Give careful consideration to employee benefits
Founder Friday is a weekly guest post written by a founder who is based in or hails from the Silicon Prairie. Each month, a topic relevant to startups is presented and founders share lessons learned or best practices utilized on that topic. August's topic is employee benefits.
Launching a startup is fraught with many questions, least of which has to do with employee benefits. Perhaps, it is because no one is making money yet. As with many other decisions the founders make, however, benefits decisions are precedent setting and should be considered carefully.
You are creating a sustainable business, right?
As you incorporate your business, counsel will help you do things required by law. Minimally, as long as you pay people wages, you are required to pay certain core benefits – social security tax, Medicare tax and unemployment insurance. Missing the above three mandatory taxes is certain to get you and your company in a legal mess. Take care of them by signing up with a payroll service provider or signing up for Intuit's Quickbooks service with payroll processing. To help make it affordable, Startup America members can get payroll processing for free for the first 6-months from Intuit.
Another requisite insurance you're required to carry is workers compensation. Though founders can waive coverage, carrying this coverage for employees is mandatory and necessary. Even in the technology workspace where injuries are minimal, minor injury claims can wipeout meager startup resources.
A benefit founders need, privately paid and managed, is personal disability insurance. Its core purpose is to protect your income stream in the event of your disability (think finger loss, eye injuries, broken legs and more). It is available inexpensively from many reputable insurers, especially if you're still relatively young.
Your ability to attract seasoned resources will often depend upon your ability to offer the core health insurance benefit. The lack of competition limits your choices and, in Iowa, we are usually limited to Wellmark Blue Cross/Blue Shield, United Healthcare and Coventry. Coverage options vary but minimally you should get a group plan that provides balance between co-pay, deductible and cost. Though you may want to be generous and cover your employees' full premium (or families' premium), this is a hard precedent to change and best avoided in early years. Imagine the impact of 5 or 50 employees worth of premiums, monthly. Instead think of a shared expense model like 75 percent of employee premium paid by company and remainder paid by the employee. The laws in this category are likely to change considerably over the next year so get a good broker on your side early and communicate often.
Though dental and vision benefits are commonplace in the corporate world, they are usually a wash when it comes to cost vs. benefit. Individuals can easily get their insurance through providers like Delta Dental amongst others.
As a founder, financial security means something completely different to you than to your employees. As you hire people away from established companies, they'll come asking for 401(k) or similar retirement plans. These plans are easily obtained, heavily regulated, and best managed for you by an outside party. Though many people will sell you a plan, search for an administrator who will do both your payroll processing AND 401(k) administration and reporting. Managing these two items place heavy fiduciary responsibilities and the fewer parties managing this, the better. Look at providers like Fidelity Investments, Paychex, and Intuit for starters. There usually are many wonderful local service providers locally in every community, so interview several and work with the one who provides you with the most warm fuzzies in the meeting. If multiple companies will manage your plans, make sure to interview all entities involved and ensure they are bonded and carry fidelity bond coverage. Keep a certificate of this bond for your records.
Though seen as a requirement, vacation and sick time aren't required benefits (in Iowa, at least) but are a part of a healthy benefits package. Choose this one with extreme care, game it on a whiteboard with various counts of employees, years in business etc. to see if you can live with today’s decisions many years from now. Document them simply and track them carefully. Of all the benefits I've talked about so far, mismanaging this one item is the most expensive one to handle in employee morale, productivity and loyalty.
After this, benefits vary greatly – from profit sharing plans, annual or project bonuses, cruises, vacations, gadgets, transportation and more. Each place you interact with your employees outside your workplace is a valuable point of interaction with those who make your business successful. Each benefit becomes part and parcel of your employment relationship and changes in any benefit will cause a great deal of conversation in the company. Choose carefully, change as little as possible, and select based upon who you're hiring your employees from: Google and the Government have rich benefits policies and people are used to being taken care of. An exact opposite exists in the universe of startups and small businesses.
Credits: Headshot by Anna Jones | Art of Photography.
About the author: Tej Dhawan is a co-founder of Pikuzone, a parent-managed, ad-free, SPAM-free email service for children. He is also a co-founder of and mentor-in-residence at StartupCity Des Moines and spends his time working with entrepreneurs and partners in the Silicon Prairie.
Find Dhawan on Twitter, @tejdhawan.
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