According to the Small Business Administration, there are about 33.2 million small businesses in the United States, each with fewer than 500 employees. These businesses employ 46.4% of the private sector workforce, which translates to roughly 61.7 million people.

While small businesses operate with smaller payroll budgets than larger corporations, they still have the same human resource responsibilities. They need to attract and keep skilled employees by offering competitive salaries and benefits, even with fewer financial resources.

Replacing an employee can cost a business up to one-third of that worker’s yearly salary. Because of this, both small and large businesses benefit from having programs and policies that help retain employees.

The Importance of Benefits Packages

A recent Aflac survey found that most small business owners recognize the importance of offering good benefits, despite the costs. In fact, 63% believe that strong benefits packages improve employee satisfaction and loyalty.

Employees also value benefits. A separate MetLife Insurance Co. study revealed that 43% of workers consider their benefits a key reason for staying with their employer.

Small business owners report that their top goals in providing benefits are:

• Supporting their employees.
• Retaining workers.
• Boosting employee satisfaction.

However, offering competitive benefits can be a challenge. For instance, small businesses often pay significantly higher health insurance premiums—up to 18% more—compared to larger companies. This happens because smaller businesses have less bargaining power. They also lack the ability to create their own flexible insurance plans, leaving them reliant on costly plans with fewer options from major insurance providers.

Difficulties for Small Businesses

Small businesses face additional challenges in providing affordable health insurance due to the generally lower wages they pay compared to larger corporations. Covering health insurance costs would require further reducing wages, making it less attractive for both employers and employees. As a result, while 48% of small businesses offer paid vacation and sick leave, only 43% provide health insurance.

Finding and selecting the right health insurance plans is another hurdle. Many small businesses lack dedicated human resource staff to handle the process, making it a time-consuming and expensive task. The economic downturn in recent years has made the situation worse, forcing many small businesses to cut back on employee benefits, including health insurance, retirement plans, and employer-matching programs.

The Affordable Care Act and Small Businesses

With the Supreme Court’s decision to uphold the Affordable Care Act (ACA), also known as ObamaCare, small business health insurance offerings may change significantly.

Although some small businesses worry that the promised cost reductions may not happen, the ACA includes several advantages for small businesses and their employees:

• $40 billion in tax credits to help small businesses offer health insurance. More than 4 million small businesses may qualify.
• Stronger coverage requirements, preventing insurance companies from placing lifetime or annual limits on policies, canceling coverage when employees become sick, or denying coverage for employees’ children with pre-existing conditions.
• Starting in 2014, health insurance exchanges will allow small businesses to join larger groups to negotiate better rates, similar to what large companies do.
• Grants to support workplace wellness programs.

Between now and 2014, small businesses will likely review and possibly adjust their health insurance offerings to take advantage of the new options available under the ACA.

Other Employee Benefits

Many small businesses are looking for additional ways to improve their benefits offerings, such as:

• Voluntary insurance policies for accidents and critical illnesses.
• Dental, vision, and life insurance options.
• Short- and long-term disability coverage.

In today’s economy, employees are increasingly relying on their employers to help them achieve financial stability through benefits, even if they must share the costs. Younger workers, in particular, value benefits more than older employees, as they enter the workforce during uncertain economic times. Financial education programs that help with debt management, student loans, and home savings are especially popular among them.

Other benefits small businesses may offer include:

• Preventative health and wellness programs.
• Flexible work schedules.
• Career and education support.
• Bonuses or financial incentives.
• Childcare or eldercare assistance.
• Social events and activities.

As small businesses continue to navigate economic challenges, they must find cost-effective ways to support their employees while maintaining profitability. The way they structure their benefits packages—particularly in response to the Affordable Care Act—will play a crucial role in their overall business strategies.