Weighing a Rollout of Benefits for Employees? 4 Tips for Startups to Consider Health insurance may not end up being as costly as you anticipate. Only 28 percent of small companies (with fewer than 10 workers) offer it.

By Jennifer Fitzgerald

Opinions expressed by Entrepreneur contributors are their own.

Should a startup company offer employees benefits? That question cuts to the core of any entrepreneur's most significant challenges: cash burn, talent recruitment and company values.

But founders of startups might find it wise to consider offering employees certain benefits to help build the company's culture. Here's why:

Benefits are more valuable to employees than you think. MetLife's annual study of employee benefits trends found that benefits can be even more important than advancement opportunities and company culture in fostering employee loyalty. That's important for founders of startups to know, considering the fact that recruiting takes a massive investment of time.

Related: Does Your Job Satisfy You? (Infographic)

And benefits may not be as expensive as you think. Okay, free Friday massages might be. But health insurance is certainly more affordable for small businesses now than it's been in recent years, due to new offerings under the Affordable Care Act.

And by offering benefits, you company can stand out from the pack. Only 28 percent of businesses with fewer than 10 employees offer health insurance. If you can afford it, then your company will have a recruiting edge.

If you're convinced that you should provide your employees benefits, here's what you should do:

1. Start with the basics. You want a healthy team that won't get financially rocked by a trip to the emergency room. That means you should provide health insurance and disability insurance.

Retirement contributions, gym memberships, catered lunches and the like should all wait until your business becomes financially stable. Also, they don't deliver as much bang (in terms of employee satisfaction) for the employer's buck as good health-care coverage.

Arrange for a solid but not extravagant group health-insurance plan to keep costs in check. Many employess at startups are relatively young and healthy. For them, a bronze- or silver-level plan is appropriate. (Usually, premiums will run $200 to $300 per employee per month). Find a plan that makes people stick to a network (an HMO or EPO), which will keep your costs down.

Disability insurance is also an important but often overlooked offering. This type of coverage pays a cash benefit if an employee is unable to work as a result of injury or illness. If you can afford to pay 0.5 percent to 1 percent in compensation per employee, then you can offer short-term and long-term disability insurance.

Related: 7 Things to Consider Before Buying Disability Insurance

2. Manage expectations. Consider what you can afford to spend on benefits for each new hire. Build it into your baseline hiring costs and don't change this figure unless you're improving it.

Avoid a reduction in benefits. Nothing will have your employees grumbling faster than that. (This is because of a human behavioral quirk called the endowment effect.) It's better to start out conservatively with your benefits offerings and improve them over time as your budget can absorb them.

For reference, small companies that provide health insurance to employees contribute on average per employee $857 per year for individual coverage and $3,346 per year for family coverage. Contribute only what you can afford. And remember that only 28 percent of small companies offer health insurance at all. Contributing even a small amount for employee health insurance places you well ahead of the pack.

3. Take advantage of health-insurance subsidies. The Affordable Care Act offers subsidies (as much as 50 percent of the cost) to small businesses that provide health insurance to employees. To qualify, the business must have fewer than 25 full-time employees, pay on average annual wages below $50,000 and contribute 50 percent or more toward premiums.

For startups not eligible for the subsidy, taking advantage of individual health insurance is also an option. Individual health insurance costs about the same per person as small-group health insurance. So, a startup could have employees buy their own individual health-insurance plan on the relevant state marketplace and reimburse them for premiums.

4. Get a broker. Founders don't have time to deal with the complex world of insurance benefits. Let a broker handle it for you. Best of all, there's no extra cost. Brokers are compensated by insurance companies through commissions, which have already been built into insurance prices. They'll run quotes, give you guidance and manage the paperwork for you.

Business owners can figure out what they want and what they're comfortable spending and let a broker manage the rest.

Related: How to Create a Company Culture That People Will Be Excited to Join

Jennifer Fitzgerald

CEO and Co-Founder of Policygenius

Jennifer Fitzgerald is the CEO and co-founder of Policygenius, the nation’s leading online insurance marketplace. She is the Ernst and Young Entrepreneur of the Year New York 2019 and one of Fast Company’s 100 Most Creative People in Business for 2018. Before starting Policygenius in 2014, she and her co-founder, Francois de Lame, were management consultants at McKinsey & Company.

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