When Should You Provide Employee Benefits?

When you consider the statistics, it’s easy to understand why employees prefer jobs with benefits. In the U.S., the average surprise medical bill is $2-3k and emergency medical costs account for 62% of all personal bankruptcies filed; employees facing burnout (as so many did during the pandemic) ranked paid time off as the number one benefit that would have been most helpful for their health; about 15% of Americans claim to have put $0 away towards retirement. 

Benefits like health insurance, paid time off, and retirement plans can ensure that employees join your early-stage company, stay with you as your business grows, and perform well. They’re often cited as the reason that people are unwilling to leave more stable or traditional jobs for startups.

However, it’s not always feasible for new companies to provide benefits. They can significantly add to your operational overhead and increase business expenses—and in your company’s earliest stages, you might not have resources like an HR team or a compliance manager to manage a benefits program.

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.

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Types of benefits

Some benefits are more traditional and commonly offered among employers in the U.S. Others are less common, and might be used as incentives to convince workers from more traditional backgrounds to join your startup.

Traditional benefits include: 

  • Health insurance
  • Retirement
  • Unemployment
  • Worker’s compensation
  • Disability 
  • Life insurance

These benefits have historically been part of an employee benefits package in some combination. 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.

Non-traditional benefits include:

  • Stock options
  • Training and development
  • Flexible work arrangements
  • Wellness programs 

These benefits are non-traditional because they don’t buffer against risk like traditional benefits do. That doesn’t mean that they can’t be used to incentivize employees. When making the choice between a large company and startup, potential hires might be enticed by a flexible environment (pandemic and all), the chance to own stock in the company they’re working for, and the ability to get hands-on training that they might not receive at a larger company.

Benefits and employee classification

Your benefits strategy is heavily influenced by the types of employees who work for you—contractors (1099), full-time (W-2) employees, 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 federal, local, and state regulations. In this scenario, we’d recommend hiring a professional to help you stay compliant.

If you employ 1099 contractors, you’re not subject to the same regulations. Companies are 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—and finding new contractors can be expensive.  

If you run 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. Portable benefits are connected to individuals, not employers, which means they continue on even after an individual leaves a job. They're lucrative to offer to part-time (1099) contractors and can also be a good option when your startup is still early.

Several startups help companies set up portable benefits, including Health Sherpa, which offers health insurance, Icon for retirement, and Bonsai to help independent workers manage their taxes.

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 provide is access to these options—and you can provide them whether 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.

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Open Enrollment Period

Open Enrollment Period runs yearly from November 1st until January 15th. 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.  

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 when you’re an early-stage startup.
  • Open Enrollment Period (November 1st until January 15th) is the only time that independent workers in the U.S. can sign up for benefits without needing to have a qualifying life event.

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Catch
Catch is a portable benefits provider that works directly with the people on your team to set up and manage their independent tax withholding, retirement, health insurance plans, and savings for things like paid time off, family leave, and emergencies.
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