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What Is the Average Small Business Cost per Employee for Benefits

small business group benefits

Small businesses have been the backbone of the economy for decades, providing employment opportunities and driving growth in various industries. As a small business owner, you understand the importance of taking care of your employees and providing them with competitive benefits to attract and retain top talent. However, with so many options available, navigating through employee benefits can be overwhelming and costly.

In this article, we will delve into the average small business cost per employee for benefits, break down the different types of benefits and their associated costs, and provide valuable tips on managing these expenses effectively. Also, we’ll talk about the benefits of offering competitive employee benefits and how it can impact your business’s bottom line.

What are Employee Benefits?

What are employee benefits?

Employee benefits, often fringe benefits, are various non-wage compensation provided to employees in addition to their average wages or salaries. Below are some of the most common types of employee benefits offered by small businesses:

Health Insurance

Health insurance is a crucial employee benefit for most small businesses, as it covers employees’ medical and surgical expenses. As a business owner, you may offer traditional health insurance plans or opt for more cost-effective options such as Health Savings Accounts (HSA) or Health Reimbursement Arrangements (HRA). For instance, if you own a small boutique and have hired a contractor as your full-time salesperson, providing her with health insurance would be highly beneficial.

Suppose they fall ill; they can receive the necessary medical treatment without worrying about the costs and focus on getting better instead. It also shows that you value your employees’ overall well-being and are invested in their health. Apart from providing financial coverage for medical expenses, health insurance plans also often include wellness programs that aim to promote healthy habits among employees. These programs may offer discounted gym memberships, nutrition counseling, and smoking cessation programs.

Dental and Vision Insurance

Dental and vision insurance are crucial elements of an employee benefits package, catering to specific healthcare needs that can influence an employee’s overall well-being and effectiveness. Dental insurance typically covers preventive care like regular checkups, cleanings, and x-rays and contributes to more extensive procedures such as fillings, crowns, and root canals. On the other hand, vision insurance offers benefits that help reduce costs for eye exams and prescription eyewear or contact lenses. Providing these benefits showcases a holistic approach to employee health, highlighting the significance of preventive care and early detection of potential issues.

For instance, consider offering Dental and Vision Insurance to John, your graphic designer who spends most of his day at a computer. By ensuring he receives regular eye exams and appropriate prescription eyewear, he can prevent or reduce eye strain and headaches, enhancing his focus at work and boosting productivity. By providing these benefits, you also show your employees that you care about their overall health and well-being beyond just their basic medical needs. This can increase employee satisfaction and loyalty towards your company.

Parental Leave

Job seekers highly seek small businesses that offer parental leave to their employees and have a competitive edge in attracting top talent. Parental leave, also known as maternity or paternity leave, allows new parents to take time off work to bond with their newborns and adjust to the demands of parenthood. The duration of parental leave varies from company to company, but it typically ranges from a few weeks to several months.

While providing paid parental leave can be costly for small businesses, it is a highly valued benefit that can positively impact employee morale and retention rates. By offering this benefit, you show your employees that you support their personal lives and appreciate the importance of work-life balance. This, in turn, can lead to a more committed and engaged workforce, reducing turnover costs for your business.

Retirement Plans

Retirement plans are essential long-term benefits that small businesses can offer employees. These plans, such as 401(k) or Individual Retirement Accounts (IRA), allow employees to save for their retirement and contribute towards their financial security in the future. By offering a retirement plan, you help your employees secure their futures and show them that you are invested in their long-term success and well-being.

Additionally, offering a retirement plan can give your business a competitive advantage in attracting and retaining top talent. Many job seekers consider retirement benefits a crucial factor when evaluating potential employers, and providing these benefits can help position your company as an attractive workplace.

Paid Time Off

Paid time off (PTO) is another highly sought-after employee benefit that provides employees with paid days off for vacation, sick leave, or personal days. PTO is a crucial aspect of work-life balance and can improve employee well-being by reducing stress levels and promoting self-care. Offering PTO also shows your employees that you value their time outside of work and recognize the importance of rest.

While offering paid time off may not seem like a significant expense for small businesses, it can significantly impact employee satisfaction and retention. By providing this benefit, you can build a positive work culture where employees feel supported and valued, increasing productivity and loyalty towards your business.

Employee Discounts

Employee discounts are another popular benefit offered by small businesses. These discounts can include reduced prices on company products or services and partnerships with other businesses to provide discounts for their employees. By offering employee discounts, you show your employees that you appreciate their hard work and loyalty and want to reward them with exclusive perks.

Employee discounts can also help boost morale and motivation within the workforce, as employees feel appreciated for their contributions. Additionally, these discounts can be a cost-effective way to attract top talent, as job seekers may be enticed by the opportunity to save money while working for your company.

Education Assistance

Small businesses can also offer education assistance programs that provide employees with financial support for continuing education or obtaining a degree. By submitting this benefit, you invest in your employees’ personal and professional development and enhance their skills and knowledge within the company.

Education assistance can also be a valuable recruitment tool, as many job seekers consider opportunities for continued learning and growth when evaluating potential employers. Additionally, this benefit can lead to a more skilled and knowledgeable workforce, positively impacting the success of your business.

Factors Influencing Cost of Small Business Group Benefits

Factors influencing cost of small business group benefits

The cost of employee benefits can vary widely among small businesses, influenced by several key factors. Here are some factors that can impact the cost of providing employee benefits:

Number of Employees

The number of employees within a small business can significantly impact the cost of providing employee benefits. Generally, the more employees a company has, the higher the overall cost of benefits will be. This is because as the number of employees increases, so does the total amount of money needed to provide those benefits.

For example, if you are a small business owner with 10 employees, providing healthcare benefits for all of them may be more manageable than having 50 employees. With a larger workforce, premiums and other expenses associated with offering mental health benefits will also increase. Additionally, having a larger number of employees could mean more diverse needs and preferences when it comes to employee benefits, resulting in a potential increase in the variety and cost of benefits offered.

Type of Benefits Offered

The type of benefits offered can also significantly impact the overall cost. Different kinds of benefits, such as healthcare, retirement plans, or education assistance, may vary in terms of their premiums, coverage levels, and administrative costs for the employer. For example, offering comprehensive disability insurance benefits may be more expensive than basic retirement plans.

Before deciding on the types of benefits to offer, small business owners should carefully consider their budget and prioritize which benefits are most important to their employees and company values. By understanding the cost differences between various benefits, businesses can make informed decisions that align with their financial capabilities and employee needs.


The location of a business can also impact the costs associated with providing employee benefits. For instance, the cost of healthcare may vary depending on the state or region where a business is located. In some areas, healthcare premiums and other qualified medical expenses may be significantly higher, which can increase the overall cost of employee benefits.

Additionally, different states may have other laws and regulations regarding certain employee benefits, leading to potential cost variations. For example, some states may require employers to provide a certain number of paid sick leave days, which can increase the overall cost for small businesses operating in those areas.

Employee Demographics

The demographics of a company’s workforce can also impact the cost of providing employee benefits. For instance, a business with older employees may require more health coverage, increasing costs. On the other hand, a younger workforce may not have as many healthcare needs, resulting in lower expenses for the company.

Gender and marital status can also affect small business employee benefits, as some benefits may be more expensive for women or married employees than men or single employees. By understanding their employee demographics, small businesses can tailor their benefit offerings to meet their workforce’s needs better while managing costs effectively.

Business Industry

The industry in which a small business operates can also impact the cost of providing employee benefits. For example, companies in sectors with high-risk or physically demanding jobs may need to provide more extensive healthcare coverage and employee assistance programs for their employees, leading to higher overall benefit costs.

Additionally, certain industries may have more competitive job markets, meaning employers in those fields may need to offer more attractive benefits packages to attract and retain top talent. For instance, companies in the tech industry may need to provide unique perks like gym memberships or flexible work schedules to remain competitive.

Business Revenue

The overall revenue of a small business can also impact the cost of providing employee benefits. Companies with higher incomes may have more financial resources to invest in employee benefits, allowing them to offer more comprehensive and expensive packages compared to smaller businesses with limited budgets.

At the same time, companies with lower revenues may need to be more strategic and creative in their benefits offerings, focusing on cost-effective options that still meet the needs of their employees. By understanding their revenue levels, small businesses can make informed decisions on allocating funds toward their benefits packages.

Employee Tenure

The length of time an employee has been with a company, known as tenure, can also impact the cost of providing benefits. In general, more extended-tenured employees may receive higher benefit costs compared to newer employees. Long-term employees often have more significant retirement savings, requiring the employer to contribute more towards their plans.

Long-term employees may also receive group health insurance benefits due to aging and potential health issues. On the other hand, new employees may have fewer benefits or require less coverage initially, resulting in lower costs for the company.

Strategies for Managing Benefit Costs

Strategies for managing benefit costs

Managing the cost of employee benefits is a crucial concern for small business owners. Adopting strategic approaches can help mitigate these expenses while still providing valuable benefits to employees. Here are some strategies that small businesses can implement:

  • Conducting a cost-benefit analysis: By evaluating the costs and potential benefits of different benefits packages, business owners can make informed decisions on which options to offer.
  • Negotiating with insurance providers: Small businesses may be able to negotiate lower premiums or seek out group plans for their employees, reducing overall benefit costs.
  • Utilizing technology: Automating benefits administration processes can help reduce administrative costs and improve efficiency.
  • Offering a flexible benefits plan: By allowing employees to choose the benefits they want, businesses can save on costs by not providing unnecessary coverage.
  • Encouraging employee wellness: Promoting healthy lifestyles and offering wellness incentives can lower healthcare costs for employers and employees.
  • Considering alternative benefits: Small businesses can explore alternative benefits like telecommuting options, professional development opportunities, or employee discounts to supplement traditional benefits and reduce costs.
  • Seeking expert advice: Seeking the counsel of employee benefits consultants or insurance brokers can be incredibly beneficial for small businesses looking to manage their benefit costs effectively. These professionals deeply understand the benefits landscape and can provide valuable insights into the most cost-effective plans and options available.


Managing the costs of providing employee benefits poses a complex challenge for small businesses. To address this, it’s crucial to grasp the diverse factors that impact these costs, including government regulations, location, workforce demographics, industry, revenue, and employee tenure. This understanding is vital for crafting effective cost-management strategies. Small businesses can offer competitive and cost-efficient benefit packages by employing a blend of cost-benefit analysis, negotiation, technology integration, flexible plans, wellness initiatives, and alternative benefits.

Seeking expert guidance and consistently evaluating benefit offerings can further optimize resources, ensuring the company and its employees derive maximum value. Thoughtful management of employee benefits not only aids in attracting and retaining top talent but also promotes financial well-being, contributing significantly to the company’s success.