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The State of Small Business Employee Benefits in 2019

April 18, 2019

Nearly half of small businesses offer benefits in 2019 and most frequently provide health benefits, retirement benefits, family leave, and paid time off. Small businesses should emphasize providing comprehensive benefits packages amid growing competition to recruit and retain top talent.

The beginning of 2019 indicates a “continued swell of employment opportunities" as job openings exceed the number of available workers. This strong job market suggests that candidates may be considering multiple employment offers. Businesses need to offer competitive compensation packages to stand out, and benefits are a critical element.

Benefits typically include employer-sponsored health insurance, dental insurance, retirement savings plans, and other forms of non-salary compensation.

According to a recent Clutch survey, approximately one-third of job seekers (32%) begin a job search to find better pay and benefits, indicating the importance of fair and well-structured compensation and perks.

Clutch surveyed 529 small business owners and managers in the U.S. to understand their benefits plans for 2019.

We analyze whether small businesses offer benefits, which benefits they offer now, and their plans for future benefits.

Small businesses can use this report to understand the benefits other businesses provide and make informed decisions about structuring their own employee benefits plans.

Our Findings

  • Roughly half of small businesses (47%) currently offer benefits. Unsurprisingly, small businesses with 11 employees or more are most likely to provide benefits.
  • Small businesses most commonly provide health benefits (69%), 401(k) and retirement plans (52%), family leave (48%), and paid time off (PTO) (45%).
  • More than one-quarter of small businesses (28%) offer 11 to 15 days of PTO, and  only 5% of small businesses offer fewer than 5 business days of PTO, indicating that small businesses understand the importance of giving employees time off.
  • More than half of small businesses (56%) are planning to offer new benefits in 2019. Nearly one in five (19%) are considering offering PTO.
  • Nearly one-third of small businesses that plan to offer new benefits in 2019 (30%) are doing so to fulfill employee requests, indicating that small businesses view benefits as a method of attracting and retaining top talent.
  • Nearly one-third of small businesses (30%) do not have any formal HR resources, placing them at a competitive disadvantage when recruiting and retaining their workforce.
  • Only one-tenth of small businesses without dedicated HR resources (10%) offer employer benefits, suggesting that companies committed to attracting top talent and reducing turnover should formalize their HR resources.

Small Businesses Are More Likely to Offer Benefits as They Grow

Small businesses are significantly more likely to offer benefits as they hire more employees. HR consultants and small business owners and managers should consider a company’s size and likelihood of becoming subject to government regulations when determining the appropriate benefits policies.

Nearly half of small businesses surveyed (47%) offer benefits.

47 percent of small businesses offer employee benefits in 2019

Whether a small business offers benefits varies significantly based on the number of employees it hires, though.

For example, fewer than one-tenth of small businesses with a single employee (7%) offer benefits. More than three-quarters of companies with more than 50 employees (76%), however, provide benefits.

small businesses more likely to offer benefits as they hire more employees

HR experts say it’s unsurprising that the benefits businesses offer vary so drastically based on employee count.

“[A] 20-person company isn’t the same as a 500-person company,” said Jessica Glazer, president of MindHR, a Montreal-based staffing and benefits consulting firm. “For someone who is starting as an entrepreneur, [the company is] their baby and every dollar is their dollar. If I’m going to be giving away my dollar, what am I getting in return? The smaller the company, the more they’re going to hold on to that dollar.”

At the early stages of a business, investment priorities are likely to focus more on business growth than HR and benefits for employees.

Nearly seventy percent (68%) of companies with 11 to 50 employees offer benefits.

Christopher Willatt, founder of AlpineMaids, a Denver-area house cleaning company, said that his personal experience as a small business owner reflected Clutch’s statistics.

“We couldn’t have provided benefits when we had five employees,” Willatt said. “I’m not sure we could have [provided benefits] at 10 employees. It wasn’t an option until about 15 employees.”

AlpineMaids now has more than 20 employees and offers benefits such as health insurance, paid time off, and retirement benefits. Willatt felt more comfortable offering new benefits as his company grew, which is true for the small businesses we surveyed as well.

As Businesses Grow, More Laws Apply

Small businesses must comply with mandatory benefits regulations as they add employees.

Bethany Holliday is the director of human resources for Cornerstone Insurance Group & Employer Solutions, an employee benefits and business insurance firm in St. Louis, Mo.

She notes that companies with 50 or more employees are generally subject to two federal labor laws:

At 50 employees, businesses are considered a large employer by the government, according to Holliday.

Small businesses can profit from offering a comprehensive benefits package, particularly as their workforce expands.

