Employees have caught on to this reality too. They increasingly weigh health coverage, retirement plans, and flexibility as part of their total compensation, not just the number on their paycheck. A well-built benefits package doesn't just help you win candidates. It keeps the ones you already have.
This guide breaks down what's legally required, what's optional but valuable, what it actually costs, and how to build a package that fits a small business budget, including where a local advisor like Franklin Benefits Group fits into that process.
Key Takeaways
- Federal law rarely mandates small-business health insurance, but payroll taxes, workers' comp, and continuation coverage still apply
- Legally required benefits alone cost private employers an average of $3.38 per hour worked
- Employees value health insurance, retirement, and PTO most; low-cost extras like EAPs and flex schedules still pack strong impact
- Funding models like level-funded and self-funded plans can lower costs for healthier, more stable workforces
- Local brokers reduce the administrative burden of choosing, launching, and maintaining a benefits program
What Benefits Are Small Businesses Legally Required to Offer?
Here's the misconception that trips up a lot of new employers: health insurance isn't federally mandated for most small businesses. The Affordable Care Act's employer mandate only applies to Applicable Large Employers, meaning businesses that averaged at least 50 full-time employees (including full-time-equivalent workers) in the prior calendar year.
If you're below that threshold, offering health coverage is a choice, not a legal obligation.
That said, a handful of benefits apply regardless of your headcount:
- Social Security and Medicare taxes (FICA) — employers pay 6.2% for Social Security and 1.45% for Medicare on covered wages
- Workers' compensation insurance — mandatory in Pennsylvania for nearly every employer with one or more employees, including part-time and family staff
- State unemployment insurance — Pennsylvania assigns each employer a contribution rate based on claims history and industry
Size-Dependent Rules Worth Watching
A few obligations kick in as your headcount grows:
- Federal COBRA — applies at 20 or more employees; requires continuation coverage offers to qualified beneficiaries (full premium plus 2%)
- Pennsylvania mini-COBRA — covers insured group plans for employers with 2–19 employees, with continuation coverage up to nine months
These mandates carry real cost. According to the Bureau of Labor Statistics, private-industry employers spent an average of $3.38 per hour worked, or 7.2% of total compensation, on legally required benefits as of early 2026. That figure covers FICA, unemployment insurance, and workers' comp combined—before you add a single optional benefit.
Even though health insurance isn't required for most small employers, it remains one of the most effective tools for competing with larger companies for talent. Skipping it isn't illegal, but it can be expensive in another way: lost candidates.
What Benefits Can Small Businesses Offer to Attract and Retain Employees?
Once you've covered the legal basics, the real strategy work begins. This is where you decide what makes your company a place people want to stay.
Health and Wellness Benefits
Group health insurance, dental, and vision remain the benefits candidates ask about first. In SHRM's 2025 employer survey, 88% of employers rated health-related benefits as very or extremely important, and nearly all offered some combination of medical, dental, and vision coverage. Dental matters more than most owners assume: 74% of workers told LIMRA they consider it extremely or very important.
Tax-advantaged accounts stretch your benefits dollar further:
- HSAs: owned by the employee; employers, employees, or family members can all contribute, and funds roll over year to year
- FSAs: funded through employee salary reduction, with optional employer contributions on top
- HRAs: funded solely by the employer, with no IRS dollar cap on contributions, and unused funds return to the business
Mental health support has become a fast-growing category. In SHRM's 2025 research, 31% of workers said they feel stressed by their job often or always, and 30% said they'd take a pay cut for better workplace mental health support. Employee Assistance Programs address that concern directly, often at a modest per-employee monthly cost.
Financial Security Benefits
Retirement plans, whether a 401(k), SIMPLE IRA, or SEP-IRA, remain one of the top differentiators for small employers. Federal tax credits make starting one more affordable than many owners expect:
- Up to $5,000 per year for three years (100% of qualified startup costs for employers with 1–50 employees)
- Up to $1,000 per employee for employer contributions over five years
Life insurance and short- or long-term disability coverage round out the financial security picture. Both tend to be low-cost relative to how much employees value them, particularly disability coverage, which protects income if an illness or injury sidelines someone for months.
Financial wellness resources such as student loan assistance, budgeting education, and credit counseling are gaining traction as a differentiator for younger employees carrying education debt.
Work-Life and Emerging Benefits
Paid time off and flexible or hybrid schedules consistently rank among the highest-impact, lowest-cost benefits a small business can offer. Paid volunteer days add a similar effect at minimal expense.
Caregiving support deserves more attention than it typically gets. In 2025, 63 million U.S. adults, roughly one in four, provided ongoing care for a family member, and about seven in ten working-age caregivers held paid jobs at the same time.
Half of working caregivers reported arriving late, leaving early, or taking time off because of caregiving duties. Left unaddressed, that strain shows up as absenteeism and eventually turnover.
Voluntary and fringe benefits such as gym stipends, gift cards, and employee discounts add perceived value without straining the budget, and they're easy to layer on top of a core package.
How Much Do Employee Benefits Cost a Small Business?
