If your small business hires both salaried and hourly workers, you’ll need a plan for when to offer employee benefits. Budgets are limited, so it may not be possible to give the same package to temporary and part-time hourly workers that you give to your full-time salaried staff. As you draft your policy, what’s expected and required for your hourly employee benefits? Here’s what you need to know.
Classifying Employees for Benefits
When classifying workers for benefits, the distinction between hourly and salaried employees is less important than the one between full-time and part-time employees. This latter distinction can be a little confusing, as there are multiple definitions at play.
The Affordable Care Act defines a full-time employee as one working 30 or more hours per week for more than 120 days in a year. Anything less it considers part-time work. However, this only applies for health insurance. The Bureau of Labor Statistics defines part-time as anyone working less than 35 hours — but this definition isn’t binding for employee benefits, either.
Instead, you can pick the hourly threshold for what you consider full-time versus part-time work at your organization. The key is to track time so you know when your hourly workers fall into each category when qualifying for your benefits.
Understanding Small Business Benefit Requirements
For the most part, benefit requirements are minimal. You do need to cover the employer share of Social Security and Medicare payroll taxes, provide workers’ compensation insurance, offer unemployment insurance and, in some states, provide paid sick and/or family leave. However, that’s true for any employee you hire, hourly or salaried.
The ACA also requires that large companies — those with 50 or more full-time equivalent employees — provide health insurance to their full-time staff or face a penalty. If your organization has fewer employees, then you’re not required to provide coverage.
There is one more requirement, this one concerning workplace retirement plans such as 401(k)s. If you offer a retirement plan, you have to let all employees participate, provided they work at least 1,000 hours during the year, according to the Department of Labor. This is another reason it’s smart to track time with your hourly staff.
Allowing Hourly Workers to Participate
Beyond these few small business benefit requirements, you have the freedom to design your package as you see fit. You can choose to offer other benefits, such as dental, a retirement plan or vision, to all employees or set them up with restrictions.
For example, you could say that an employee must stay with your company for at least 60 days and work full time, with full-time work being 35 hours per week in your organization, before they’re eligible for benefits.
Whatever you decide, these restrictions need to be consistent across your entire company for workers in the same class. Let’s say you only offer benefits to full-time employees. If an hourly employee puts in enough hours to meet your full-time definition, they should get the same benefits that you would give a salaried, full-time employee.
Designing Fair Hourly Employee Benefits
Employee benefits are ultimately a trade-off between cost and employee retention. Offering all hourly workers the full range of benefits regardless of their part-time or full-time status is almost sure to reduce turnover, but it will also cost more.
One possible compromise is to create a reduced package for your part-time, hourly workers. For example, you could give them access to your group dental plan but decide not to pay for their premiums. Or you could set up their paid vacation days as a proportion of how close they are to working full time. If a full-time worker receives 10 days a year and an hourly worker puts in half their workload, for example, you could give the hourly employee five days of vacation.
You could also establish an administrative period — an amount of time that hourly workers need to stay with your business before they’re eligible for benefits. This saves you from shouldering the administrative cost of setting up benefits for temporary workers only to have them leave quickly.
As you figure out your strategy, be sure to collect feedback from your hourly workers. They can give you a sense of which benefits they would value the most and what trade-offs they would accept. Perhaps they would be willing to be left off the retirement plan to gain access to dental and vacation days earlier. This feedback can help you prioritize which benefits come first for your hourly workers. Small business employers have a good amount of flexibility to design their hourly employee benefits. Within the few restrictions that apply, you can come up with a package that helps your expanding business succeed.
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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.