Are Employee Benefits Required By Law?

Thursday, February 9, 2023 13:29 Posted by Admin
Are Employee Benefits Required By Law?

Offering employee benefits can be the deciding factor when it comes to employee recruitment, employee retention, work morale, and subsequently, your organization’s growth. Paying your employees their regular salary alone is not sufficient for them and your company.

Many employers can choose the range of employee benefits to offer, but some benefits are regarded as fundamental by the federal government, and as such, are required by law. In this guide on employee benefits, we shed light on legally required benefits.

What Are Employee Benefits?

Employee benefits are forms of compensation asides from a basic salary that are granted to employees, either voluntarily or in compliance with the law. Top-notch employee benefits have a positive effect on employee attitude and can help attract talented employees.

What Employee Benefits Are Required By Law?

The major categories of federally mandated benefits programs are unemployment insurance plans, workers’ compensation insurance, Social Security, and Medicare.

Social Security

Social security is an employee benefit that provides financial ease for aging individuals, survivors and dependents of eligible workers, disabled people younger than 65 years old, and retirees who have worked for a minimum of 10 years while paying Social security taxes.

Employers are expected to withhold Social Security tax at 6.2% of the employee’s taxable income, above or equal to the maximum Social Security Wage Base.


Medicare is another employee benefit that is required by the federal government and it offers partial health coverage to disabled people, people with permanent kidney failure, and individuals aged 65 or older who have worked and paid Medicare taxes for at least 10 years.

Medicare helps to mitigate economic hardship resulting from the heightened cost of medical care. The current cost of Medicare tax is 2.9% and it is shared evenly by both employer and employee.

Social Security and Medicare are similar because they are both legally required benefits that target people who are not working. Both benefits are also managed by the Social Security Administration and are partly funded by the employer and the employee in the form of taxes.

The main distinction between Social Security and Medicare is that Social Security benefits involve a source of income while Medicare aims to cover liabilities resulting from healthcare/medical bills.

What Employee Benefits Are Required By Law

Unemployment Insurance

Unemployment insurance cares for employees who get fired by their employers. All employers are expected to carry unemployment insurance so that an employee can receive a quality compensation package in case they get laid off wrongfully.

Unemployment compensation insurance varies in different states, and unemployment benefits are funded by both the Federal Unemployment Tax Act (FUTA) and state Unemployment Tax programs.

Workers’ Compensation Insurance

Workers’ compensation insurance covers medical bills, the cost of rehabilitation, and lost income due to workplace injuries and illnesses. Workers’ compensation is paid for by the employer, managed by the state government, and mandated in all states in the US states apart from Texas.

Mandatory Employee Benefits for Large Employers

Some other employee benefits are required by law, but they depend on how many employees a company has. Applicable large employers (having at least 50 full-time employees) need to provide health insurance and family/medical leave for their employees.

A full-time employee is defined as one that works for at least 30 hours a week or 130 hours a month.

Health Insurance Coverage

Medicare, as explained above, is restricted in terms of who can benefit from it. However, general health insurance benefits are also required by law for employees in large companies.

The Affordable Care Act (ACA) is a 2010 healthcare law that establishes affordable health insurance for more Americans, regardless of their income level. Since it was incorporated during Barrack Obama’s tenure as President, the regulation is often called “Obamacare”.

To achieve its aim of widespread access to healthcare, the Affordable Care Act’s Employer Mandate demands that employers offer health insurance to a minimum of 95% of their full-time employees and their children younger than 26.

In addition, the health insurance plan selected for employees by a business owner must be affordable and must also cover a minimum value of 60% of the cost of the services included in the plan.

Large employers often purchase large group health insurance plans for their employees, since group healthcare coverage costs less than individual plans. There are also group health plans for small businesses so that upcoming organizations can also provide healthcare coverage.

Family and Medical Leave

The Family and Medical Leave Act is a federal law that was passed in 1993, and it states that a company should grant at least 12 weeks of unpaid medical leave to employees within a 12-month period to attend to medical and family situations while ensuring job security during the leave period.

Family and medical leave also belong to the group of statutory benefits for companies with over 50 full-time employees, but small companies are generally exempt.

Under the medical leave act, common scenarios where unpaid leave applies include childbirth, caring for an infant, managing a serious medical condition, and caring for an ill family member.

Medical leave remains unpaid in most parts of the US, even though some state and local laws have deviated over the years. Currently, eleven states engage in paid family and medical leave, including Massachusetts, Colorado, California, New Jersey, and New York.

Mandatory Employee Benefits for Large Employers

What Are Voluntary Benefits?

The better the benefits package that a business owner provides, the more enjoyable work will be for both the employee and the employer. Apart from the mandatory benefits listed above, employers can extend more than one optional benefits package to employees to improve their standard of living and work productivity.

Disability insurance

The purpose of disability insurance is to ensure that an employee is paid a percentage of their regular salary if a disability or serious medical condition makes them incapable of working. Due to the financial safety net granted by disability benefits, this insurance type is often referred to as income protection.

Life Insurance

Life insurance is an agreement that a fixed amount of money will be paid to an employee’s immediate family member or a designated beneficiary in case of the employee’s death. Life insurance is a benefits package that most employers should consider since it protects your employees’ loved ones.

Wellness Programs

Wellness programs focus on improving the overall well-being of employees, including their physical and mental health, and their financial and social stability.

Maintaining your employees’ salary when they are taking a break from work is a great way to stay ahead of competing establishments and boost employee loyalty.

Employers can also consider tuition reimbursement and retirement savings plans when providing benefits.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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