover medical and dependent care expenses. They also reduce taxable income for employees and lower payroll taxes for your business, making them a cost-effective option

• Life insurance: Although often overlooked, basic life insurance can offer employees with families great peace of mind. It’s possible to add this to a group benefit plan for a minimal cost

Lifestyle perks

Lifestyle perks are where you can get personal and creative and reflect your unique business culture. They can make a real statement about what your small business is like to work for, enticing top talent away from larger competitors with a less distinct employer brand.

• Paid time off: Half of employees confess to feeling distracted by work during their vacation time. Offering extra paid leave and vacation can give them sufficient time to unwind and demonstrate that your company truly wants them to take time off

• Parental leave top-ups: Going beyond the legal requirement for parental leave can win over the key 25 to 40 demographic. As they begin planning families, jobs offering extended time off and top-ups will become more desirable

• Flexible working arrangements: Benefits like remote work and location flexibility are a relatively cost-effective option for small businesses. Plus, they’re still very much in demand—many employees would forgo up to 20% of their salary to work from home and achieve a better work-life balance

• Professional development stipends: Small, growing businesses are likely to open new positions. Professional development stipends appeal to career-minded employees and prepare them to step into these roles when the time is right

At a glance: Mandatory vs voluntary benefits in the US

Here’s a quick overview of the mandatory and voluntary benefits we discussed in the sections above:

Read our PEO series to learn more about the individual compliance requirements in each state.

How to offer employee benefits as a small business

Developing an employee benefits program can feel overwhelming, especially if you’re a small business leader with limited HR and payroll expertise. The key is to break it down into simple steps:

1. Determine what’s required

Start by understanding the federal and state requirements that apply to your small business. These are dictated by your size, location, and occasionally your industry. For example, UI rates are often higher in the construction sector as the project-based nature of the work leads to more frequent layoffs.

You can bookmark the following pages to learn more about mandatory federal benefits:

• IRS: Social Security and Medicare withholding rates
• Healthcare.gov: Exploring coverage options for small businesses
• Department of Labor (DOL): COBRA continuation coverage

For your specific state, find the relevant government websites for workers’ compensation, UI, and disability insurance (where applicable). They’re typically handled by the departments for revenue and labor.

2. Set a budget

Calculate how much funding you need to set aside for mandatory benefits. As your workforce size may fluctuate, include a buffer amount for a potential rise in contributions.

Now, estimate how much you can realistically spend on voluntary benefits. You may need to start small and build on your initial offerings as your company’s financial standing improves. However, even a modest benefit plan is likely to have a positive impact.

Before you confirm your budget, do some competitor research and benchmark yourself against similar small businesses. The research can suggest whether you’re under or overspending.

3. Choose a benefits provider

Decide what type of benefit provider to use, whether that’s a broker, a software solution, or a professional employer organization (PEO) service. All three options come with their own advantages:

• Broker: Helps you compare plans, negotiate rates, and understand your options. However, they don’t usually manage ongoing admin, so you need to find the capacity to handle that internally
• Software: Lets you add plans and automate processes like open enrollment and tax filings. Solutions like Deel Benefits are a good fit if you have some HR knowledge and want to stay hands-on
• PEO service: Acts as the co-employer and handles plan sourcing, enrollment, and ongoing administration. They also assume some of the legal liability for compliance issues

4. Communicate benefits to employees

The way you roll out your plans matters. If your team is confused about what’s on offer, they’ll be less likely to participate and make the most of your benefits packages.

Introduce plans in a company-wide message and include a contact channel for any follow-up questions. This could be a dedicated Slack channel in the company account. Also, create a document in your shared drive that you can direct workers to with quick answers to any frequently asked questions.

Ask everyone for confirmation that they’ve read the update and understand all the options. If you use Deel HR, you can send your entire team a document, require them to provide an electronic signature, and monitor their interactions.

Keep communication going as you amend your plans and add more people to your team. You can provide large annual updates ahead of enrollment seasons and smaller ones as you introduce and change your voluntary benefits.

5. Stay compliant with changing laws

Stay updated with federal and state benefit requirements. Governments regularly change details such as eligibility criteria, contribution rates, and minimum wage bases. Tools like Deel’s Continuous Compliance Hub can help you keep ahead of any updates. We use this to send broadcasts about relevant, new, and changing employment laws to your business.

Also, monitor internal changes like headcount and annual income. You can see when your company is about to exceed a threshold or fall into a new range before it happens, giving yourself more time to prepare.

Affordable options for offering benefits

Many small businesses want to add more benefits but find that their budget and resources limit their options. Here’s how you can expand your capacity with more affordable plans:

• QSEHRAs: Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) let small businesses without a group plan reimburse employees for their health insurance and some medical expenses. You must have fewer than 50 employees to qualify

• Stipends for wellness or learning: Instead of introducing a comprehensive benefits plan, you can let individual employees decide what they need. This keeps costs predictable while supporting your team

• Flat-rate perks vs. premium plans: Offering a set dollar amount toward benefits can be more financially viable than high-cost premium plans. They give employees flexibility but ensure you can keep spending under control

• Pooled benefits through PEOs: Leading services like Deel often co-employ thousands of employees at one time, meaning they can negotiate discounts at volume. Your small business can benefit from these deals even if you only have a few people on your books

Final thoughts: Offer smart benefits, not just legal minimums

Offering benefits isn’t just about meeting compliance requirements. A comprehensive package is essential to attract and retain top talent in a competitive labor market, so relying on the legal minimum can put your company at a significant disadvantage.

For many small businesses, the best approach is to start with mandatory benefits and build on these strong foundations:

Ensure you have a strong compliance strategy so you can maintain continuous compliance with all relevant federal and local requirements.

Then, add voluntary benefits like retirement plans and savings accounts to stand out to skilled candidates.

Deel PEO supports you through structuring your benefits packages and beyond. Our fully in-house team gets you exclusive access to top-tier packages in the US and manages all the ongoing administration, plan renewals, and open enrollment.

Watch the video below to learn how Deel PEO helps Superfiliate save time, money, and resources.

As you start to expand across state lines, Deel PEO grows with you and meets local requirements while keeping benefits consistent and fair.

Ready to expand your small business? Book a 30-minute call with Deel to see how we can turn your employee benefits from an administrative burden into a growth enabler.