Employee benefits guide for small business owners

June 9, 2025 | 9 minute read

What are employee benefits?

Benefits are an integral part of an employee’s compensation package that supplement the employee’s salary. They can range from financial incentives, such as retirement plans, paid holidays and health insurance, to nonfinancial offerings such as mental health services and employee recognition programs. While companies are required by law to offer certain benefits, others are optional.

 

Why are employee benefits so important?

It’s said that the most valuable assets companies possess are their people. After all, businesses depend on the skills and knowledge of their employees to compete. When potential employees are considering multiple job offers — particularly when the salaries are comparable — the benefits a company offers could end up being the deciding factor. Benefits can also help with employee retention, since if employees have benefits they value, they may be less likely to leave a company for a competitor.

 

One reason workers consider benefits to be valuable is because they often cover needs they would otherwise have to pay for on their own. For example, employees can save money on health insurance or student loan payments if their company takes care of some of those costs as a benefit.

 

To attract new workers and retain existing ones, “business owners need to prioritize benefits that are most important to their employees,” says Max Pearlstein, division vice president of Small Business Services Channel Sales for ADP®. “Think about how expensive it would it be if you lost either a prospective candidate or an existing employee because one of your competitors offered a benefit that you don’t.”

Types of employee benefits

While there are a number of employee benefit types, here are some of the most popular.

What’s the difference between employee benefits and employee perks?

Although the terms “benefits” and “perks” may seem similar, they aren’t the same thing. Perks are extras that go beyond traditional benefits — they provide an opportunity to differentiate a business from other companies in unique ways and create an inviting corporate culture.

 

Even if a business can’t afford to match the lavish benefits packages of bigger players in its industry, adding a few extra perks that can improve morale — like employee discounts, nap rooms and free snacks — may go a long way to creating a sought-after workplace.

 

Some common examples of perks include flexible scheduling policies, professional development opportunities, meals and snacks, gym membership discounts and paid time off to volunteer.

 

Understanding the costs of employee benefits

There are two types of costs associated with paying for benefits. If a business offers health insurance, for example, a direct cost might be the portion of employees’ health insurance premiums a business pays, while an indirect cost might be the administrative fees to manage the program.

 

Three ways you may save money on benefits:

  • Use a single provider. Consider offering multiple benefits through a single benefits provider to potentially save on costs.
  • Tax deductions. Your business may qualify for certain tax breaks that can help defray costs. Your tax advisor can provide guidance on deductions that may be available depending on how you, as an employer, decide to compensate your employees — whether you’re providing wages, bonuses, commissions or certain benefits.
  • Tax credits. Your company may be able to claim a tax credit for some of the costs related to starting a retirement plan such as a SEP or SIMPLE IRA or another employer-sponsored retirement plan along with tax deductions for employer contributions made to those plans.5

Considerations for selecting employee benefits

With so many benefits to choose from, creating a plan that’s appealing to employees can be overwhelming. Here are some things to keep in mind.

 

Brush up on legal requirements

Some benefits, such as unemployment insurance, unpaid family and medical leave and medical coverage, are generally required by federal or state law for private-sector employers of a certain size. However, exceptions apply, so businesses should consult with tax and legal advisors to determine which benefits are mandatory for them.

 

Explore different providers

There are four main types of employee benefit providers a business can tap for assistance, depending on its needs.

  • Some insurance companies, such as United Healthcare, Aetna or Blue Cross Blue Shield, have agents who work with small businesses to offer benefit packages.
  • Software platforms such as Gusto or TriNet work with brokers and carriers to provide benefits for businesses through user-friendly tools for selecting providers.
  • Professional employer organizations are human resources (HR) firms businesses can outsource benefit responsibilities to.
  • At the HealthCare.gov marketplace, small business owners can review the Small Business Health Options Program to compare benefits packages. The marketplace gathers required information such as location and number of qualified employees, then matches a business with an agent to help the business find a workable benefits plan.

