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Employee Insurance vs. Employee Benefits: What's the Difference?

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The responsibility of providing insurance for employees can be a daunting and sometimes costly task and many small businesses think they can’t afford it. But are benefits for employees required? What benefits or insurance do you legally need to provide? What is the difference between “Employee Benefits” and “Employee Insurance”? Let’s dive in.

Employee Insurance

Employee insurance includes things such as:

  • Workers’ Compensation Insurance: This insurance—legally required in almost all states—covers medical costs if an employee is injured or becomes ill on the job. It can protect you from additional legal costs and settlements. 
  • Disability Insurance: Short-term disability insurance covers up to 80% of your wages for 3–6 months. Long-term disability insurance covers up to 60% of your lost wages for an indefinite length of time. It’s typically a costly policy for an employee, but provides coverage similar to workers’ compensation no matter where you’re injured.

Many employers offer disability insurance, but most employees don’t opt for the coverage because of its expense. On the flip side, workers’ compensation doesn’t cost the employee at all. 

Employee Benefits

Employee benefits include many things that are legally required and others that are simply optional that a business does not have to provide. Let’s start with what is legally required for employers: 

  • Compliance with the Family Medical Leave Act (FMLA)
  • Time off to vote, complete jury duty, or serve the military
  • Pay FICA taxes (to provide employees retirement/disability benefits)
  • Paying state and federal taxes
  • Paying taxes if a short-term disability program exists in your state

NOTE: Employers with 50+ employees are required to comply with FMLA (In some states, those with less than 50 employees don’t have to adhere to FMLA regulations)

What benefits are most small businesses NOT required to provide?

  • Health insurance
  • Dental insurance
  • Vision insurance
  • Life Insurance
  • Paid vacations/holidays
  • Sick days

An Employee Benefits package is provided at the discretion of the employer. That being said, most do provide some benefits.

Group Health Insurance

Employee benefits generally start with health insurance and group term life insurance. As part of the health insurance package, an employer may opt to provide both vision and dental insurance. None of these are required in most states, employers offer them to remain competitive. 

Most potential employees aren’t going to work for a company that doesn’t provide them access to basic healthcare. Cost is almost always the determining factor in putting together an employee benefits package. With the rising trend in the cost of health insurance, it is reasonable to ask employees to pay a percentage of the coverage. Most businesses do place the majority of the cost on the employee when they provide access to health insurance. 

Retirement Plans

A retirement plan (such as a 401k, SIMPLE plan, SEP) is generally offered as an employee benefit as well. Many businesses concerned with keeping their costs low may opt out of this. However, the Economic Growth and Tax Relief Reconciliation Act of 2001 offers employers a tax credit associated with starting a retirement plan for your employees. Retirement plans if offered are required to meet strict guidelines set by both the IRS and ERISA (Employee Retirement Income Security Act of 1974). Be sure to consider all of your options before opting out of proving this benefit. 

Get a Free Insurance Quote

As your business grows, an employee benefits package may be necessary to attract and retain good employees. Working with your licensed insurance professional to develop and implement an employee benefits package that makes sense for your business can be an important step in your company’s growth. 

Complete the form at the top of the page to get in contact with an insurance professional about your employee benefits or workers’ compensation insurance needs, or call 1-877-907-5267 to speak with one of our specialists. We’d be happy to help you determine the coverage you need to protect your small or medium-sized business.

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