What Are Required Employee Benefits for U.S. Businesses?

Understand what's necessary and what's not required by law

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Employer benefit administrators typically manage a blend of required and nonrequired employee benefits. From medical and prescription insurance to retirement savings and voluntary benefits, companies often have many choices to offer during each year. The end of the year is an opportune time to gather all required and nonrequired benefit plan data together to evaluate how all these benefits are bettering the lives of employees, if they are still cost-effective, and what new benefits can be added to improve total compensation. It’s best to sort out the required employee benefits first, and then work on nonrequired benefits.

Required Employee Benefits

Whether you operate a small business or a large multistate corporation, there are workplace laws in place to protect employee health and financial well-being. One of these laws says that employers must carry at least the minimumrequired employee benefits. These fall under several mandates including the Affordable Care Act (ACA), the Employee Retirement Income Security Act (ERISA), and more. It is important to distinguish between required benefits and those that are industry standards.

Disability Insurance

In several states, short-term and long-term disability insurance plans are required employee benefits paid for partly by the employer and employees. Additional plans are generally covered by employee payroll deduction. The Small Business Administration advises that the following states now require disability insurance to provide partial wage replacement to eligible employees if they have experienced nonwork-related accidents or sickness:

  • California
  • Hawaii 
  • New Jersey 
  • New York
  • Puerto Rico
  • Rhode Island

Family and Medical Leave

In all states, the Family Medical Leave Act (FMLA) allows employees up to 12 weeks of job-protected unpaid leave if they meet certain requirements. During the leave, all group employee benefits are continued. If the employee chooses not to return to work at the conclusion of the FMLA leave, he or she may still be eligible for coverage and continued health care benefits under COBRA statutes. The company must employ at least 50 people or be a public organization. Eligibility requirements include:

  • The employee must be required to care for the birth, foster care placement, or adoption of a child.
  • The employee must care for an immediate family member suffering from a serious illness or injury.
  • The employee must need care for his or her own serious health condition.
  • The employee must be caring for an injured or sick active military member.

In most cases, employees are required to notify their employer in advance before taking an approved FMLA leave, although emergencies can and do come up. Both men and women are eligible for the full FMLA leave.

Paid Time off and Other Leave Benefits

Outside of the FMLA leave, employers are actually not required by federal laws to provide paid or unpaid leave to employees. However, it is a standard practice of most employers to offer at least a few paid and unpaid leave day benefits for employees. Most of the time, paid time off is limited to holiday and vacation time, sick time, personal leave, funeral or bereavement leave, and jury duty leave.

Many companies offer employees the chance to earn paid time off based on how many hours they’ve worked over a certain period of time, and these hours accrue. Other companies may choose to offer a limited amount of time off per year, with subsequent days off being unpaid. A standard paid time off policy will include 5 vacation days, 3 sick days, and 1 personal day.

Social Security and Medicare Taxes

Although most employees don’t automatically think about Social Security and Medicare as benefits, but rather something they’ve earned, all employers are required to pay Social Security and Medicare taxes. U.S. employers must match the same rate that employees pay into the Social Security system, which varies by the age of each employee and how much employees earn.

Each employee completes certain tax forms at the start of employment, and this forms the basis for the W-2 form that must be filed by employers to report wages. In addition, employers must verify the identity and names of all employees using the (free) Social Security Number Verification System or the (paid) Consent Based SSN Verification Service. This prevents the use of the wrong identification by employers and ensures the correct employee is credited for their future benefits.

Unemployment Insurance

All companies must pay for unemployment insurance taxes for every employee, whether they are full-time or part-time. This makes sure that there are funds available to cover periods of unemployment if one or more become involuntarily separated from the company. Each company will be alerted to this by the state in which it operates and how much insurance the company may carry. Companies register with a state workforce agency and payments are managed there. If an employee is terminated and there is no just cause determined, then he or she may receive unemployment benefits for a brief period of time. Otherwise, employees do not directly benefit from this required insurance.

Nonrequired Benefits

All other employee benefits are considered to be nonrequired benefits, with the exception of the minimum required health benefits under the ACA. This only affects companies that have 50 or more full-time employees or the equivalent in part-time employees. Health insurance must provide basic preventative care, but may carry high out-of-pocket maximums.

Other nonrequired benefits include all other forms of supplemental insurance, retirement savings plans, life insurance, vision and dental care, wellness programs, salaries, corporate perks, professional development and training benefits, employee assistance programs, doctor and nurse care hotlines, telemedicine, and more. None of these benefits are required by law but are at the discretion of each employer. In most cases, nonrequired benefits help companies to become more competitive and often are dictated by region and industry norms.