A small business may seem at a disadvantage at first compared with larger companies when it comes to hiring employees. Big companies, after all, have significant resources, not to mention name recognition, to lure and keep the best talent.
But small companies have the nimbleness to be more innovative with their workplace practices. By offering the right benefits and work environment, you can create a business where workers have the opportunity to truly thrive and feel happy—all while gaining an edge on recruiting and retention over your competitors.
Here are seven tips that will help enable you to craft the benefits and workplace environment you need to build a talented workforce:
1. Offer the Right Kind of ‘Fringe’ Benefits
Small businesses often can’t offer the same level of traditional benefits provided by large companies. But they can design an employee benefits package that will be just as appealing, if not more so.
Certain benefits are federally mandated, including Social Security, unemployment insurance, workers’ compensation, a minimum level of health care benefits and some leave—although not all leave has to be paid. For example, government agencies and companies employing 50 or more staff are required to grant leave under the Family and Medical Leave Act (FMLA). FMLA allows workers to take up to 12 weeks of unpaid leave to care for a new baby or an ailing family member, or for a personal illness.
Retirement plans, on the other hand, are entirely optional. Paid vacation, too, is on the fringe, next to tuition reimbursement and gym memberships. But would leaving these benefits out to save the cash be worth it? Not if you’re trying to find and hire qualified candidates.
One way to gain more access to fringe benefits services is to become part of what’s known as a Professional Employment Organization, or PEO, in which small business owners hand over all benefits administration to a professional provider—from payroll to insurance and more—in exchange for a fee.
2. Understand How Fringe Benefits Fit Into Your Tax Strategy
Your small business may be growing fast enough that it has the resources to provide not only insurance and retirement benefits but also one-off perks that feel more like fringe benefits. Think free food for employees, work-from-home arrangements and more.
Extra perks also don’t have to cost you or your employees anything in additional taxes. When it comes to offering fringe benefits to employees, the IRS still gives small business owners plenty of latitude under the Tax Cuts and Jobs Act of 2017. Here’s a quick summary of the options:
- Health and accidental death benefits. Contributions made to health plans on behalf of employees are generally exempt from federal unemployment tax and most income tax, but there are exceptions. The exclusion also generally applies to qualified long-term care insurance contracts.
- Achievement awards. Call this the gold-watch benefit. An employer can deduct personal property awards for length of service or safety achievement, with the value of the awards generally excluded from a worker’s taxable wages. The exclusion doesn’t apply to cash, gift cards, etc., unless it involves arrangements to select an item from a preselected list. The maximum amount that an employer can exclude per employee per year is $1,600, or $400 if the awards aren’t “qualified plan awards.”
- Adoption assistance. Reimbursed expenses paid to employees for adopting a child are exempt from federal income tax, but not Social Security, Medicare and unemployment tax. The adoption assistance program must not favor employees whom the IRS considers to be highly compensated.
- Athletic facilities. Companies that build on-site athletic facilities for use by employees, their spouses and their dependent children can offer access as a tax-exempt benefit. (Note: This does not include gym memberships.)
- De Minimis benefits. These benefits are officially defined as property or a service that has “so little value” that accounting for it would be unreasonable. As a result, they’re tax-exempt. These tend to include theater tickets and occasional company parties.
- Dependent care assistance. Most employees will qualify for up to $5,000 in tax-exempt assistance for day care. (This drops to $2,500 each for married couples filing separately.) See page 10 of IRS Publication 15-B for the details on what it takes to qualify for this benefit.
- Educational assistance. This doesn’t just include tuition assistance, but also payments for books, equipment and other expenses related to continuing education. (The exclusion, however, does not cover courses related to sports, games or hobbies.) Eligible employees can receive up to $5,250 in annual tax-exempt assistance.
- Employee discounts. Give your employees a discount toward your goods and services—within limits. Consult a tax advisor before you set the percentage.
- Group-term life insurance coverage. This is generally tax-exempt up to the first $50,000 in life insurance benefits offered to an insured employee.
- Health Savings Accounts (HSA). While there are limits, qualifying employees covered by a high-deductible health plan can contribute, tax-free, up to $3,450 for just themselves or $6,850 for a family to cover out-of-pocket health expenses in 2018.
- Lodging (on your business premises). This benefit is exactly as it sounds, believe it or not. Say you run a factory. As a condition of employment, you can offer workers housing on site at your facility, free of charge, and they won’t be taxed for the benefit.
- Meals. The occasional round of donuts and coffee, parties and picnics, meals while employees are working overtime—they’re excluded. The 2017 tax reform, however, did place additional limits on the meal expenses deduction.
- No-additional-cost services. Think of these as capacity benefits, such as an airline offering its employees the right to fly free on trips where there are unsold seats. Most small businesses won’t have this luxury to offer, unfortunately, but there are exceptions. For example, a local bookstore may let employees pick from the list of surplus copies before they head to the $1 bargain bin.
