This August, unemployment fell to 3.5% - the lowest rate we’ve had in 50 years and is considered too low for a healthy economy. Low unemployment means workers have more options for work, leading to higher employee turnover, which, in turn, causes recruiters to hire underqualified workers. A Bloomberg study found that of trained staff, only 35% trained sufficiently, forcing top employees to fill the productivity gap by putting in more hours, leading to burnout and ennui.
Small businesses have begun utilizing the most sought-after employee benefit: health care to attract highly skilled and motivated hires while keeping current staff productive and vivacious.
Although businesses with less than 50 employees aren’t legally obligated to provide health insurance, doing so creates advantages that pay for insurance costs often over. This article will examine the why, when, and how (much) of small business insurance, including various strategies and tax breaks you can utilize for the best possible outcome.
Benefits of offering health insurance to employees
Attracts better employees
The best way to get high-quality employees who stick around and dedicate themselves to your company is to provide better health insurance than your competitors. Studies have shown that employees are more likely to consider lower-paying jobs strongly when those positions have better health insurance than contenders.
Retains top-performing employees
56% of employees planning to leave their jobs reported that the most significant consideration was poor health insurance policies. In contrast, companies with more competitive healthcare plans were more likely to retain their staff. And with more predictions of a looming 2022 recession, employees are unlikely to dismiss the value of employer-sponsored health care.
It increases productivity
People want to work for companies that provide more than only the minimum required benefits and will reciprocate that effort. According to Harvard Business Review, employees who receive additional bonuses or pay raises tend to work harder than is necessary once accepted. Insurance is no exception to employee sentiments: according to the Society for Human Resource Management (SHRM), 92% of employees listed healthcare benefits as necessary to overall job satisfaction.
Ensures the wellness of employees
The CDC contends that employees with workplace health programs are more productive because they are more likely to visit healthcare providers. Thus, employees can prevent debilitating ailments that would keep them home if left untreated. Additionally, contagions are likely to be stopped before infections cause office-wide shutdowns. When employees are less frequently on sick leave, the number of employees needed to run a company decreases, freeing up capital to invest elsewhere.
The IRS offers up to 50% rebates to businesses that provide employer-paid health insurance premiums for small businesses. Companies can even claim the credit on previous or future tax returns if they didn't claim the benefit during that fiscal year.
When should your business provide health insurance?
The best time is now. Consider a staff investment: how much productivity is lost because you don't have the best staff possible? Would the returns of a more efficient, productive, and timely team stimulate growth and capital for your business? Employee replacement costs can reach 20% for entry-level employees to 200% for executives of the person they’re replacing, so incentivizing high-level employees to stay becomes more affordable than dealing with constant turnover and retraining costs.
When you are looking to attract new hires, keep in mind that an increasing portion of the workforce now expects health benefits not as an optional bonus but as a requirement. Companies lacking certain benefits will lose more and more potential solid candidates and even 40% of existing staff as more people come to expect health insurance as a provision for working full time.
You can also use insurance provisions to your advantage; as soon as your provider gives the green light, inform existing employees and potential hires. People have various needs, so you'll want to apprise them of the different coverage plans you'll be offering, what percentage of premiums the company will cover, and if dependents are eligible for coverage. This heads-up will help your company determine which (if any) of these policies will work for their families. The sooner you can get your company excited about how excellent these benefits will be, the less likely you’ll be to lose staff and the more likely your favorite candidates will be to accept job offers.
How much does health insurance usually cost?
Inflation, pandemics, global conflict, and more stringent drug regulations are some of the many factors, both fixed and unfixed, that contribute to largely unpredictable insurance price hikes each year. Discussing price changes with financial advisors and your insurance representative will help you remain aware of how to adjust your budget for increased premiums.
Here are the most common static factors that will determine how much you and your employees will be paying for health care:
Broker commissions can change depending on if you choose to work with a broker or a third party, such as a PEO (professional employment organization), a type of outsourced employee management company. The latter choice would provide cheaper employer-sponsored premiums and more comprehensive coverage. However, going directly through a brokerage would mean less upfront money and more control over which insurance plans you can access.
Benefits: You'll need to decide which benefits to offer to each employee based on their individual and familial needs (you can provide different benefits to employees, so long as those employees fall into the IRS’ predetermined classifications). Your insurance company can help walk you through deciding coverage plans in a manner that abides by insurance regulations and avoids discriminatory practices.
Dependents: Like benefits, deciding which employees you'll offer dependent and spousal coverage can be complex. According to the Affordable Care Act, companies with 50 or more employees must provide insurance that covers their full-time staff and dependents. In contrast, the government doesn't require companies with fewer than 50 full-time employees to offer insurance and aren't required to cover dependents if they do. Suppose your company falls into the latter category. In that case, you'll have more flexibility in choosing to cover dependents for different employees but less flexibility in choosing which employees can receive certain benefits.
Opportunity cost: Setting up a medical insurance plan is incredibly complex, involved, and time-consuming, so blocking time in your schedule and outsourcing some of the initial work will free up time for other critical tasks. One of the reasons many businesses opt to work with third-party employee management companies is to take advantage of existing infrastructure and offload a large portion of the planning, research, and time involved in this process.
Working capital for employee health insurance
The dividends of increased productivity and greater workplace satisfaction are just around the corner but investing in employee health insurance (like any worthwhile investment) requires funding before realizing the many returns. That’s where One Park Financial comes in! Fill out our three-minute form to find out if you pre-qualify for a working capital loan that will help you cover the costs of this investment. On the form, you’ll only need to show that your business made $7,500 in the last three months, and one of our funding experts will reach out to you and begin providing the best funding to achieve your business goals. Don’t wait to add value to your business and the lives of your employees; send in a form today!
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.