Everything you need to know about employee benefits

Last updated: April 23, 2024
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Yiming Shuang
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Everything you need to know about employee benefits
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When you get a job, you often get much more than a paycheck.

But navigating employee benefits can be confusing. Some are mandatory, while others aren’t. And then again, it depends on how many hours you work and how many employees work at the company.

However, it’s important to grasp employee benefits so that you know the value of what your employer is offering you.

Let’s explore everything you need to know about employee benefits. You’ll also learn which ones are mandatory and which ones are discretionary.

What are employee benefits?

Employee benefits are additional compensation on top of your regular wage. They can come in a variety of forms and provide different types of value, from monetary to social.

Some employee benefits are legally required by law, while others are discretionary. This means that benefits vary greatly between companies.

Some companies offer employee benefits packages and wellness programs to full-time employees only. Others decide to provide them to part-time employees who work a set number of hours per week or per month. Other benefits are only eligible for employees who remain at the company for a set amount of time.

5 mandatory benefits required by law

These five benefits are required by law. Companies must provide these benefits to full-time employees. Some are required by all companies, while others are only required for certain company sizes.

Let’s dive into each of these five benefits to understand how they work.

1. Social Security

Social Security provides retirement income to qualified retired workers. You’ll make contributions from every paycheck.

Here’s how social security works. Your contributions go toward paying benefits for people who are currently eligible. Some examples are:

  • Retired workers 62 and older

  • Adults who are unable to work due to a disability

  • Family members of deceased workers

In this way, Social Security is different from a retirement account. When you contribute to a retirement account, the money you contribute will go straight back to you when you retire. On the other hand, when you retire, your Social Security benefits will be paid by the contributions from workers who work at that moment.

You can also get disability insurance or benefits if you can no longer work because of a physical or mental disability.

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Companies are obligated by law not only to withhold a Social Security tax from your paycheck but also to pay their own tax for each employee. The employer and employee each pay a tax of 6.2%. You need to pay both taxes if you're self-employed, which adds up to 12.4%.

2. Worker’s compensation

Worker’s compensation is a fund used to compensate employees in case of injury on the job.

There are four major disability compensation programs. The first is a wage replacement benefit. This means that if you get injured on the job, you’ll get a portion of your wage replaced by this benefit.

Medical treatment is another compensation program that’s available from worker’s compensation. This means that you may be entitled to get reimbursement for medical treatment in case of work injuries.

If you need vocational rehabilitation after an injury, this benefit also covers the funds for that. The fourth compensation program is for other benefits.

3. Unemployment

The unemployment tax is exactly what it sounds like — it provides a security net in case of job loss. If you lose your job through no fault of your own, you may be eligible for unemployment benefits. What you get will be based on a percentage of what you’ve earned over the past 52-week period.

Your eligibility, as well as the specific percentage and maximum amount you’ll receive, depends on each state. For example, if you live and work in Minnesota, you’ll receive a weekly amount equal to 50% of your average weekly wage up to a maximum of $820 weekly.

So, if you made an average of $500 per week in the last year while working in Minnesota, you would receive $250 each week while on unemployment.

Keep in mind that unemployment benefits don’t last forever. Most states pay benefits for 26 weeks, but check out this page for a breakdown of how it works for each state.

You may also earn some money while receiving unemployment benefits, as long as it’s not full-time work. You’ll still have to inform the state that you’re earning something on the side.

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4. Family Medical Leave Act

The Family Medical Leave Act (FMLA) requires employers to provide unpaid leave for medical leave to their employees. However, this is only required for employers who have 50 or more full-time employees.

To be eligible for the FMLA, an employee needs to have worked at least 1,250 hours in the past 12 months.

In short, you get 12 workweeks of unpaid leave if:

  • You need to care for a newborn child or have given birth to a newborn child

  • You adopt a child

  • Your spouse, child, or parent has a serious health condition, and you need to care for them

  • You have a serious health condition that makes you unable to perform your job

Some companies may provide you with paid leave, but that’s at their discretion.

5. Access to health insurance

According to the Affordable Care Act (ACA), companies with 50 or more employees need to provide health insurance for at least 95% of their full-time employees.

They’re not required to pay the entire premium for their employees. However, they are required to provide affordable options.

Keep in mind that your employer won’t be required to provide you with an affordable plan for health insurance if you only work part-time hours. If you’re a contractor, you also won’t be eligible for the health insurance plan.

When you get a premium tax credit by purchasing a health plan, it’s also against the law for your employer to fire or retaliate against you. Your employer also cannot fire or retaliate against you if you report violations of the ACA.

9 types of discretionary employee benefits your employer can provide

There are plenty of other types of benefits packages your employer can offer as an incentive to attract the best talent.

We’ve grouped the most common types of benefits into nine groups. Let’s explore all of these benefits and what they mean for you as an employee.

1. Pay and bonus compensation

On top of your usual paycheck, your employer can decide to pay you additional compensation. Those compensations don’t always come in the same form.

Some companies offer sign-on bonuses to attract top talent for in-demand positions. A sign-on bonus is a one-time bonus that you get as an incentive to sign on for a new job for a new employer or a new position within your current organization.

Annual bonuses are also common. Some businesses provide a yearly bonus to their employees based on a set percentage of their salary. So, if you make $30,000 a year and get a 2% bonus, you’d get a $600 bonus check.

Other companies prefer to give bonuses based on the company’s profits that year. Higher profits mean the employees get bigger bonuses.

However, performance bonuses are even more common. With performance bonuses, employees get a bonus based on how well they performed their duties.

For example, a salesperson may get a bonus for exceeding their sales targets. Or, a diamond driller may get a lump sum bonus based on the number of meters they’ve drilled during the last pay period.