 

Consider employee input

Employees can tell a business which benefits they value most. Survey them periodically to see what offerings will make the biggest impact on employee morale.

 

Research voluntary benefits

These are benefits employees opt into and pay for all or some of the costs. Voluntary benefits don’t cost employers much, and employees typically come away with discounts that make them worthwhile.

 

The bottom line is this: Employees generally want good benefits and are actively seeking employers who can provide them. While health insurance, retirement benefits and paid time off are among the most popular benefits, smaller — and less expensive — perks such as flexible scheduling policies and wellness programs can also make a difference in raising employee morale. Some benefits are required by law but taking the time to learn what additional benefits are most valuable to employees and potential hires may help a business attract talent, retain it and, ultimately, thrive.

Employer-rated importance of benefit categories

Bar chart showing the percentage of employers who consider different categories of benefit offerings to be important. Full data set: Health-related benefits 88%, retirement saving and planning benefits 81%, leave benefits 81%, flexible working benefits, 70%, family-friendly benefits 67%, professional and career development benefits 65%, financial (non-retirement) benefits 53%, wellness benefits 48%, education benefits 42%, technology benefits 33%, transportation benefits 13%, housing and relocation benefits 10%

Source: SHRM 2024 Employee Benefits Survey 

Employee Benefits FAQs

Explore more

Bank of America Workplace Benefits™ for small business owners and entrepreneurs

Find out how our experienced team can help you build a benefits plan that truly fits your business's needs.

Why should employers offer a workplace retirement plan?

From attracting and retaining talent to harnessing tax advantages, a workplace retirement plan offers plenty of benefits to employers as well as their employees.

Bank of America Workplace Benefits™ is here to help your business — and your employees — thrive

Find out how our experienced team can help you build a benefits plan that truly fits your business's needs.

 

1  2025 Bank of America Workplace Benefits Report Survey.

2  SHRM, 2024 Employee Benefits Survey.

3  See note 2, above.

4  See note 1, above.

5  For more information visit the IRS website. You should talk to your legal and/or tax advisors before making any financial decisions. 

6 Bureau of Labor Statistics, “Employee Benefits in the United States – March 2023,” September 2023.

Important Disclosures and Information

ADP is a registered trademark of ADP, Inc. and its affiliates. All other marks belong to their owner. Bank of America does not deliver and is not responsible for the products, services or performance of ADP, Inc.  ​Internet access may be required. Internet service provider fees may apply. Bank of America and/or its affiliates or service providers may receive compensation from third parties for clients' use of their services.

Bank of America, Merrill, their affiliates and advisors do not provide legal, tax or accounting advice. Consult your own legal and/or tax advisors before making any financial decisions. Any informational materials provided are for your discussion or review purposes only. The content on the Center for Business Empowerment (including, without limitations, third party and any Bank of America content) is provided “as is” and carries no express or implied warranties, or promise or guaranty of success. Bank of America does not warrant or guarantee the accuracy, reliability, completeness, usefulness, non-infringement of intellectual property rights, or quality of any content, regardless of who originates that content, and disclaims the same to the extent allowable by law. All third party trademarks, service marks, trade names and logos referenced in this material are the property of their respective owners. Bank of America does not deliver and is not responsible for the products, services or performance of any third party.

 

Not all materials on the Center for Business Empowerment will be available in Spanish.

 

Certain links may direct you away from Bank of America to unaffiliated sites. Bank of America has not been involved in the preparation of the content supplied at unaffiliated sites and does not guarantee or assume any responsibility for their content. When you visit these sites, you are agreeing to all of their terms of use, including their privacy and security policies.

 

Credit cards, credit lines and loans are subject to credit approval and creditworthiness. Some restrictions may apply.

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S" or “Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC, and a wholly owned subsidiary of BofA Corp.

 

Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC, and wholly owned subsidiaries of BofA Corp.

 

“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets division of Bank of America Corporation. Lending, derivatives, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc., which is a registered broker-dealer and Member of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. is a registered futures commission merchant with the CFTC and a member of the NFA.

 

Investment products: