What are statutory employee benefits?

Have you ever heard of the term "statutory benefits"? Statutory benefits are a crucial aspect of employment law that employers and HR professionals must understand to ensure compliance with the law.

In this article, we will explore what statutory benefits are, why they are important, and how they impact employers and employees.

Takeaways from this blog post:

• Statutory benefits are benefits that employers are legally required to offer to employees. Offering statutory benefits protects employees' financial stability and helps organizations avoid costly penalties.
• Federal and state governments legally mandate statutory benefits. In contrast, voluntary benefits are optional offerings by employers to attract and retain talent.
• Social Security, Medicare, unemployment insurance, and health insurance are examples of crucial statutory benefits that provide income support and healthcare coverage to employees.

Definition of statutory benefits

Statutory benefits are benefits the U.S. federal government or state governments mandate employers provide to employees. By making specific benefits mandatory, the government guarantees a certain level of security for workers, preventing exploitation and ensuring basic standards of living.

Statutory benefits help protect employees’ financial well-being and promote a fair and secure work environment. These benefits play a crucial role in ensuring that workers have access to essential resources and support during various stages of their lives, enhancing their overall quality of life.

Common examples of statutory benefits include:

• Social Security
• Medicare
• Unemployment insurance
• Health insurance for applicable large employers (ALEs)
• Family and Medical Leave Act (FMLA) protections

These benefits are vital in mitigating economic hardship, covering liabilities, and providing income and healthcare support to employees. Employers must offer mandatory benefits, or they may be subject to steep tax penalties and fines.

Statutory benefits vs. voluntary benefits

Statutory and voluntary benefits are two types of employee benefits that differ in terms of their implementation and requirements by the government. Statutory benefits, also called mandated benefits or government-mandated benefits, are benefits employers must provide to their employees. Federal, state, and local governments determine and enforce these benefits.

On the other hand, voluntary benefits are optional benefits employees can choose whether or not to enroll in. In this case, we’ll be referring to voluntary benefits as perks employers may choose to offer to their employees. The government doesn’t require employers to offer these benefits, which employers typically offer as an additional perk to attract and retain top talent.

Voluntary benefits can include various offerings, such as:

• Wellness programs
• Supplemental health insurance, like dental insurance
• Professional development
• Travel stipends

While governmental regulations enforce statutory benefits, employers implement voluntary benefits at their discretion. Employers have the flexibility to design and customize voluntary benefits programs to meet their workforce’s specific needs and preferences.

Types of federal statutory benefits

First, we’ll review the types of statutory benefits the federal government requires employers to offer.

Social Security benefits

One of the most recognizable statutory benefits is Social Security. While the federal government facilitates this benefit, employers must pay their share of Social Security taxes and set up proper withholding for their employees.

Social Security provides several types of benefits to workers who reach retirement age, which is typically around 65. By receiving these benefits, retirees and older workers can maintain their standard of living and avoid relying solely on personal savings or pensions.

Another type of Social Security benefit is disability benefits. These benefits are available to workers who have become disabled and can’t work. By receiving disability benefits, individuals can have some financial support to cover their basic needs and medical expenses while they can’t earn a regular income.

Social Security benefits also act as an economic safety net for low-income workers. These benefits include programs such as Supplemental Security Income (SSI) and Temporary Assistance for Needy Families (TANF). These programs provide financial assistance to individuals and families in need, helping them cover essential expenses such as food, housing, and healthcare.

Employers must contribute to the cost of providing these benefits through payroll taxes. These contributions, along with employee tax withholdings, go toward funding the Social Security system. By sharing the financial responsibility, employers help ensure that workers have access to Social Security benefits and are protected from poverty in retirement or in case of disability.

Medicare

Medicare is a federal health insurance program for individuals aged 65 and older and certain younger individuals with disabilities or end-stage renal disease. Its primary purpose is to provide affordable healthcare coverage to eligible individuals in the United States. The Centers for Medicare and Medicaid Services (CMS) administers the program.

