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Which Employee Benefits Are Required By Law?

Which Employee Benefits Are Required By Law?

Every company needs to attract and retain top talent to continue its growth. To do that, many companies choose to offer comprehensive benefits packages. When people think of a company's benefits, they often think of voluntary benefits like paid time off, tuition reimbursement, company holidays, and retirement options. If your company does not provide a comprehensive voluntary benefits package, you may not be violating any laws, but you may miss out on attracting and retaining high-quality employees.  

However, federal and some state laws require companies to offer certain benefits. If your company does not provide these benefits, that could result in fines and employee lawsuits. Not every involuntary benefit has to be provided in every state, and some only need to be provided once your company reaches a certain size. That's why you need to understand what these involuntary benefits are and how they apply to your company. 

Social Security 

Many people do not think of Social Security as a benefit. Instead, they think of it as a tax. Both are true. 

Employers must withhold Social Security tax of 6.2% from each employee's paycheck to cover the employee's portion of their Social Security benefits. The employer must also pay 6.2% toward the employee's benefit. These amounts will only be paid up to the wage base which for 2021 is $142,800. After an employee's salary goes above the wage base, no more Social Security withholding is required. 


Medicare is similar to Social Security in that both employers and employees pay into the program. Medicare is taxed at 1.45% that is withheld from each employee's paycheck, and an equal percentage is paid by the employer. If an employee makes more than $200,000 per year, they will need to have an additional 0.9% withheld from their paycheck. Your company does not match this additional percentage. 

Unemployment Insurance 

Unemployment insurance usually operates as a state-run program that collects a small tax from every employer. This money goes into a pool that is used to pay out benefits to employees who lose their jobs. Employees who quit are usually not eligible for unemployment benefits. 

Workers' Compensation Insurance 

This is a benefit that is provided for by the company alone. Workers' compensation insurance is required coverage that companies must carry to provide financial benefits to employees who suffer from job injuries. When an employee gets injured at work and has to miss work because of their injuries, they may be eligible for workers' compensation benefits to help cover some of their lost income while they recover. Many states only mandate workers' comp insurance if a company has more than one employee.  

Family and Medical Leave 

The federal Family and Medical Leave Act (FMLA) requires that employers with 50 or more employees provide eligible employees with up to 12 weeks of unpaid job-protected leave. To be eligible for FMLA benefits, an employee must be unable to work for a qualifying medical reason, either their own or a close family member.  

The FMLA is a requirement for companies across the country, and some states have enacted their own leave policies that provide additional leave time, paid leave, or both. Washington State, for example, provides up to six weeks of additional paid medical leave to eligible employees in the state, up to a certain weekly amount. 

Disability Insurance 

Disability insurance comes in two forms: short-term and long-term. The biggest difference between these two types of disability insurance is the amount of time an employee can receive benefits, called the benefit period. While policies vary, generally short-term disability will not extend beyond six months. Long-term disability, however, may extend for decades. 

Not every state requires that companies carry disability insurance coverage. No state requires long-term disability coverage, though many employers offer this as part of their benefits package. The only U.S. jurisdictions requiring companies to carry short-term disability insurance are: 

  • California 
  • Hawaii 
  • New Jersey 
  • Rhode Island 
  • New York 
  • Puerto Rico 

In each of these locations, employers are required to carry short-term disability insurance to cover employees who are out of work because of a disability. Some locations require that employees cover a portion or the full cost through wage deductions. Others require the company to shoulder the entire burden. 

Health Insurance 

Under the Affordable Care Act (ACA), companies with 50 or more employees must provide health insurance options to employees. These healthcare plans must also be affordable and offer coverage to both employees and to any dependents they may have. 

Getting health insurance for your company may present unique challenges as many smaller businesses have trouble getting affordable coverage. But you cannot ignore this benefit because the government may levy hefty fines for companies who do not offer the required coverage. 

Get Help Administering Required Benefits 

These involuntary benefits may seem like a drain on your company's budget. Depending on the size of your business, it may be challenging to get some of the coverage that is not provided through a state program. 

Instead of handling these benefits on your own, you can increase your efficiency and possibly reduce your costs by partnering with a Professional Employer Organization (PEO). A PEO may be able to give your company access to workers' comp coverage at lower rates than you could get on your own. You may also be able to access your PEO's master health plan, letting you offer your employees health coverage at affordable rates. 

To learn more, download our eBook "What is a PEO?

What is a PEO?


Benefit Administration, Risk & Compliance