How to offer employee benefits as an early-stage startup

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Offering a competitive employee benefits package is a crucial part of employee retention and satisfaction that has been shown to raise morale, increase productivity, and generally lead to improved wellness among employees. It's also a key asset for talent attraction.

For an early-stage startup, investing in benefits like health insurance, paid time off, and retirement plans can ensure that the employees that join you grow alongside your business.

However, it’s not always feasible for new companies to immediately offer benefits to their employees. Without an HR team or a compliance manager to oversee a benefits program, it can be especially difficult for an early-stage startup to build the resources on top of the sizeable operational overhead and general business expenses.

In this article, Catch covers the basic details new companies should know when providing benefits, along with alternatives that can help you balance benefits with your hiring roadmap, budget, and company strategy.

Key takeaways

  • Non-traditional benefits can incentivize employees from traditional backgrounds to join your startup.
  • Your benefits strategy is heavily influenced by the types of employees you hire (W-2 or 1099).
  • New startups like Catch offer alternatives that can help you provide benefits access to your employees — even if you’re an early-stage startup.
  • Open Enrollment Period (November 1 until January 15) is the only time that independent workers in the U.S. can sign up for benefits without having a qualifying life event.

Types of employee benefits

There's a perception that taking a position at a startup means sacrificing a certain degree of job stability and security. Prospective job seekers — in particular, top talent — are looking for more than just competitive compensation. They're also looking for a competitive benefits package that combines a strong roster of traditional offerings like high-quality health insurance with less traditional benefits like wellness stipends. In building your startup's benefits package, a great place to start is assessing which benefits are typically offered by more established businesses.

Health insurance

You won't find top prospects lining up for a full-time position that doesn't come with health insurance. In the U.S., the average medical bill is $2–3K and emergency medical costs account for 62% of all personal bankruptcies filed — and these expenses continue to rise every year.

It's pretty standard to offer a comprehensive health insurance plan that can cover preventative care and general medical expenses. The idea is that your company covers the majority of the plan's cost while your employees pay the remainder directly out of their payroll. Since different hires will prefer different insurance plans and coverage levels, it's recommended that your company offer a few different options to save you from paying for a plan that isn't fully utilized.

While some are provided in conjunction with the government (like disability and unemployment), they are still based on employer contributions to these programs. These benefits require significant financial contribution as well as time — they’re primarily managed through your company.

Retirement savings

Nowadays, most businesses recognize that retirement planning is a priority for their employees. To hire and retain employees, they often sponsor employee retirement plans that serve as a tax-advantaged savings vehicle for their team.

The role of the employer is to select an appropriate plan with affordable options and often, to pledge a certain level of matched contributions to the employee's plan, be that a 401(k) or an IRA. Every pay period, the employee can choose to automatically invest a percentage of their paycheck into the plan, pretax. For current and potential employees, this benefit — along with the employer's matching contributions — can be a significant incentive to stay or join a company.

Life and disability insurance

It's also important to offer benefits that account for the unexpected — disability and life insurance serve that exact purpose, providing stability and peace of mind for employees so they don't have to worry about whether their salary is protected in the case of an unanticipated emergency.

In the case of life insurance, it gives employees peace of mind that their beneficiaries will have money to fall back on if the insured dies. In the case of disability insurance, the employee will be able to access benefits if they fall victim to an unanticipated illness or injury — temporary or permanent. Since disability is offered in conjunction with the government, the specifics can vary state by state so take note of the policies that are active in each of the states your employees operate from.

Paid time off (PTO)

Managing a healthy work-life balance is valuable to any professional. A recent workplace study discovered that employees facing burnout rank paid time off as the number one benefit that would allow them to alleviate their burnout.

Paid time off can come in the form of vacation, sick leave, personal time, and more. In the U.S., the typical paid time off offering ranges from two weeks to an unlimited policy. Whatever you decide, keep in mind that fostering an environment that motivates people to do their best work and creating a culture where people feel comfortable taking off the time they need often go hand in hand.

Unemployment insurance

Unemployment insurance is mandated by the government. It stipulates that if a part-time or full-time employee is rendered unable to work or involuntarily terminated under circumstances that are not their fault, then they are entitled to unemployment benefits. These benefits are provided by their employers, who offer them by contributing to the state's unemployment fund.

Less traditional benefits to help your startup stand out

Beyond the traditional offerings, there are some unique benefits your startup can offer to attract new hires and retain existing employees:

  • Stock options
  • Learning and development budgets
  • Flexible work arrangements and budgets
  • Wellness programs and stipends
  • Paid parental leave
  • Grocery budget
  • Commuter benefits
  • Cellphone reimbursement

How employee classifications can impact your benefit offerings

Your benefits strategy is heavily influenced by the types of employees who work for you — contractors (1099), full-time employees (W-2), or a mix of both.

If you’ve hired W-2 employees, you’ll be required to provide certain benefits depending on your business size and whatever federal, local, and state regulations are relevant to your company. In this scenario, we’d recommend hiring a professional to help you stay compliant.

If you employ 1099 contractors, you’re subject to different regulations. For starters, you're not required to provide benefits to contractors. However, providing contractors with benefits can help ensure that they perform well and stay with your company for as long as you need them — so that you don't have to go about the expensive route of finding new contractors to hire.

If you're running an early-stage startup, it’s likely that your company falls somewhere between these two classifications. You might employ full-time W-2 workers, but your business might be small enough that you’re not required to provide benefits by law. Or you might be hiring full-time employees but enlisting 1099 contractors for specific projects that you don’t have the bandwidth to do in-house.

If this is the case, you’ll have a mixed array of benefits.

Portable benefits

There are several ways to provide benefits that work with different types of employees and company budgets.

In recent years, portable benefits have become a more prevalent option. They are connected to individuals, not employers, meaning they are preserved even after an individual leaves a role. These benefits are lucrative to offer to part-time (1099) contractors and can also be a good option when your startup is still in its early stages.

Companies like Catch offer a range of benefits in one place. When signing up for Catch, your team members will choose their benefits, link their bank, and then set aside a percentage of each paycheck to go towards these benefits. Catch manages independent tax withholding, retirement, health insurance plans, and savings for things like paid time off, family leave, and emergencies. On your end, all you need to provide is access to these options — and you can provide them whether your team members are W-2 or 1099. 

As a Mercury customer, your team can get four months of free auto withholding with Catch. Get started here.

Open enrollment period

Open Enrollment Period runs yearly from November 1 until January 15. It’s the only time independent workers can enroll in a new health insurance plan, make changes to their plan, or renew their current plan for the new year, without needing to have a qualifying life event like marriage or moving states. For most people without health insurance, open enrollment is the only time to get coverage for the following year. It's also the time to offer your employees portable benefits.

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