While Medicare is facilitated by the government, the funding comes from various sources, including payroll taxes and income taxes. Employers must withhold a portion of the employee’s wages for Medicare taxes and contribute an equal amount. The Medicare tax is separate from the Social Security tax but is also based on a percentage of the employee's wages.

The Medicare tax rate is 1.45% for employers and employees. However, high-income individuals are subject to the Additional Medicare Tax.

Health insurance for ALEs

The Affordable Care Act (ACA) requires organizations with 50 or more full-time equivalent employees (FTEs)—known as applicable large employers (ALEs)—to provide affordable health insurance to at least 95% of their full-time employees. This health coverage must meet minimum value and minimum essential coverage (MEC) standards. The federal requirement for ALEs to offer health coverage is known as the employer mandate or employer shared responsibility provisions (ESRP).

If an ALE doesn’t offer affordable healthcare coverage to at least 95% of its full-time workforce and their dependents, and at least one full-time employee receives a premium tax credit for purchasing individual health insurance through the public exchanges, the IRS will subject them to a tax penalty.

If your organization is an ALE subject to the employer mandate, traditional group health insurance isn’t your only option for providing health coverage. With an individual coverage health reimbursement arrangement (ICHRA), you can reimburse your employees tax-free for their qualifying medical expenses and individual health insurance premiums. This gives employees more choice and flexibility in selecting a plan that suits their needs. As long as employees have MEC and your ICHRA is affordable, it can meet the ACA’s healthcare coverage requirements.

Family and Medical Leave Act protections

The Family and Medical Leave Act (FMLA) is a federal law that provides eligible employees up to 12 weeks of unpaid leave for certain family or medical reasons. It helps employees balance the demands of their work and personal lives while allowing them to care for their own health or the health of their family members.

Organizations that employ 50 or more employees within 75 miles must provide eligible employees with unpaid, job-protected leave. Eligible employees are those who’ve worked at least 1,250 hours in the last 12 months and have experienced a qualifying event.

During FMLA leave, employers must maintain the employee’s health coverage on the same terms as if they were actively working. Additionally, upon return from leave, employers must restore employees’ previous jobs or provide equivalent positions with equivalent pay, benefits, and other employment terms.

State-required benefits

State and local governments also have statutory benefits for organizations located in or that employ workers in their state. State and local laws govern these mandated benefits and ensure employees receive protections and entitlements.

Unemployment insurance

While unemployment insurance is a federal requirement, each state operates its own unemployment program.

Unemployment insurance is a crucial social safety net in the United States. It provides temporary financial assistance to eligible individuals who have lost their jobs or seen reduced hours. The process of obtaining state unemployment insurance involves several steps and requirements.

Depending on the state your organization or your employees are located within, your UI requirements may differ. Other factors that could impact UI requirements include your number of employees, the state workforce agency you’re registered with, and your state’s unemployment tax rate. Employers must report employee wages and contributions to the state agency regularly.

In most states¹, employers fund unemployment insurance through taxes.

Retirement benefits

Retirement benefits are financial support programs available to individuals to help them financially during retirement. While Social Security is a federally-required benefit and funded through taxes, other compulsory retirement benefits are specific to each state. States may require you to offer a retirement benefit if you meet their eligibility criteria, and may have specific rules and requirements for these benefits.

States that require retirement benefits for certain organizations include the following:

Workers’ compensation insurance

Workers' compensation insurance is a crucial type of coverage that ensures employees are protected in the event of work-related injuries or illnesses. It provides financial support to employees for medical expenses, lost wages, and rehabilitation services related to workplace injuries or illnesses.

All states except Texas have workers’ compensation laws. Employers can enroll in private or state-run workers’ compensation insurance plans or self-insure. Some states require all employers to have coverage regardless of the number of employees they employ, while others have minimum employee thresholds. It’s important for employers to familiarize themselves with their state's requirements to ensure compliance.

Disability insurance

Disability insurance provides financial protection to individuals who can’t work due to an illness or injury. Only some states require employers to provide disability insurance to employees.