More Than Half of Small Businesses Offer Health, Retirement Benefits

Small businesses that offer benefits generally provide standard perks that employees expect.

For example, 69% of small businesses that offer benefits provide health benefits, while 52% provide retirement benefits.

benefits small businesses offer in 2019

A little under half of small businesses (48%) provide family leave and PTO (45%).

Small businesses are generally aware that providing basic benefits is integral to fulfilling employee expectations, according to Matthew Burr, founder and president of Burr Consulting, a human resources consulting firm that advises small businesses.

“I think it’s just standardized practice,” Burr said. “Vacation, PTO … all that stuff is expected in our society now. You’re not going to be able to recruit and retain people if [you don’t offer basic benefits]. It’s not going to work out in your favor.”

Willatt believes that small businesses can design benefits packages that are competitive with larger companies’ offerings by:

  • Remaining aware of the benefits direct competitors provide and matching their offerings
  • Considering which offerings employees are most likely to benefit from. Make a point of asking your staff what benefits matter to them

Small businesses should consider their competitors’ benefits and their employees’ needs when determining their own benefits package.

Not Enough Small Businesses Offer Paid Time Off

PTO is essential for attracting talent and ensuring that employees are happy, motivated, and well-rested.

Nearly half of small businesses (45%) offer PTO. More than one-quarter of these businesses (28%) provide 11 to 15 business days.

45 percent of small businesses that offer benefits provide paid time off

According to the Bureau of Labor Statistics, private industry workers received 10 days of vacation in 2017, on average.

To HR experts, PTO is an important foundation of any effective benefits policy, considering its low cost and ease to implement.

“That’s a commonsense perk to me,” Burr said. “PTO doesn’t really cost the company anything because eventually, you’re going to come back and make up the work anyway. It’s standard and should be offered to everybody.”

28 percent of small businesses that offer paid time off provide 11 to 15 days

Small businesses are more likely to lure and retain talent by designing their PTO policies with employees’ needs in mind.

For example, Holliday has witnessed clients shift from separate buckets of vacation, sick, and personal time to an all-encompassing paid time off designation. This change provides employees with more flexibility and employers with a better ability to recruit and retain their workforce.

Holliday acknowledges that the owners of a manufacturing plant are likely to structure PTO differently than partners in a law office, but she advises employers across industries to avoid outdated PTO policies.

Holliday believes PTO is a perk that employees increasingly expect to earn immediately.

“We still have clients that are making employees wait an entire year before they’re eligible for any sort of PTO,” Holliday said. “I keep trying to transition [clients] out of that because that’s a very antiquated way of thinking.”

Companies with substandard or antiquated PTO policies will struggle to entice and retain top talent. Overall, small businesses should offer competitive and generous paid time off.

Small Businesses Will Offer New Benefits in 2019

Small businesses should plan to expand their benefits offerings in 2019 given the competition from their competitors and the significant return on investment an effective benefits package provides.

More than half (56%) of small businesses will offer new employee benefits in 2019. Of companies offering new benefits, 19% plan to begin offering paid time off.

small businesses plan to offer new and updated benefits in 2019

Roughly 1 in 10 small businesses (11%) are considering offering family leave, and 8% plan to introduce student loan repayment.

Small businesses should consider which benefits will most effectively attract new job candidates or reduce turnover.

Holliday explained that paying for benefits that retain employees is often less than the cost of recruiting and training new employees.

“The last thing you want [employees] to do is walk out the door,” Holliday said. “It costs a whole lot less to keep people happy than it does to try and find new people.”

“It costs a whole lot less to keep people happy than it does to try and find new people.”

Providing a more defined benefits structure can also bolster employee productivity.

For example, a well-defined PTO policy can improve employee productivity and morale compared to an ambiguous or non-existent PTO expectation.

“Say people are taking too many paid sick days,” Glazer said. “[The company can say,] ‘If we put in a structure of four sick days or five personal days, then that’s [part of] your PTO.’”

Defining what counts as PTO, even loosely, provides ease-of-mind for employees, and the company can better anticipate worker hours and adjust the benefit if necessary.

When small businesses introduce new benefits, they should ensure the benefits are offered fairly and consistently to employees.

Burr said a small business introducing a new student loan forgiveness policy, for example, should not simply offer it to the newest employees or millennials only. They should consider that there may be existing employees, with significant loan debt, who would also want to take advantage of the perk.

By offering new benefits, small businesses can maximize productivity and minimize turnover, improve their return on employee investment, and help ensure a happy and motivated workforce.

