Five tips to start offering employees health benefits

Written by: Gabrielle Smith
June 23, 2021 at 8:23 AM

If you’re reading this article, chances are your organization is off the ground, you’ve hired some great employees, and now you’re ready to offer a competitive health benefits package to further your recruiting and retention efforts.

While this is a big milestone, it also brings a lot of questions, including: Where do you start with employee benefits? How do you know which plan is right for your employees? Will you be able to find a plan that fits your budget?

If your mind is full of questions like these, read on for five quick tips to offering health benefits for the first time.

Get our guide for everything small employers need to know about health benefits

Tip #1: Understand the value of offering health benefits

One question on your mind when considering offering health benefits for the first time may be: Is it really worth it? In short—absolutely.

Here’s why: When you give employees health benefits they value, they’ll be more satisfied with their job, take fewer sick days, and even have a higher commitment to helping your organization achieve its goals.

According to studies done by LinkedIn, organizations rated highly on compensation and benefits by their employees saw 56% lower attrition than organizations that were rated poorly.

If that wasn’t enough, take a look at a few more advantages of offering health benefits to your employees:

Recruit and retain key employees

Employee health benefits are a valuable tool in recruiting key employees and retaining your top talent. After all, the Society for Human Resource Management has consistently found healthcare to be the top most requested employee benefit.

Additionally, research from Glassdoor finds that health benefits are an even more effective recruiting tool than offering a higher salary. Out of the employees surveyed, four out of five said that they’d prefer having better benefits over a pay raise if given the choice.

Learn more about how health benefits can help you recruit and retain employees

Tax advantages

Depending on the type of plan you choose to offer, you can benefit from tax savings for offering the plan, and employees can get tax savings by participating.

For example, health reimbursement arrangements (HRAs) are administered on a tax-free basis for small employers. Employees are also spared from income tax—provided they’re covered by an insurance policy that meets minimum essential coverage (MEC) requirements.

Employee wellness

Finally, offering health benefits keeps employees healthy and working. Having more accessible healthcare prevents your employees from taking extended periods of sick leave, allowing your organization to be more productive and profitable.

What’s more, employee wellness doesn’t just include their physical health—by offering health benefits, you’re allowing your employees more affordable access to therapy and mental health resources they need to avoid burnout.

Get more tips on how to prioritize your employees health and happiness

Tip #2: Analyze the risks and costs of offering health benefits

Now that you know why offering health benefits is so important, your next step is to consider the risks and costs of the plans available to you.

Just like any new expense you’d take on for your organization, investing time to research your available options is essential in finding a plan that meets your organization’s needs.

Consider these two areas in particular when researching your options:

Overall cost

Your costs will vary depending on the type of employee health benefits you choose (more on your options in the next section).

For example, health insurance premiums for group health insurance plans typically rise every year, and are continuing to grow. The uncertainty of these rate renewals can make financial planning difficult, which makes cost-controlled options, including HRAs, more attractive.

See what the average cost of health insurance is where you live

Administrative commitment

Next, you’ll need to consider the amount of time and effort it will take to administer the health benefit. If you can’t commit resources to manage the health benefit, it likely won’t succeed.

With a traditional group health insurance plan, your administrator will spend time choosing the coverage and then spend regular time filling out forms, remitting premiums, and acting as an intermediary between your employees and the insurer.

With an HRA, administrative time is greatly reduced, especially if you choose to manage the benefit through an HRA software service like PeopleKeep. These services offload the most tedious tasks, allowing your staff to manage the benefit in just minutes per month.

See how PeopleKeep’s benefits automation software can work for your organization

Tip #3: Research your employee health benefits options

After reviewing the costs and risks, it’s time to look more closely at each of your employee health benefits options.

The three main types of health benefits available to small employers are as follows:

Traditional group health insurance

A group health insurance plan covers all employees and their family members. These plans are generally uniform in nature, offering the same benefits to all employees or members of the group.

Unlike individual health insurance, group health insurance plans are chosen by the employer to be used by all of their full-time employees, regardless of each employee’s unique healthcare needs. Group health insurance is dependent on an individual’s employment.

Learn more about small group health insurance for small businesses

Health reimbursement arrangements (HRAs)

HRAs are a formal health benefit that allow employers to reimburse their employees, tax-free, for individual insurance premiums and qualifying medical expenses.

Rather than paying an insurance company for a plan, whose costs typically rise every year, employers can fix their costs on a monthly basis by establishing a monthly allowance.

A qualified small employer HRA (QSEHRA) is an HRA specifically designed for employers with less than 50 full-time employees.

See why a QSEHRA is a good option for small businesses offering their first benefits plan

Direct payments or taxable stipends

Finally, small business owners will sometimes choose to simply give employees extra money for health expenses. You simply bump your employees’ pay, and you avoid having to put in the time or energy in choosing a plan and administering it.

This may seem like the easiest route, however, employers still have to be careful about compliance, as it’s not a formal health benefits plan. In addition, you’ll miss out on the tax-savings associated with offering a formal plan.

Learn more about the top health benefits options for small businesses

Tip #4: Work with a broker or concierge service

Next, if you’re finding the health insurance world difficult to navigate, we recommend working with a trusted insurance broker or health insurance concierge service.

Brokers and agents who work for concierge services are licensed professionals that are knowledgeable about small and mid-sized organization health benefits options. They can help you navigate your options when things get confusing.

PeopleKeep is partnered with KindHealth, an agency of health insurance professionals that can help your employees navigate the individual insurance market to find a specific plan that works for them.

Tip #5: Understand how healthcare regulations impact your organization

Finally, it’s important to understand the rules and regulations surrounding healthcare and know which ones apply to your situation.

Here are a two healthcare reform regulations every organization should know:

Employer mandate

Applicable large employers, or employers with more than 50 full-time equivalent employees, must offer health insurance that meets minimum value and is affordable to their employees.

Applicable large employers who fail to offer an affordable plan that meets minimum value may be required to pay a penalty. If you have less than 50 full-time equivalent employees, then this doesn’t apply to your organization.

Minimum essential coverage (MEC)

Under the Affordable Care Act (ACA), "minimum essential coverage" (MEC) is any type of insurance coverage that meets the individual shared responsibility requirement, also known as the individual mandate.

When the ACA was first introduced, Americans who didn’t satisfy the individual mandate were penalized with a fee. However, as of 2019, the individual mandate is no longer in force for most states, so your employees don’t have to have a policy that meets MEC if they don’t want to.

However, while the federal government no longer requires it, there are certain HRAs that require employees to have MEC in order to participate—or at least to qualify for tax-free reimbursements.

See which plans meet minimum essential coverage requirements


Making the leap to offering your employees health benefits for the first time is an exciting achievement you should be proud of. Taking the time to choose the right benefit to meet your employees needs and budget will not only help you recruit and retain employees, but also give you the peace of mind knowing you’re doing the right thing for your team.

This article was originally published on May 13, 2014. It was last updated June 18, 2021.

Topics: Defined Contribution Health Plans, Recruiting, Health Benefits, Employee Retention, Small Business

Additional Resources

Get 11 insider tips on how small employers can retain employees.
Get our guide on how to offer health benefits with a small budget.