Every employer, regardless of size, is subject to the required employee benefit of matching their employees’ social security and Medicare contributions. The current rate for social security is 6.2 percent of the employee’s wage from each party, equalling 12.4 percent in total, up to the first $127,200 in earnings. This amount is also known as the “wage base limit.”
The current rate for Medicare is 1.45 percent of the employee’s wage from each party, equalling 2.9 percent in total. In addition, employers are responsible for paying an additional 0.9 percent Medicare tax for employees earning more than $200,000 per year, starting in the pay period in which wages cross the $200,000 threshold and continue to do so for the remainder of the calendar year.
The consequences of not withholding social security or Medicare taxes are no laughing matter. Employers who fail to withhold proper taxes open themselves up to both criminal and civil charges in court. Employees can also be impacted; they may not be able to qualify for social security, Medicare, or unemployment benefits.
Every employer, regardless of size, is required to carry unemployment insurance. This type of insurance is generally used if a company lays off employees, but it is also used if a former employee files a claim against an employer and that employer doesn’t have documentation for the reasons behind their termination. Therefore, this tax helps protect employers when an unemployment claim is filed against them.
Each state has different regulations dictating the base wage upon which calculations are made. Regardless, this tax is unique because employers actually have a bit of control over their rate. By exercising diligent termination practices (such as keeping extensive documentation), employers can reduce their company’s risk and their rate will be lower than a company with several indefensible claims against it. In some ways, unemployment insurance works a bit like car insurance: if you’re found at fault for multiple car accidents, your rates are probably going to go up. The fewer the number of at-fault claims, the lower an employer’s rates will be.
Any business with employees is subject to the required employee benefit of worker’s compensation insurance. Employers can either opt to self-insure or get coverage through their state, but they must carry it. Worker’s comp is designed to protect employees who are injured at work while carrying out work-related duties. In turn, it helps protect employers from costly lawsuits.
According to the Society for Human Resource Management, five states (California, Hawaii, Rhode Island, New Jersey, and New York — plus Puerto Rico) require employers to carry disability insurance. This is to protect employees, should they need to miss work for a non-work related injury or illness.
Though not required for employers in all states, some businesses in unaffected states opt to offer disability insurance as a voluntary benefit. This amount is usually paid by in full by employees who choose to purchase a policy. The employer’s only responsibility is to provide a link between the employee and the benefits broker selling the policies.
Any business that employs 50 or more full-time equivalent (FTE) employees is required to offer eligible employees up to 12 weeks of unpaid, job-and-benefits-secured medical leave per year for any of the following reasons:
These required employee benefits are outlined by the Family Medical Leave Act, and although FMLA does not require companies to financially compensate employees during these 12 weeks, many for-profits offer at least partial pay. Some businesses offer six weeks of paid leave (either partial or full pay) and then allow the employee to take the additional six weeks unpaid if they would like.
Many employers allow their employees to use accumulated PTO during this time, either in addition to or in replacement of, monetary compensation. In the example of a pregnant woman, if a company offered her six weeks of fully paid leave, the employee could choose to use her two weeks of vacation time after exhausting that allotment, giving her eight weeks to be home with her newborn. If she wanted to take the following four weeks off, she could legally do so at her own expense.
Under the Affordable Care Act (ACA), employers with 50 or more FTEs are required to offer "acceptable" health insurance. Choosing not to offer insurance means incurring a penalty at tax time from the federal government — and those penalties are not small.
Since the general election in November, there’s been a lot of discussion in Washington D.C. about either repealing or replacing the ACA, with the current administration even mentioning that it may not enforce the employer mandate — but there has been no official statement, nor law passed at this point. Until then, we recommend that every applicable large employer (ALE) continues to comply with the current ACA regulations to avoid costly penalties.
What questions do you have about these required employee benefits? Leave us a comment below or contact us. We’re happy to answer them!
The JP Griffin Group consults for discerning companies coast-to-coast, ranging in size from 10 to more than 30,000 employees. In addition to our Scottsdale, Arizona headquarters, we have bi coastal offices in Seattle, WA and Washington, DC.