Small Businesses Listen to Employee Requests When Deciding What New Benefits to Offer

Small businesses planning to offer new benefits are most likely to provide the perks their employees request. Listening to employee benefit requests can preemptively combat turnover.

About 30% of small businesses planning to offer new benefits in 2019 are primarily doing so because of employee requests, while 27% are doing so to reduce employee turnover.

why small businesses plan to offer new and updated employee benefits in 2019

Meanwhile, 13% of small businesses offer new benefits because of legal requirements, and only 9% do so as a result of union negotiations.

It’s unsurprising that small businesses offer new benefits to fulfill employee requests or reduce turnover, according to Glazer. Businesses should strive to be the most attractive option for employees.

“You don’t want to live in the cheapest house in the neighborhood,” Glazer said. “You don’t want it to be the most run down. Nobody is going to want to live there.”

New perks don’t necessarily need to follow traditional structures.

For example, AlpineMaids provided a fully stocked pantry for employees after many voiced that they didn’t have enough time for lunch while on the job.

“[Our employees] would come back at the end of an 8-hour day of cleaning and say, ‘Man, I didn’t have lunch. I’m really tired today,’” Willatt said. “We made sure to provide that for them. We have a fridge and a pantry totally stocked all the time to make sure our guys are fed.”

Willatt listened to employees’ desire for lunch, and as a result his workers expressed gratitude.

Small businesses and HR consultants must be willing to listen to employee concerns, suggestions, and feedback when designing new benefits policies.

Small Businesses Without Formal HR Resources Are Unlikely to Offer Benefits

Small businesses that don’t invest in formal HR resources rarely offer benefits and are at a disadvantage for recruiting and retaining employees.

In fact, of the 30% of small businesses without formal HR resources, only 1 in 10 offer benefits.

30 percent of small businesses do not invest in formal HR resources

Meanwhile, roughly two-thirds of small businesses (64%) with some level of HR services do offer benefits.

The most common company approach to HR resources is a full-time, in-house HR staff, which 25% of small businesses maintain.

small business HR resources

Other small business HR strategies include contracting with an HR consultant (9%), working with a professional employer organization (PEO) (8%), and meeting HR demands through an outsourcing service (6%).

To Burr, it makes sense that small businesses offering benefits are disproportionately likely to have some formalized benefits and HR structure.

“I think organizations see the value in having an HR person or working with an HR consultant,” Burr said. “Just to understand how to do certain things and really understand how to execute. I don’t think there’s an opportunity anymore just to skate by.”

Successful organizations understand the need to dedicate resources to HR. As these organizations grow, they are more likely to take a comprehensive approach like Willatt’s.

“We kind of shifted from paying a lot to now offering a lot of benefits,” Willatt said. “HR is really geared toward convincing our employees that this is a great job and doing everything to retain them.”

Holliday said benefits are increasingly at the forefront of candidates’ career decisions.

“The salary is just a fraction of what [candidates are] looking for,” Holliday said. “I’m interviewing tons of candidates saying they left positions or they are leaving positions because the ‘perks’ they were supposed to be getting weren’t what they thought they were.”

If small businesses are intent on providing the benefits that attract top talent, they need to invest in professional and effective HR resources.

The Importance of Small Business Employee Benefits in 2019

In a robust job market, job candidates will more intently consider benefits packages. Small businesses need to provide competitive benefits to recruit and retain a talented 21st century workforce.

Close to half of small businesses (47%) offer benefits in 2019. These benefits most frequently include health insurance, retirement benefits, and paid time off.

Small businesses are more likely to offer benefits as they grow in employee size. Small businesses are also most committed to offering new benefits based on employee requests, as opposed to legal requirements.

Only 10% of companies without formal HR resources offer benefits, so small businesses will likely need to maintain a defined HR structure based on their companies’ specific needs.

Overall, small businesses should strategically and thoughtfully institute HR and benefits policies that promote a happy, stable, and productive workforce.

About the Survey

Clutch surveyed 529 U.S. small business owners and managers. We define small businesses as having limited revenue and between 1 and 500 employees, which corresponds to the Small Business Administration’s definition of small business.

Fourteen percent (14%) of respondents’ businesses have 1 employee; 40% have 2 to 10 employees; 24% have 11 to 50 employees; 15% have 51 to 250 employees, and 7% have 251 to 500 employees.

More than half (52%) of survey respondents are male, and 48% are female.

Twenty-nine percent (29%) of respondents are millennials (ages 18-34); 45% are Generation Xers (ages 35-54), and 27% are baby boomers or older (ages 55+).

Respondents are from the South (44%), Northeast (20%), Midwest (18%), and West (18%).