When most people hear "employee benefits," they think health insurance, 401(k) plans, and maybe dental coverage. But those are voluntary. There's a separate category of benefits that you must provide by law - and the list is longer than many business owners realize.
Here's a clear breakdown of what's required at the federal level, what varies by state, and how to make sure you're in compliance.
Social Security and Medicare (FICA): Every employer must withhold 6.2% for Social Security and 1.45% for Medicare from employee wages, and match those amounts dollar for dollar. There is no opt-out, no exception, and no minimum employee count. If you have one W-2 employee, you owe FICA.
Federal Unemployment Tax (FUTA): Employers pay 6.0% on the first $7,000 of each employee's wages per year. With the standard state credit, this typically reduces to 0.6%. FUTA funds the federal share of unemployment benefits.
Workers' Compensation Insurance: While technically regulated at the state level, nearly every state requires employers to carry workers' comp. It covers medical expenses and lost wages for employees who are injured or become ill as a result of their job. The cost varies by industry, state, and claims history.
Family and Medical Leave (FMLA): If you have 50 or more employees within a 75-mile radius, you must provide up to 12 weeks of unpaid, job-protected leave per year for qualifying family and medical reasons. You don't have to pay the employee during FMLA leave, but you must maintain their health insurance and hold their position.
COBRA Continuation Coverage: Employers with 20 or more employees must offer departing employees the option to continue their group health insurance for up to 18 months (or 36 months in certain situations). The employee pays the full premium plus a 2% administrative fee.
Paid Sick Leave: There is no federal paid sick leave law, but a growing number of states and cities now mandate it. As of 2024, states including California, New York, Colorado, Washington, and many others require employers to provide paid sick leave - often accruing at one hour per 30-40 hours worked. Check your state's specific requirements.
State Unemployment Insurance (SUTA): Every state has its own unemployment insurance program with different tax rates, wage bases, and employer obligations. You're required to participate.
Disability Insurance: A handful of states - including California, New York, New Jersey, Hawaii, and Rhode Island - require employers to provide short-term disability insurance. This covers a portion of wages when an employee can't work due to a non-work-related injury or illness.
Paid Family Leave: Several states now mandate paid family leave programs, including California, New York, New Jersey, Washington, Massachusetts, Connecticut, Oregon, and Colorado. These programs are typically funded through employee payroll deductions and/or employer contributions.
Health insurance (for employers under 50 FTEs), dental and vision insurance, life insurance, 401(k) or other retirement plans, PTO beyond state-mandated sick leave, flexible spending accounts (FSAs) and health savings accounts (HSAs), tuition reimbursement, and commuter benefits are all voluntary benefits.
They're not legally required, but they're powerful tools for attracting and retaining talent, especially in competitive labor markets.
The biggest challenge for small businesses is that requirements change depending on your headcount, your state, and sometimes even your city. What was optional at 14 employees might become mandatory at 15.
Here's what we recommend: review your benefit obligations annually, track your employee count closely (especially as you approach thresholds like 15, 20, and 50), check your state's labor department website for updates to paid leave and insurance mandates, and work with an HR partner or benefits advisor who can flag changes before they become compliance issues.
Not Sure What You Owe?
If you're not confident about which benefits are required for your specific situation, let's talk. A quick review can save you from penalties and help you build a benefits package that protects your business and supports your team.
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