- Retirement planning services. You can pay to give your employees tax-free access to a retirement specialist, but not an accountant or tax advisor.
- Transportation benefits. This exclusion includes up to $260 monthly for transit passes and other shared commuting services are tax-free. Or, for employees who drive, up to $260 monthly for parking. Qualified transportation benefits, however, are not deductible under the tax law passed in 2017.
- Working condition benefits. Employees are allowed tax-free access to equipment to perform their jobs. This may include providing a company car for business or paying monthly reimbursements for the cost of a mobile phone used for business. Both are typical working condition benefits.
3. Determine What Benefits You Can Offer
If you want to offer tax-free fringe benefits, keep in mind that every employee must have access. Some benefits—like offering health insurance, for example—are only tax-advantaged when offered on a “non-discriminatory” basis. What if you want to reward a single employee with a fringe benefit?
That’s possible, though your employee will be taxed on the reward as if it were income. The key is to make the reward attractive enough that it beats a cash bonus. One potential example: offering an in-need worker the option of keeping a company car for personal use.
Consult a tax advisor before making assumptions about the benefits you provide to employees. But don’t limit yourself—get creative. Fringe benefits may seem like one-offs, but used correctly, they can also provide a tax-smart way to help staff. Do that often enough, and you won’t have a problem recruiting and keeping top talent—even in tough markets.
4. Reduce Employee Boredom
Beyond fringe benefits, there’s the need to make sure your company is a rewarding place to work. Simply put, you need to make sure your company isn’t boring.
Lack of challenge is one of the main reasons talented employees lose interest in their jobs and quit. Rather than waiting to discover they’re bored, take proactive steps to keep them excited about their work.
First, figure out when your high performers are bored. Here’s the easiest way to find out: Ask them directly.
Once you know a high performer is bored, you can take steps to fix the problem. You need to make sure you’re expanding their knowledge and skills, and that they’re able to pursue projects they care about, advises Travis Bradberry, president of leadership consultancy TalentSmart.
Letting employees have some flexibility to spend their time on projects of their choice helps prevent on-the-job boredom and keeps them engaged with their work. Give them “stretch assignments” that push their skills and knowledge base. This allows high performers to break out of their comfort zone and pursue different types of tasks and roles that may challenge them and keep them happy.
Let the motivated accountant brainstorm ways to bring in new clients. Let the assembly worker propose efficiencies or new products. Many high performers crave the chance to be both creative and strategic beyond their standard roles.
And give those employees continual feedback on their performance—something high-performing workers thrive on. “The most talented employees seek to improve everything they touch,” writes Bradberry. “If you take away their ability to change and improve things because you’re only comfortable with the status quo, this makes them hate their jobs.”
5. Provide Career Paths.
Your company, like many small businesses, may struggle with offering upward mobility. Talented employees may not feel they have the career advancement opportunities available to them at larger companies.
But small businesses can—and should—design growth opportunities. In fact, small companies may have an advantage when it comes to providing career growth because they are more nimble than large firms and can more easily create new positions centered around the needs or goals of specific employees.
It’s important for small companies to actively develop career paths and communicate those advancement opportunities to their best employees—who may feel they have to jump ship to “move up” in their careers, writes HR professional Kazim Ladimeji on Recruiter.com.
That might include creating higher positions at the company around the specific skills, talents and interests of top performers. But it can also mean offering job-specific training and career development that allows them to think about and evolve their careers. The important thing is to make top performers feel as though the company is invested in their future so that they don’t have to leave to grow.
“Don’t just string employees along with promises of development: Set out a clear vision, and then make it a concrete reality,” Ladimeji adds.
6. Hold Poor Performers Accountable and Reward Top Performers
Low performers can take a big toll on workplace morale—and especially on the morale of top performers. It’s important to take steps to try to improve the performance of low performers or, in some cases, let them go.
A survey of 1,700 professionals by Eagle Hill Consulting found that low performers are seen to increase the workload of high performers and, in turn, reduce workplace morale by creating a culture where mediocrity seems acceptable.
To prevent this, Eagle Hill recommends companies take several steps: Identify high performers within the organization and define what high performance entails. Companies can then use those benchmarks to first try to hire the best people, then recognize strong performers and take steps to improve or weed out low performers.
“The most successful organizations are those that drive out the weak links and nurture their top performers,” Melissa Jezior, Eagle Hill president and CEO, tells the Society of Human Resources Management. “Yet, our findings indicate that in some cases, low-performers are destroying an organization’s culture and causing attrition of the talented staff employers should retain.”
Research shows that top performers crave recognition for their good work. They may feel undervalued if nobody gives them credit or seems to notice the extra effort or successes they achieve.
As your business grows, it’s especially important to think about talent management and how to motivate and retain your best employees. Putting such practices in place sooner rather than later should help prevent these people from flocking to your competitors.