Benefits Pros and Cons
As with most business decisions, there are pros and cons to consider when offering benefits. Evaluate these considerations with your particular situation in mind — they can help you determine if offering benefits is something you want to do now.
The advantages. There are many advantages to offering benefits, including:
- Tax advantages — you can deduct plan contributions.
- Recruiting advantages — you can use benefits packages to attract good employees and you can structure them in such a way to reward and thus retain your best employees.
- Personal gain — you may be able to get benefits for yourself for less money, if you also offer them to your employees, than you would procuring them privately for yourself.
- Alternatives to pay — sometimes employees will accept benefits in lieu of higher salaries.
The disadvantages. The biggest disadvantage of offering benefits is the cost. Benefits are costly to large employers and that burden becomes even more significant for the small employer. Conventional wisdom holds that smaller employers will:
- pay higher rates than larger employers for group health coverage because there are fewer employees among whom to spread risk
- have more difficulty providing life insurance coverage to the employee group
- have fewer design choices when offering a retirement plan because of high administrative costs
- be less likely to offer fringe benefits due to administrative complexity
Once you've determined if benefits are something you want to offer, your next step should be deciding which benefits to offer.
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