Costs vary enormously by category and by company size. Bureau of Labor Statistics (BLS) data breaks average hourly benefit costs down by establishment size:
| Benefit Category | All Private Industry | 1-49 Workers | 50-99 Workers |
|---|---|---|---|
| Total benefits | $14.01/hr | $9.68/hr | $11.04/hr |
| Insurance | $3.62/hr | $2.31/hr | $2.89/hr |
| Retirement & savings | $1.57/hr | $0.87/hr | $1.11/hr |
| Paid leave | $3.54/hr | $2.34/hr | $2.65/hr |
| Legally required | $3.38/hr | $2.95/hr | $3.06/hr |
Smaller employers pay noticeably less per hour on insurance and retirement, largely because participation and contribution levels are typically lower at smaller firms.
Not every valuable benefit carries a heavy price tag. FSAs, voluntary dental and vision plans, and EAPs often cost little beyond basic administration fees, since employees fund much of the cost themselves or the per-employee premium is small.
Two tax credits can also put health and retirement benefits within reach:
- Small Business Health Care Tax Credit: Up to 50% of premiums for employers with fewer than 25 FTEs who buy through SHOP and pay at least half of employee premiums.
- Retirement plan startup credits: Offset most or all of the cost of launching a 401(k) or SIMPLE IRA for the first three years.
How to Build a Benefits Package That Fits Your Budget
Building a package that fits your business starts before you request a single quote.
- Run a needs assessment. Survey your employees or benchmark against local competitors to find out what they actually want, not what you assume they want.
- Prioritize the core three. Health insurance, retirement, and PTO typically deliver the most retention value per dollar spent. Layer in differentiators like caregiving support or financial wellness only after the core is solid.
- Explore funding models beyond fully insured plans. Fully insured coverage is predictable, but not always cheapest. In 2025, 37% of covered workers at firms with 10-199 employees were in level-funded plans, which pair self-funding with stop-loss to cap risk. Self-funding (27% at similar firms) suits employers with stable claims and solid cash reserves.
- Audit the package every year. Carrier options, employee needs, and compliance rules all shift. Review plan fit, cost trends, and whether your carrier still competes in the broader market—not only whether the premium moved.
- Communicate the value clearly. Employees who don't understand what they're getting won't appreciate it. Total compensation statements, which itemize health coverage, retirement contributions, and other benefits alongside base pay, help close that gap.
You don't have to run this process alone. Many small businesses lean on a local benefits advisor for the needs assessment and funding-model decisions—someone who already knows the carrier landscape.
Why Small Businesses in Bucks and Montgomery County Work with a Local Benefits Broker
Shopping for benefit quotes on your own usually means calling a handful of carriers and comparing spreadsheets with little context. A local broker adds market analysis across dozens of carriers at once, renewal negotiation leverage, and compliance support that catches problems before they become penalties.
Franklin Benefits Group has worked this model since 2003, serving small and mid-size employers throughout Bucks and Montgomery Counties, Pennsylvania. The firm holds relationships with dozens of carriers and reports a client retention rate above 97%, with many client relationships spanning more than a decade.
That partnership can take real work off a small HR team:
- Broker of Record support: A Broker of Record letter lets you switch to Franklin Benefits Group without waiting for renewal or disrupting coverage, so market analysis can start right away.
- HR Support Center tools: Compliance apps such as an FMLA advisor and multi-state labor law comparisons, plus a Total Compensation Statement Builder that shows employees the full value of their pay package.
- Learning Management System: Ongoing employee education on how to use benefits—not just a packet at open enrollment.
If you're weighing outside help, start with a free consultation. It begins with a needs analysis of your current plans, workforce profile, and compliance standing—before any carrier shopping.
Frequently Asked Questions
What benefits do small businesses offer?
Most small businesses offer a mix of health insurance, dental and vision coverage, paid time off, and some form of retirement savings plan. Many supplement this core group with lower-cost perks like flexible schedules or employee assistance programs (EAPs).
Are small businesses required to offer health insurance to employees?
No. Only Applicable Large Employers, generally those with 50 or more full-time-equivalent employees, must offer ACA-compliant coverage. Smaller businesses can offer it voluntarily, and many do to stay competitive.
How much do employee benefits typically cost a small business?
Bureau of Labor Statistics (BLS) data shows employers with fewer than 50 workers spend around $9.68 per hour worked on total benefits, compared to $14.01 across all private industry. Costs vary widely by benefit type, and many carry shared costs with employees.
What is the difference between working with a broker versus a PEO for benefits?
A broker like Franklin Benefits Group focuses on strategic plan selection, carrier negotiation, and year-round advocacy without becoming your employees' co-employer. A PEO bundles payroll and HR administration but requires a co-employment arrangement.
Can a small business afford to offer a 401(k) plan?
Yes. SIMPLE IRA and 401(k) options exist at various cost levels. Employers with 1–50 employees can claim federal tax credits covering up to 100% of startup costs, plus extra credits for employer contributions.
What are some low-cost or creative benefits small businesses can add?
Paid volunteer days, flexible or hybrid schedules, wellness stipends, and caregiving support resources all add meaningful value without a major budget commitment.
