When your workers feel you’re looking out for them, they’ll look out for you, too, by producing higher quality work and staying in their jobs longer. Providing good benefits packages—which might include retirement, health care or dental plans—is a tangible way to show employees that you value them and their quality of life. Sure, the rising cost of benefits has made offering an attractive package more difficult for small businesses, but there are still ways to offer competitive packages to recruit and retain the best workers while staying within your budget.

Use Small Size to Your Advantage
The cost of offering benefits, particularly medical insurance, has become more difficult for both large and small businesses. But small businesses can use size to their advantage by capitalizing on the opportunity to offer personalized packages tailored to employee needs. A large company has to have a standard plan, but a small business can ask workers which benefits are most important to them and act accordingly.

“Focus on the total package rather than one small part,” says Joel Welsh, chief community officer at Birmingham, Mich.-based StartupNation, a resource Web site for entrepreneurs and small businesses. “As a small business you know what differentiates your product and service from other companies. Take that same strategy and apply it to your team. Ask, ‘What is it that differentiates us that would make somebody attracted to a small business rather than a large one?’ That uniqueness can be a benefit.”

For instance, Jil Wyland is president of the Atlanta-based Litigation Presentation, a legal graphics company that provides visual communications for courtroom presentations, which she launched in 2000.
                 
“Part of the dwindling talent pool is you’ve got to be creative about the way you retain people or you’re not going to get the best of the best,” Wyland says.

In addition to offering medical, dental, 401(k) and disability to her 10 employees, she also provides other benefits like group movie outings, concert tickets and a personal finance plan that helps employees organize their bills. She plans to start offering massages on Friday afternoons in the near future. “One thing about having unique benefits is you have to make sure people want them,” Wyland says.

Welsh suggests asking existing team members what they would like because often it is flex-time, telecommuting or health club memberships, none of which are very costly to provide and can make a big difference to workers. “Small businesses can take into account individual needs and be much more flexible,” Welsh says. “Think about what will attract someone to your business and keep them there rather than running off to a larger company that can afford a bigger package.”

SheaHedges Group, a 20-person business communications firm based in McLean, Va., offers medical benefits, disability, life insurance and a 401(k), which have automatic enrollment for all employees to meet participation rates. For the rest of the benefits, they got creative, says Reggie Kouba, a senior vice president at the company, which was founded in 1998. The company closes the office for one week in December, offers summer hours where workers can telecommute one day a week, and offers month-long paid sabbaticals after five years of service. “These don’t cost the company much money, and they help attract and retain employees,” Kouba says. “A lot of the ideas have come from the workers themselves, and we explain that the costs we pay for all benefits are part of their compensation package. We know it costs a tremendous amount of money to replace people and we want to keep them happy.”

Preparing a Slate of Benefits
The first thing to consider when preparing a traditional benefits package is business dynamics, says Carl Kleimann, president of Dallas-based Odyssey OneSource, a professional employer organization. “You need to take into account what kind of industry you are in, who you are competing with for employees, what they are doing with respect to employee benefits and how your employees value benefits versus other compensation,” Kleimann says.
                 
The next aspect to consider is your employee pool—whether you have a younger, older or mixed workforce, because these groups value benefits differently. A younger workforce is more likely to prefer a low-premium, high-deductible health plan while an older workforce who is raising a family, has kids in college and has a mortgage and car payment will place more value on comprehensive health plans and short- and long-term disability.
                 
The No. 1 must-have benefit is medical insurance. The rising cost of health care can be mitigated through a number of options, including health savings accounts, or HSAs, which have become increasingly popular for small businesses.
                 
A health savings account allows employees to set aside funds on a tax-free basis to cover health care expenses not covered by insurance, and is paired with a low-premium, high-deductible insurance plan.
                 
Jon Lieb founded New York-based public relations firm Thirty Ink Media and Marketing in 2002. When he was looking for benefits for his two full-time employees, he discovered that his firm would not fulfill the minimum participation requirements for one plan that would cover all three of them, because he personally had different needs than they did. “Our firm was only three people,” Lieb says. “We couldn’t possibly meet 75 percent participation statistically.”
           
He called in the help of an insurance broker to assemble his benefits package. “You’re not going to hold employees if you’re not offering benefits,” Lieb says. “I gave my employees a chance to have a say to make sure they were comfortable with the plan I was choosing.”
           
Another option for finding less expensive health insurance plans is hiring a professional employer organization, or PEO, to outsource all human resource functions, benefits, taxes and compliance.
           
These organizations pool businesses together to bargain for less expensive benefit packages, which is particularly useful for small companies that do not have enough employees to bargain on their own. It also prevents the process of adverse selection, when younger employees opt out of health coverage leaving the older and more high-risk patients that cause the rates to rise. By pooling resources, a small business does not have to require participation from employees and can have a balance of low- and high-risk employees by joining the aggregate of the professional employer organization’s clients.

When using a PEO, small business owners can choose from customized and affordable packages. Even startups can take advantage in order to have an existing benefits package established while attracting employees to the growing company.

Other benefits vary in terms of participation. It is often dependent on the benefits offered by competing businesses and the specific industry. For instance, few start-up companies offer 401(k) plans, but retirement savings are a competitive advantage and can be offered inexpensively through Roth IRA accounts, which do not require employer contributions. Short- and long-term disability and life insurance are more important with an older workforce and would be appropriate for an older labor pool.

In most cases, dental and vision are second-tier benefits that can be offered later if the employee group has a need for it.

The best way to assemble a benefits package is to first talk to employees, Kleimann says. Benefits should not be added merely because they sound good, but because employees have expressed a need and an interest in them. A tailored benefits plan is offers the best competitive advantage against large companies for both recruiting and retention.

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