Besides the salary or pay, employees also enjoy benefits or perks offered by employers, such as fringe benefits, paid time off, medical or healthcare insurance, disability, life insurance, and retirement benefits. The benefits included in the total compensation make a big difference when choosing a company to apply, stay in the company for good, or work temporarily just to gain experience.
But what are the basic employee benefits you should know about? Read below and find out about the mandatory benefits that employers must provide to their employees.
What Are Mandated Basic Benefits?
Employee benefits can be mandated or offered voluntarily. Legally required or mandated benefits provide employees and their families with medical care and retirement income to assist during economic hardship due to disability and work loss. Also, these benefits cover liabilities due to occupational illnesses and injuries.
Legally required benefits vary from one state to another. State requirements may provide greater benefit or coverage to eligible employees. Paid vacation leave, disability insurance, education assistance, 401(k) retirement savings plans, child care assistance, and wellness programs are given at the employer’s discretion.
Here are the mandated basic benefits employers must provide to their employees:
- Social Security and Medicare Coverage
- Federal Insurance Contributions Act (FICA)
- Unemployment benefits
- Health insurance
- Workers’ compensation insurance
- Family and medical leave
Taxable or Non-taxable Employee Benefits
Employee benefits must be generally considered taxable unless the employer is aware of the exemptions. But, of course, if employees pay business-related expenses by using their money, setting up an accountable plan should be considered to reimburse them properly.
What’s an accountable plan? It’s a payment plan to legally avoid employees from paying taxes with their reimbursements from paying business expenses out of their pocket.
Basic Employee Benefits
1. Social Security and Medicare
Starting July 2, 1991, local and state government employees must receive Social Security and Medicare coverage unless the workers are covered by a Section 218 Agreement or become members of a public retirement system (public employee pension plan).
Section 218 Agreement is a mutual commitment to ensure that public employees become part of the Social Security program. With the legislative changes made in 1986 and 1991, local and state employers’ role has increased significantly, mandating Social Security coverage and Medicare to cover certain public employees under FICA.
FICA tax refers to federal payroll tax providing funds for social services, including Social Security and Medicare. Once an employee retires, the payments made towards Social Security via FICA can be collected and used as retirement money, allowing the employee to enjoy and live life in some degree of comfort.
Regardless of income, the majority of employees pay the same rate of FICA taxes. FICA taxes are withheld from the employees’ paycheck (regressive taxes) in the same way income taxes are withheld; there are no income exemptions or deductions that apply to them.
Here are good-to-know facts about FICA:
- Employees pay Medicare taxes of 1.45% and Social Security taxes at 6.2%. Employers also pay the same amount, which makes a total FICA contribution of 2.9% for Medicare and 12.4% for Social Security.
- Social Security taxes are assessed against the first US$127,000 employees earn each year. Medicare taxes have no income limit requirement.
- Employees who are also exempt from paying FICA taxes include full-time students working on campus and religious groups, as well as employees of foreign governments and employees who live in states that provide alternative retirement plans.
2. Unemployment Benefits
The Federal Unemployment Tax Act (FUTA) mandates employers on paying unemployment tax on employee wages. Employers are mandated to pay unemployment taxes where unemployment benefits are sourced. Hence, unemployment taxes are considered hidden costs when starting a business. The average unemployment tax is 0.6%.
Unemployment insurance or unemployment benefits refers to state-provided insurance provided to people who lose their job. It covers workers who qualify for unemployment benefits. Previous workers who were fired, self-employed, and quit their jobs won’t receive unemployment benefits.
Here are important things you need to know about unemployment benefits:
- Employees who meet specific eligibility requirements receive a maximum of 26 weeks of cash benefits annually.
- On average, the weekly cash stipend replaces half of the regular wage of an employee.
- The majority of employers or companies pay both state and federal unemployment taxes.
- Three states in the US require minimal employee state unemployment fund contributions, such as freelance work.
3. Health Insurance
Medical insurance is a basic benefit for full-time employees. However, it doesn’t usually include dental and vision benefits. Big companies or corporations usually offer a great menu of health insurance options, such as Health Maintenance Organizations (HMOs).
With HMOs, workers must use designated medical providers. Both employers and employees contribute to medical insurance. Employers providing HMOs are appealing to job applicants because it reflects how the company takes care of employees.
4. Worker’s Compensation Insurance
Nearly all employers are required to have worker’s compensation insurance. Worker’s compensation benefits cover payments for hospitalization and other medical costs that result from workplace injuries and occupational illnesses. It also covers partial replacement of lost wages or indemnity.
Take note that employers pay premiums. When a worker’s compensation claim is filed, the insurance company determines the benefits owed and pays the injured worker. After confirming the claim’s requirements and validity, the injured employee receives the workers’ compensation benefits.
5. Family and Medical leave
Employees are eligible to receive family and medical leave if they’ve already completed one year of work or a minimum of 1,250 hours for the last 52 weeks. Family and medical leave can be either used intermittently or in a straight period.
In the Federal Family Medical Leave Act, employees are allowed 12 weeks of unpaid leave for the following reasons:
- Birth or child adoption
- Care of a child, parent, or spouse
- Serious health condition
The basic employee benefits that employers are required to provide to workers include Social Security and Medicare coverage, health insurance, family and medical leave, unemployment benefits, and worker’s compensation benefits.
By providing the above-mentioned basic employee benefits, employers show full compliance with the law. Also, employees work more motivated and productive as they know that they have benefits to count on when things go wrong.
To establish loyalty and retain top talent, offering basic employee benefits with fringe benefits makes up an appealing total compensation package.