Are employee benefits required by law? Learn which to offer

While federal and state laws in the United States require employers to offer some benefits, others are optional. HR leaders must know the difference to ensure their organization remains compliant.

Many employers choose to go above and beyond when offering benefits, either as part of an overarching recruitment and retention strategy or in an attempt to improve employee well-being. Some benefits like pet insurance and financial education can improve employees' personal lives.

Learn which employee benefits are required by law as well as why HR leaders should consider adding some of the optional benefits.

Legally required employee benefits

Many legally required benefits involve employee healthcare and the employer's responsibilities surrounding it.

Affordable Care Act

The Affordable Care Act (ACA) requires employers with 50 or more employees to provide health insurance to 95% of their full-time staff. Employers that don't must pay the IRS a penalty.

When the ACA first came into effect, many companies opted to pay the penalty, said Jennifer Miceli, regional director of compliance at OneDigital, a consulting firm headquartered in Atlanta. Now that practice is less common.

Jennifer Miceli

However, the rise of remote work can present ACA-related challenges for companies operating in multiple states, Miceli said. An employee moving to a different state can affect the way the company calculates their benefits, and the company may need to contribute more to that employee's benefits than before.

"We have a lot of clients [whose] employees are allowed to work remote[ly], and now all of a sudden, someone just moves to Hawaii," Miceli said.

COBRA

COBRA requires companies to allow employees and employees' families to continue their employer-sponsored group health benefits for a limited period of time. Employees may qualify for COBRA for reasons such as involuntary termination and employee resignation.

COBRA applies to employers with 20 or more employees.

Family and Medical Leave Act

The Family and Medical Leave Act (FMLA) enables employees to take as much as 12 weeks of unpaid leave a year for certain personal situations, like having just given birth or needing to take care of a sick relative. During that time, the employee should continue receiving their company's group health benefits and they have the right to return to their same job or an equivalent position.

The FMLA applies to employers with 50 or more employees.

Medicare

Employees who are 65 years of age or older qualify for this benefit, and employees with particular disabilities or health conditions may qualify as well.

Recipients pay for some of Medicare through monthly premiums that cover care and medication, among other costs.

Unemployment insurance

Unemployment insurance pays out when an employee is let go from a company and the employee is not at fault. For example, an employee who is laid off qualifies for unemployment insurance.

The parameters can differ from state to state, but generally, eligible employees receive benefits for a maximum of 26 weeks.

Workers' compensation

Employees who are injured on the job or who become sick because of their work qualify for workers' compensation.

Eligible workers have their medical costs covered and are reimbursed for some of their lost wages, among other benefits.

All employees in the U.S. qualify for workers' compensation. In some cases, other categories of workers, such as contract employees, are also eligible.

Optional employee benefits

Companies that offer other benefits voluntarily often do so to remain competitive in the hiring marketplace.

Tom Belmont

"[Employers are] still dealing with issues around recruiting, retaining and competing for talent," said Tom Belmont, U.S. health and benefits practice leader at Gallagher, a consulting firm headquartered in Rolling Meadows, Ill. "A lot of the benefits offerings and the communications [around them] is really targeted at, how do I recruit and retain employees?"

Some types of benefits have gained more prominence in recent years.

For example, employers are increasingly offering student loan reimbursement programs, Miceli said.

Here are some other benefits that companies are offering on a voluntary basis.

Pet insurance

Pet insurance gives employees the option of paying a monthly premium for pet insurance instead of receiving a large vet bill.

Pets can help employees' emotional well-being, Belmont said. The pandemic led to an increase in popularity for pet insurance as an employee benefit.

"People spent a lot of time at home with their pets [during lockdown], and they were emotional support," he said.

Wellness benefits

Employers may offer a variety of wellness benefits. Common wellness programs include the following:

• Smoking cessation support.
• Weight loss support.
• Stress management.
• Reimbursement for fitness activities.

Some employers are recognizing that financial health also contributes to employee wellness and providing tools and educational resources for budget management, Miceli said.

Companies may voluntarily pay for employee well-being activities.

Some organizations are creating "lifestyle accounts" to help employees finance activities such as art therapy, or yoga and Pilates classes, Belmont said. The employer deposits a certain amount of money into a lifestyle account managed by an external administrator.

Josepha Gonzales Conway

Whether a benefit is optional for companies or not, HR leaders should ensure the benefit is equal for all employees.

For example, if an employee in California can take advantage of a certain benefit, an employee in Michigan should be able to do so as well, said Josepha Gonzales Conway, compliance and audit practice leader at WTW, a consulting firm headquartered in London.

Many times, companies will solve this problem by basing their benefit offering on the state with the highest standards for that benefit, Conway said. However, doing so can become expensive, so HR leaders should make sure they and other leaders are aware of the potential costs.