7 Surprising Misconceptions About Small Business Employee Benefits
1. Small businesses do not usually offer their employees benefits.
The largest group insurance carriers in Canada: Sunlife Financial, Great-West Life and Manulife Financial make up about 75%+ of the employee benefits market and all offer customizable, small business benefits solutions. Basic packages begin at as few as 2 employees with select insurers, and do not require employees to disclose evidence of good health. An estimate of 750+ small business employee benefit plans are being implemented every quarter in British Columbia alone and that number is growing every year. Small business owners are beginning to recognize that the cost of employee turn-over and loss of productivity as a result – far outweighs the cost of a comprehensive benefits plan.
2. Employee benefits for small businesses are too expensive.
The initial premium for a benefits plan depends the following factors: selected benefits, coverage percentage, number of employees enrolling, family to single ratio of those employees, and their respective age. It is safe to say that for most full-time employees, benefit plan cost starts at an average of 5% of payroll. That equates to an approximate $1.1/hour raise in pay for an employee with dependents, and about a $0.70/hour raise in pay for a Single employee. Many employers also choose to have some type of cost sharing where employees pay for a part of the plan. This allows employers to provide a very comprehensive plan, competitive in their industry and within budget.
3. Small businesses do not benefit from a health and dental package like larger organizations do.
The perception employees have is sometimes the driving factor in the decision whether or not to join an organization. When an employee has a choice between a larger organization and a smaller one, the benefits offered maybe THE determining factor. It is not that much more expensive for an employer to offer the most competitive plan in the market place but it could make the difference between winning over that potential key employee. If a smaller organization offers a much more generous health benefits package than a larger organization, an employee may be convinced that this generosity would transfer into opportunities, bonuses or other benefits.
4. Small business benefits are too limited in coverage.
Starting at 2 employees, small businesses have almost the same access to benefits as larger organizations. They may choose higher limits and even 100% coverage for almost all benefits. That is not to say, there are no limitations at all. Here are the few limitations small businesses have:
At 2 employees, companies may only have Basic Dental coverage (cleanings, fillings, root canals, etc) Major Dental and Orthodontics is not usually available to this size.
a. Major Dental is usually available when an organization reaches 3 employees.
b. Orthodontics is usually available to employee groups of 10+ employees.
These guidelines however, are not black and white. In fact, very rarely are underwriting or insurer guidelines black and white. Experienced benefits advisors/brokers/consultants are often able to get exceptions and convince the insurer to overlook or approve plan set-up outside of the basic guidelines – given the right reasons, of course.
5. A small business benefits plan is more of a liability than a benefit to a small employer.
If a plan is implemented through a financial advisor or a broker who does not specialize in benefits almost exclusively, this assumption may prove true. It is very important that a benefits plan aligns with the insurer and CRA guidelines. There is however, very little training or education on how to implement and maintain a compliant benefits plan. As a result, the percentage of advisors who are licensed to sell employee benefit plans, and also have the knowledge to ensure their clients are protected is alarmingly low.
How do you know if your plan is implemented and maintained compliantly? Here are some questions you may wish to ask yourself if you already have a plan in place or if you are implementing one.
Did my benefits advisor……..
– give me any advice or guidelines on optimum plan taxability set-up and payroll deductions for specific benefits like Life, AD&D, Critical Illness and most importantly Disability?
– recommend that I implement certain clauses in my employee contracts to protect my business from liability should I wish to change/discontinue the benefits at any time in the future? (It is always advisable to consult legal counsel prior to making any contract changes.)
– talk about the importance of timely and non-discriminatory enrollment of all eligible employees?
It is especially important that advisors have a check-list at the annual benefits review and ensure their clients’ plans are being administered correctly – especially their small business clients. Our small business owners and managers have too much on their mind to remember what was discussed at plan implementation several years ago and for that reason, a 30 minute annual review on plan administration is a necessity. Most employee benefits specialists and benefits consultants do a great job in educating their clients on proper plan set-up and administration.
Plan administration shouldn’t take more than 5-10 minutes every month – and that is if you are consistently hiring and terminating employees. on Twitter for upcoming article on compliant plan administration.
6. Many small businesses are ineligible for benefits based on years in business, industry or other factors.
There is a solution for pretty much any business out there. Underwriting guidelines change almost daily. What used to be a great risk for insurers ten or five years ago, has changed. Of course, there are still higher risk industries but even for those, there are solutions. The solutions may not be as flexible but they are available and quite comprehensive.
7. Small businesses can only offer benefits to full-time, permanent employees.
It is up to the employer to set-up the eligibility for the plan. If an employer wants to offer part-time employees benefits, he/she may do so as long as those employees are consistently working 20 hours or more per week. Whether or not that makes financial sense for a business – is another question.
Benefits are also now being offered to ”independent contractors”. If you wish to offer your independent contractor benefits, it is strongly advisable that you consult a tax lawyer prior to doing so. Generally, offering benefits to independent contractors does not change their status to employees. There are many factors which contribute to that equation, but as an employer, you need to make sure you are safe and avoid what could be a very costly conflict with CRA.