Small businesses face many challenges when it comes to competing for talent. Large company opportunities for talented people not only come with high salaries and great benefits but are also accompanied by clear development paths offering lots of room to move rapidly upward (or sideways) through the organization. This collection of offerings is difficult, if not impossible, for small businesses to duplicate and compete against successfully. Considering that most small businesses do not even attempt to close some of these disadvantages by offering a competitive set of employee benefits, you quickly realize that attracting top-shelf talent is mission impossible for most small business owners.
While working with my portfolio of small businesses, the competitive disadvantage in talent acquisition was just something that I had become resigned to deal with both in terms of the quality of talent targeted and the compensation/benefits package to be offered. This “settling for less” was frustrating though as numerous times competitive offers were turned down by great people because they wanted the security of a large company benefits package (even if the value of those benefits were being provided in other ways). To help address at least one part of the issue, I decided to test my assumptions late last year regarding the affordability and complexity of employee benefits for small businesses. What I found was surprising and has completely reshaped the context of our offers and supported a refocusing on the quality of talent being sought. While there is an array of benefits and perquisites that a business can offer to employees, I focused on three areas that seem to be most attractive: a) company-sponsored health insurance; b) 401(k) Retirement Plans; and c) supplemental insurances.
1. Company-Sponsored Health Insurance
I’ve recently seen statistics stating that there are approximately 7.4 million employers in the US and that 62% of these employers (4.6 million) have fewer than 10 employees. Of this group of small businesses, some 56% offer no options for company-sponsored or group health insurance. There are many reasons for this lack of company/group insurance but the main reasons are cost and participation rates. I think the cost argument is well understood by all but you might be surprised to learn about the participation rate requirement (at least I was). In most company/group plans, insurance companies require that a high percentage of eligible employees participate in the health insurance plan. A participation rate of 70 to 75% is common. This is a huge hurdle for most small businesses to overcome as many of the people who have chosen to work for a small business that does not offer a health insurance plan already have alternative insurance (such as coverage from a spouse’s plan). So getting 75% of the eligible employees to sign up is a difficult challenge to even initiate a new plan. What are the other employees who aren't covered by an alternative plan doing? The remaining employees either forego insurance entirely or participate in the Federal/State individual insurance marketplace. There is a twist here though that every small business owner should know about and take advantage of to improve the options available to their employees. I happened upon it by accident.
The Affordable Care Act (“Obamacare”) has been a topic of much political debate this past year, to say the least. While I do have a personal view on the topic, I will try to remain as factual and non-partisan as possible in describing my experiences. Unlike most of my friends and colleagues with whom I’ve discussed the topic, I’ve actually used Obamacare for a couple years now. As such, all of my comments are from the viewpoint of an actual participant.
I first participated in Obamacare in 2015. Prior to this I was supported by a generous insurance plan from my former employer that I retained at full cost (~$1,650 per month) via COBRA. Having never explored health insurance options prior to that, I thought it was a good deal…in hindsight, it really wasn’t! Once the 18-month COBRA period expired, I enrolled in Obamacare via HealthCare.gov and the policy that I purchased for 2015 was a Bronze PPO plan provided by Humana. This plan was far inferior to my prior plan and included high deductibles ($6,450 individual/$12,900 family) and a monthly premium of $882 for my family of five. I’m not sure if we used or benefited from this policy at all during 2015 as my family is young and healthy for the most part (knock on wood) and we certainly didn’t come close to reaching the individual or family deductibles. This policy seemed like an ok deal at the time as I was used to paying $1,650 per month the prior year and not benefiting from that much either -- so in net, I comforted myself with the thought of saving money versus the prior year.
But that all changed at the end of 2016. In Arizona (where we live), almost every reputable provider dropped out of the Obamacare exchange. Humana, UnitedHealth, BlueCross BlueShield of AZ, etc. all decided not to offer any plans in the individual marketplace. For 2017, there is a single plan offering in Bronze, Silver, and Gold variations for my family provided by AmBetter (ever heard of them? Me neither). This particular plan is worse than our prior year plan as it is an HMO plan rather than a PPO plan and the hospitals/doctors participating in their HMO didn’t include any of the providers that we prefer to use. This Bronze HMO plan for 2017 was quoted to us for about $1,870 per month and had higher deductibles ($6,800 individual/$13,600 family) than the Bronze level plan we had in 2015. All of this for an increase in the monthly premium of 112%. That means that our monthly premium for 2017 would more than double in order to buy worse insurance as compared to 2016 and would be even more expensive than the Platinum level plan that we had in 2014. Needless to say, I was dumbfounded. Some of the employees for companies I work with had the same experience and while they were not highly paid employees, they still were not eligible for government subsidies to mitigate their increased costs.
In search of a better answer, I started exploring healthcare insurance options for small businesses. This search lead me to the Small Business Health Options Program (SHOP) for businesses with 50 or fewer employees that is part of Obamacare and parallel to the individual marketplace. I was surprised by what I found. As it turns out, insurance companies of course find company plans to have a better risk-adjusted pool of participants. In fact, BCBS of AZ decided to participate in the SHOP marketplace even while they pulled out of the individual marketplace. They offer a Bronze PPO plan for 2017 that’s even better than the Humana plan that I had in 2016. Better means it has the same network of hospitals/providers that we like and the deductibles are lower ($6,000 individual/$12,000 family). Further, the cost of the BCBS Bronze plan for my family via the SHOP marketplace is only $1,307 per month. A huge 30% cost reduction versus the inferior insurance offered through the individual marketplace! While that was a great cost avoidance, let's not forget that it's still a painful 48% increase from our comparable insurance cost in 2016.