These states are:

• California
• Hawaii
• New Jersey
• New York
• Rhode Island

Expense reimbursement

Expense reimbursement is the process by which employers compensate their employees for certain expenses incurred during the course of their work duties. This ensures fair treatment of workers and encourages employee satisfaction and productivity.

Expense reimbursement typically covers expenses that are necessary for employees to carry out their job responsibilities. According to federal law, organizations must reimburse employees for necessary expenses if it causes their wages to fall below the federal minimum wage. However, some states have additional expense reimbursement laws, which can include the cost of remote work, such as home office equipment.

For a complete list of states that require expense reimbursement, see our blog post.

Time off and sick leave

Time off is a policy that allows employees to take time off from work. There are various types of time off policies, including paid time off (PTO) or vacation days, sick leave, voting leave, and more.

Vacation time and PTO allow employees to take time away from work for leisure and relaxation purposes, such as going on trips or spending quality time with family and friends. Employees can use sick time to rest and recover when they fall ill. Employers may also offer other types of leave, such as parental leave, bereavement leave, and jury duty leave.

Although the federal government doesn’t mandate PTO, it does require certain types of family and medical leave, as previously discussed. Some states also have regulations regarding time off benefits.

The following states and territories require employers to provide sick leave:

• Arizona
• California
• Colorado
• Connecticut
• District of Columbia
• Illinois
• Maine
• Maryland
• Massachusetts
• Michigan
• Nevada
• New Jersey
• New Mexico
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

Time off requirements in each state vary by company size and employee work hours, so be sure to check your state’s specific laws.

Do small businesses have to provide statutory benefits?

Small businesses have certain requirements and obligations when providing statutory benefits to their employees. Some of the types of federal statutory benefits that small businesses must offer to their full-time employees include medical insurance (if your organization’s an ALE) and Family and Medical Leave Act (FMLA) protections. However, these regulations only impact organizations with 50 or more FTEs. State-required benefits may impact small organizations as well as large ones.

Even if your state or the federal government doesn’t require benefits due to your company size, offering benefits can greatly help with recruitment and retention efforts. Our 2022 Employee Benefits Survey found that 82% of employees said an employer’s benefits package is an important factor in whether or not they accept a job.

Not all benefits are equal, though. Our survey found that 87% of employees value health benefits. Many small to midsized organizations face challenges when offering health benefits, including unaffordable costs and steep minimum participation rates. This prevents many organizations from offering a traditional group health insurance plan, which can impact recruitment and retention efforts. Thankfully, organizations have more flexible alternatives to group plans.

In recent years, health reimbursement arrangements (HRAs) like the qualified small employer HRA (QSEHRA) and individual coverage HRA (ICHRA) have emerged as excellent health benefit options. These HRAs allow employers to reimburse employees for qualifying medical expenses and health insurance premiums. This gives employees more control over their healthcare choices while saving organizations time and money on benefits administration.

HRAs make it possible for small businesses and nonprofits to offer quality health benefits. As part of our 2024 QSEHRA Report, we surveyed some of our QSEHRA customers. Nearly 77% of respondents said they didn’t offer a health benefit before a QSEHRA with PeopleKeep. HRAs make it easy for employers to do right by their employees and provide excellent benefits.

In conclusion, while small businesses may not have a legal obligation to provide all statutory benefits, it’s beneficial for them to do so.

Conclusion

There are many types of statutory benefits employers must provide to their employees. Depending on your employees’ states, these required benefits vary. Whether you plan to offer only mandatory benefits to meet legal requirements or a mix of statutory and non-statutory benefits, doing so can improve recruitment and retention for your organization by increasing employee satisfaction.

If you’re ready to expand your benefits offerings, PeopleKeep can help. Our HRA administration software make it easy for small and midsize organizations to set up and manage their benefits in minutes.

Schedule a call with a personalized benefits advisor to start offering health and lifestyle fringe benefits to your team.

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