Many companies will also pay you a bonus amount for hours you’ve worked overtime.

Finally, companies may also offer you incentive stock options. Instead of giving you a cash bonus, they provide you with an opportunity to invest in company stock at a reduced price. Some organizations even match your contribution. So, for every dollar you invest in stocks, they may give you 50 cents in stocks.

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Compensation doesn’t have to be monetary, though. Getting paid time off is just as valuable, if not more, than some extra cash on your paycheck.

Many companies offer a set number of paid days off per year that you can take as vacations. Others offer paid holidays like Easter or Independence Day.

2. Medical, dental, vision, and wellness

Health insurance is an important employee benefit that an employer can provide. While companies with more than 50 full-time employees are required by law to provide access to insurance, some companies choose to provide more than the bare minimum.

For example, some organizations pay the entire premium for the insurance without taking a contribution from your paycheck. Others will match the contribution.

Some companies will even offer complete coverage, including:

  • Full medical coverage

  • Vision

  • Dental

  • Life insurance

But health insurance isn’t the only health and wellness employee benefit a company can offer you. For example, they can match your contributions to a Health Savings Account (HSA).

This type of pre-tax benefit account can be used to pay medical, dental, and vision expenses that aren’t covered by your insurance plan when you have a high-deductible health plan (HDHP).

Another type of healthcare account they can set up and match contributions for is a Flexible Spending Account (FSA). This type of account can only be set up by an employer. Unlike an HSA, you’ll lose the account when you change employers.

3. Retirement and pension plans

In addition to the mandatory Social Security contributions your employer must make, they can also help you prepare for your retirement with additional benefits.

For instance, they can provide 401(k) plans, including 401(k) matching. Some companies will match 50% of what you contribute, while others won’t make matching contributions. Some may contribute 100%.

A 401(k) is an example of a defined contribution plan. But there are other types of employer-sponsored retirement plans that exist. If you work a certain number of years for a company, they can provide you with an additional pension when you retire.

For example, a defined benefit plan promises you a specific dollar amount per month once you retire.

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4. Location flexibility

Having the flexibility to work from any location is a huge benefit that employers are starting to offer more and more often.

Some companies will require you to live in the same city where you work so that you can come to the office once in a while. But, they’ll give many employees the flexibility to work from home, a cafe, or while you’re on the road.

This is perfect for working parents who need to stay home when children are sick or when school is closed.

Other companies offer fully remote positions. For these types of positions, you can typically work from anywhere in the country — even anywhere in the world in some cases.

Some companies will require you to work a set schedule in a specific time zone like 9 a.m. to 5 p.m. ET. Others will have core office hours and leave the rest more flexible. Finally, some companies will provide a fully flexible schedule if your work gets done.

If a company requires you to relocate to work for them, they may provide you with relocation assistance as an employee benefit.

On-the-job travel can be seen as an employee benefit as well, although some workers prefer not to have to travel for work.

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5. Training and education

Many companies invest in their employees’ education and personal development. This isn’t just an employee benefit — it helps the company train more skilled people, too.

For example, some businesses offer tuition reimbursement if you attend college while you work for them. Starbucks is a great example of a company that offers this type of benefit.

On the other hand, some companies will instead offer specialized training programs free of charge. These can include formal training like sponsored certificates or licenses related to your job or informal training like leadership training.

Finally, companies can also help their employees with student loan repayment plans.

6. Wellness and caretaking

The best way to cut down the cost of healthcare is to lead a healthy lifestyle. Many companies offer wellness and caretaking benefits to help their employees achieve this.

Gym memberships or reimbursements are very common, while larger organizations prefer to have an on-site fitness center. Other wellness equipment can also get reimbursed in some cases, like sit-to-stand desks.

Other on-site wellness benefits can include:

  • Daycare (or childcare reimbursement if no on-site care is available)

  • Medical care

  • Massage therapists

  • Psychologists

Some companies also provide cessation and reduction plans if you struggle with stress or addiction.

Many companies also provide paid or unpaid parental leave for biological and adoptive parents. Typically, you’ll have a blend of both paid and unpaid leave. For example, the first 12 weeks can be paid while you’re allowed to take an additional unpaid 12 weeks of leave if you desire.

In addition, many companies will offer paid short-term sick leave.

7. Fringe benefits and perks

Fringe benefits and perks contribute to company culture and make your overall work experience more pleasant. They allow you to bond with your coworkers and make the office feel a little bit more like home.

For instance, some employers will offer free food, coffee, snacks, and other drinks for everyone. Some will host bonding events directly at work or sponsor some group outings.

If you like traveling, you’ll enjoy organizations that offer fully paid company retreats and trips. Some don’t offer these retreats but will instead provide discounted travel, products or services, entertainment, or memberships/clubs for all employees.

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What if you don’t have a full-time job and work in the gig economy instead?

Many companies that offer gig work will also provide some benefits, like support for tax filing or discounts on a variety of insurance products. But keep in mind that for most gigs, you aren’t an employee — you’re a contractor. This means you’ll be responsible for your own retirement fund, insurance, and emergency funds in case you can no longer work.

9. Scheduling and shift

Companies can offer a variety of scheduling possibilities for those who need more flexibility.

For instance, you can get a part-time schedule or work on a seasonal basis.

Other examples of scheduling and shifts include:

  • First, second, and third shifts

  • Contract work

  • Nights and weekends

  • Overnight shifts

Some companies offer extra benefits for certain types of shifts, like extra pay for overnight shifts.

Educate yourself about these common employee benefits

The more you know about employee benefits, the more you’ll be able to negotiate when you land a job offer. You’ll also be in a better position to know what rights you have with your employer.

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