How to choose company benefits and stay within legal restrictions.

Company Benefits: Know How to Navigate the Legalities

Posted September 5, 2016 by Kristin Hoppe in Keeping Compliant
Offering company benefits is a key way to attract top talent. Here are some legal requirements to watch out for when providing employee benefits.

There are plenty of work perks and benefits your employees may want, from dental to a 401(k) or ping pong tables in the lounge. But when it comes to choosing a benefits provider, how do you navigate the legalities of employee health?

Various federal, state, and local laws require that certain minimum benefits be provided to employees. The legally required benefits you need to offer largely depends on your company size and location.

We’ve written a full guide on how to choose a benefits provider. You can download it here.

Here are a few legal provisions you should have on your radar.

The Affordable Care Act

If you have fewer than 50 full-time equivalent employees (FTEs) on average during the prior year...

The ACA does not require you to offer healthcare benefits. However, it does offer an incentive for you to do so. You may be eligible for the Small Business Health Care Tax Credit if you:

  • Have fewer than 25 FTEs;
  • pay average annual wages to your employees for the year of less than $54,200 per FTE; and
  • cover at least 50% of your full-time employees’ health insurance premium costs.

Generally, a FTE is defined as an employee who works an average of at least 30 hours per week, or 130 hours per month, for more than 120 days a year.

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But take note that the hours your part-time employees (PTEs) work can add up to equal those of a FTE. In order to calculate whether a number of PTEs aggregated together count as FTEs, divide PTEs aggregated weekly hours by 30 hours a week (what’s defined as FTE).


You have four PTEs who each work 15 hours a week for 120+ days a year.

(4 PTEs * 15 hours) = 60 / 3 = 2

These four PTEs would count as two FTEs for definition purposes of the ACA.

If you have 50 or more FTEs on average during the prior year...

Follow the Employer Mandate, which requires you to either offer qualified health plans or pay a fine for each employee.

A qualified health plan must meet federal government standards. For example, federal government standards require coverage on pre-existing conditions and removing caps on lifetime benefits.

Other required benefits to be aware of:

Unemployment Insurance

Federal law requires all employers to offer unemployment insurance. In order to stay compliant, your company will need to register for state unemployment insurance (SUI) in each state where you have employees, and pay SUI quarterly, usually through taxes.

Workers’ Compensation

Small businesses with more than five employees are required to provide workers’ compensation, although workers’ comp laws vary in every state. The National Federation of Independent Businesses provides a state-by-state guide here.

Family and Medical Leave

If your business has 50 or more employees, federal law through the Family Medical Leave Act (FMLA) requires you to provide twelve workweeks of unpaid leave if one of your employees has a newborn child or if they adopted or took in a child through foster care.

Paid Sick Leave

Federal law does not require sick leave. But some states, like California, have mandated paid sick leave policies with calculations depending on employee hours and duration of employment.

Commuter Benefits

Commuter benefits are also not federally required, but the city in which you work might require them. New York City requires employers with 20 or more full time employees employees to provide it; and San Francisco 50.

Because of so many varying state and federal laws, some people choose to opt for a Professional Employer Organization (PEO) like Justworks to ensure they’re navigating all the legalities of offering a benefits package. However your company decides to approach it, providing employee benefits will positively affect both your employees’ health and the level of talent you’re able to attract.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.