5 Employee Benefits Required by Law

When businesses are birthed, it is typically the owner who gets things started.  Once a business experiences a measure of success, all of a sudden the employer is forced to figure out how to manage the small business and how the human resource aspect should be run.

This can be an exciting, yet painful, process to try and figure out all the legalities of hiring employees.  Specifically, what is required by law for an employer to provide to their employees and what are optional benefits that employers choose to provide.

The reasons most employers offer benefits is to make employees feel appreciated.  Benefits are also used as a recruitment and retention tool that are part of an overall compensation package.

When putting together a benefits package, employers need to know what the laws are that govern employee benefits and have an understanding so the laws are complied with.  Once the laws are understood, then comes the process of negotiating with vendors to find the most cost effective product.

There can be confusion between what benefits are required by law and what benefits are part of a company compensation package.  So what benefits are required by law?

Benefits Required by Law

1. Workers Compensation offers insurance benefits to employees who become ill or are injured at work.  This insurance is different in every state and is dictated at the state level.  In addition, some states require employers to purchase disability insurance. To find out what your requirements are, you can go to this page.
2. Unemployment Insurance provides compensation to employees who lose their job for no fault of their own. It is different in every state and is mandated at the state level.  The first step is to register the business with the state’s workforce agency and that is where you’ll learn what the state requirement is.
3. Social Security Taxes are required to be paid on employees.  The current rate for SS tax is 6.2%, which both the employee and the employer pays, plus an additional 1.45% for Medicare tax. You can learn more at the Social Security site.
4. Family and Medical Leave is a benefit that is sometimes confusing for employees.  What the Family and Medical Leave Act (FMLA) requires is for the employer to provide 12 weeks of unpaid time off to employees during a 12 month period of time.  The leave protects the employee from losing their job to care for themselves or an immediate family member, including the birth of a child, placement for adoption or foster care of a child.  The leave is unpaid unless the employer offers paid leave as part of an optional benefits package.
5. COBRA Benefits are required for employers with 20 or more employees who are subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).  COBRA allows the employee to maintain their insurance coverage at the employer’s group rates for a period of up to 18 months.  This coverage applies to former employees, former employee spouses, dependent children and retirees.

Benefits Not Required by Law

This is also confusing to employees.  Many employers offer many benefits as part of their compensation package that is intended to recruit and retain employees.  However, these common benefits are not required by law.

1. Retirement Plans
2. Life Insurance
3. Health Insurance
4. Dental Insurance
5. Paid Leave

It is important that employers know the difference between what is required by law and what benefits enhance an employee’s compensation package to help in recruitment and retention.

To learn more about what benefits are required by law you can go to the SBA website.

Article originally posted May 2010, updated November, 2015.