Generally, smaller firms offer fewer fringe benefits than larger firms, and really small firms often don’t offer any fringe benefits at all. But if you are competing to attract and retain talented labor for your firm, you need to give fringe benefits some thought.

In fact, I would strongly recommend you give it a lot of thought. Generous benefits can become a powerful weapon in attracting and retaining the best employees. (And don’t forget worker’s compensation insurance is not a fringe benefit; it is required by law.)

Of course, if you are running a hamburger stand in a small rural town staffed mostly by part-time workers, you will probably want to put together a very different benefits program than if you are running a high-end computer engineering firm in San Francisco. So think through what is appropriate for your situation.

I suggest at a bare minimum you consider offering a few basic benefits to your workers.

Bare Minimum Recommendation

  • Health insurance
  • Paid sick leave
  • Paid holidays
  • Paid vacation time

Of these benefits, health care is by far the most expensive. Most employees today expect to pay some contribution to their health care insurance cost, and up to a 50 percent contribution is not uncommon. I have found that employees would rather pay a 50 percent contribution toward a great health insurance plan than have the employer pay 100 percent of a weak plan, especially if the weak plan has high out-of-pocket costs. For all other benefits, I tend to pay 100 percent of the cost or not offer the benefit at all.

More Comprehensive Recommendation

I suggest you consider a more comprehensive benefit program, such as the one below. Although the total cost can add up, the additional costs of these benefits on top of the base salary, payroll taxes, and health insurance aren’t that great. And the benefit of having a talented and happy workforce is easy to underestimate. A good-size list is a good “talking point” when recruiting new employees. However, if you just have a few employees, it might be too difficult to maintain a long list of benefits, and you may just try to offer a couple of benefits that matter most to the people who work for you.

  • Health insurance
  • Paid holidays
  • “Personal time” in place of paid vacation time, paid sick time, bereavement time, etc.
  • Prescription drug coverage
  • Dental insurance
  • Life insurance
  • Short-term disability
  • Long-term disability
  • 401k-style fixed contribution retirement plan
  • Subsidy of health club membership
  • Tuition reimbursement
  • Employee discounts on company products

Even More Benefits

Other benefits I might think about offering include:

  • Vision care coverage
  • Child care subsidy
  • Legal assistance
  • Employee assistance referral service
  • Transportation reimbursement
  • Use of air miles
  • Discounted offers to nearby attractions
  • Free coffee or other beverages
  • Cell phone service

Many larger employers offer a “cafeteria” plan where employees can choose among benefits. This is probably more complexity than you want to deal with, so I would avoid that but offer a plan that is attractive for the target labor pool that is most important to you.

Fringe benefits are generally tax free to the employee and deductible to the employer, but with changing tax laws and with a few exceptions you may want to check with your tax accountant before getting too carried away. Also, the benefits generally have to be offered to all employees, not just concentrated on the most highly compensated ones. 

Takeaways You Can Use

  • The cost of benefits is outweighed by the benefits of a happy and talented workforce.
  • Offer a plan attractive to your primary labor pool.