How could it be that the SHOP plan is 30% less than the individual plan with both being purchased directly from HealthCare.gov? There must be a catch, right? Well, not really. The only constraint for implementing the SHOP insurance plan was that at least one employee not related to the business owner must sign up. Further, if the company enrolls between November 15th and December 15th then there is no participation rate requirement. That’s really important for small businesses as I mentioned prior. If you don’t enroll your business during that window, then most states require that at least 70% of the eligible employees accept the invitation to join the company-sponsored health insurance offer. The other important point is that the employer has complete flexibility regarding the amount of the employee premium to pay. The employer can pay as little as 0% of the employee premiums or as much as 100%. There are incremental tax benefits to consider if the employer contributes at least 50% of the employee premiums but this is structured as a sweetener not a penalty.
So, small businesses with less than 50 employees can implement a SHOP plan at no cost and allow their employees to benefit from having a better and substantially less expensive health insurance option versus the individual marketplace. That’s a real win for everyone and the administrative work required to implement the plan is quite low. I can’t think of a single reason why every small business without a health insurance plan isn’t signing up and offering this option to their employees. There is no downside. Now I just hope that any changes our Congress might enact this year for Obamacare will retain the great features found in the SHOP marketplace for small businesses.
2. 401(k) Retirement Plans
The second benefits related question that you’re likely to get from a prospective employee is whether your company offers a 401(k) Plan. It's probably not surprising to learn that only about 10% of small businesses with less than 10 employees offer a 401(k) Plan. More surprisingly though, only 15% of companies with 10 to 100 employees offer them. I’m sure the reasons are similar to the lack of health insurance plans among these businesses: cost, lots of administrative work, can’t afford a match, etc. At least this was my view at the outset.
Fortunately, I got in touch with America’s Best 401k. The owner, Tom Zgainer, personally walked me through the entire process of setting up a plan as well as the many advantages of doing so. They offer the lowest fees in the business and prove it with direct comparisons to any other plan provider. If you have a 401(k) Plan already, you likely don't know that it has lots of high fees hidden inside it. If you're not up to speed on 401(k) Plan fees, just follow the above link to Tom's LinkedIn page and read some of his posts. He's one of the leading experts in the field and frequently shows up on television for interviews on national financial shows.
Their plan is highly tailorable to whatever your goals might be. For instance, if your only goal is to provide an avenue for employees to voluntarily contribute to a pre-tax or Roth 401(k) Plan, then you can set it up with no cost to the company and no matching contributions. If you want to create a plan that let’s you make voluntary contributions based on company performance, that is easy to do. You can also set up a profit sharing plan option that will allow you to make voluntary contributions to employee plans and have a separate vesting schedule. This should be particularly interesting for small business owners as an alternative to large-company stock options. You can share profits with employees each year and have those contributions vest over a longer time period (up to 6 years) as an employee retention device.
While there are definitely a lot of compliance policies, etc. that must be managed with a 401(k) Plan, the team at America’s Best 401k takes care of almost everything. The administrative work for setting it up is light and with some easy to set up reports from your payroll processor, submitting the payroll reports and contributions is simple and done in minutes per month. Further, all the costs for the plan can be imbedded in or deducted from the participating employees' accounts OR the employer can pay some portion of the costs and make contributions as they choose. It’s another win for everyone involved and was surprisingly simple to set up and manage. Every small business can set up such a 401(k) Plan with little or no cost and eliminate another competitive disadvantage in hiring high quality talent. If you don't have a plan established for your small business, there are no good reasons to wait any longer.
3. Supplemental Insurances
The final piece of the puzzle in the typical large-company benefits package is supplemental insurances. These are things like life insurance, short-term/long-term disability, accident insurance, etc. I chose to have these insurances while working for larger companies and just assumed the cost for providing them was subsidized by the company. As it turns out, I don’t think they were and you can find equally competitive offerings from companies like AFLAC. I never realized what AFLAC really offered before as I was always so annoyed by their commercials that I didn’t listen to what they were really advertising. With a little investigation into supplemental insurances, it turns out they offer a complete set that can be 100% employee paid. After reviewing the costs and reflecting on what I paid for them under former employers' plans, I decided it was a good deal. It was also obvious that I must have been paying the full cost in prior plans but didn’t know it and wasn’t told.
This was another surprisingly simple offering to set up with one of AFLAC’s agents briefing the employees, gathering their elections and providing payroll deduction support. Very simple to implement and at no cost to the business while the employees were appreciative to have the options for coverage. I have no experience regarding the quality of the insurance or how easy/difficult it might be to claim benefits but from an offering viewpoint there is no downside (no cost, low administrative effort) and makes your benefit package that much more complete and competitive.
that’s my recent experience attempting to help small businesses offer more competitive benefits packages to attract and retain a high-quality set of employees. I’ll repeat myself one more time: I can’t think of any reason why every small business isn’t offering at a minimum the above set of benefits: Low to no cost to implement, low administrative effort, high-value to current and future employees, and highly competitive to large company offerings.