There are over 7.4 million employers in the U.S., and the majority (82% of all employers) have fewer than 200 employees. Yet, as a nation made up largely of small employers, it can be difficult to compete with larger businesses – and larger budgets – for top talent.

As such, small businesses look to benefits to help attract and retain key staff. Benefits commonly include health insurance, recruiting and retention programs, and workplace perks. In the case of health insurance, particularly, the landscape is rapidly changing. The passage of the Affordable Care Act opened up new and affordable options for small businesses wishing to provide health benefits to their employees.

The sections outlined on our left sidebar provide solutions and insight to the common small business management challenges around the U.S.

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Common Challenges Experienced by Small Businesses

There are a number of challenges associated with owning a small business, from constant demands on theCommon_challenges_small_businesses_face owner’s time to never-ending budget constraints. There are, however, commonalities in the obstacles faced by small businesses. Understanding the expected challenges can shorten the learning curve in business management and operation.

Three big challenges for small businesses are healthcare costs, employee recruitment and retention, and attracting new customers. All three areas can be a tremendous burden on as time and budget.

Healthcare Costs

Many small and medium sized businesses can’t offer group health insurance coverage due to rising costs and restrictive minimum contribution and participation requirements. It’s these primary reasons that 46% of all small and medium businesses (with fewer than 200 employees) don’t offer group health insurance. That’s over 2.7 million employers. The smaller your business, the less likely you are to offer health insurance. In fact, 56% of all micro employers (with fewer than 10 employees) don’t offer health insurance.

However, following the passage of the Affordable Care Act, individuals now have an unprecedented number of options for health insurance that all meet a minimum standard of quality and coverage.

Employees of small businesses can now get health insurance through their employer’s group plan, or get reimbursed by their employer for the cost of their individual plans. These new options mean that employers can provide their employees with high quality health insurance while controlling the cost of the benefit.

See our section on health insurance options for more information on alternatives in plan design.

Employee Recruitment and Employee Retention

Recruiting and retaining top employees is another major concern facing small and growing businesses. With the preferences of the workforce becoming more diverse and dynamic, employers need a more personalized approach to attract and retain key employees.

A common challenge for small businesses when hiring is deciding between offering higher wages for more competitive prospects or lower wages for a lower, but more secure, skill set. Small businesses shouldn’t feel like they are at a disadvantage when recruiting new employees.

Small businesses can competitively recruit employees by using employee referrals, adding a career site to their webpage, advertising on online job boards, recruiting interns, and using social media to recruit employees. An outstanding retention program can also give an edge to small businesses looking to hire. Employee retention strategies include creating a high-feedback environment, customizing benefits strategically, and boosting employee morale.

Attracting New Customers

Finding new customers presents more of a challenge to small businesses because they generally do not have the astronomical budgets that larger companies do. This can present a challenge when trying to compete with larger company’s advertising and marketing strategies.

There exist a number of strategies for small businesses to attract new customers include online marketing, search engine optimization, email marketing, and social media outreach. It is vital for small businesses to have a solid understanding of what customers really want and educate customers on everything their small business has to offer.

Human Resource Requirements for Small Businesses

Just like larger companies, small businesses face HR challenges that come along with hiring the right a team, creating and maintaining a company culture, and complying with ever-changing laws and regulations. HR requirements for small businesses include abiding by all applicable regulations and maintaining an appealing and competitive office culture.

Here are five quick tips to keep in mind when getting an HR program up and running.

1. Know, Understand, and Follow HR Regulations and Law

From the very first day an employee is hired, there are HR laws and regulations covering everything from payroll, employee discrimination and harassment to termination.

2. Keep HR Files Organized and Confidential

It’s important to keep employee files organized and confidential. Ideally there should be two files for each employee: a personnel file and a confidential file.

Items to include in the personnel file are things like the employee’s resume and original job application, salary records, transfers, job evaluations, and any disciplinary actions. Items to include in the confidential file are medical records, leave requests, I-9 forms, payroll records, and reference checks.

3. Make Payroll on Time

It may sound like a given to stay up to date and timely with payroll, but many small businesses struggle to make payroll on time because of time constraints or disorganization. Stay organized with payroll systems and make sure to hand out paychecks on a consistent basis, at the same time each period. Timesheets can help keep track of vacations and sick time, and there are several online management programs that help small businesses stay organized, and be prepared for tax-time.

4. Create an Employee Manual

An employee manual explains a company’s policies and procedures, and communicates expectations to employees. It also helps protect the business in the event of a dispute.

5. Lay the Foundation for Being an "Employer of Choice"

Being an "Employer of Choice" means that candidates are eager to work for the business, that people look up to current employees, that the business receives unsolicited resumes, and that the most talented employees stay with the business throughout their careers. It's a coveted status. It signals the business’s brand is top-notch. And, when a brand is reputable, it's much less expensive to recruit and retain key employees.

Any small business can become an Employer of Choice. It's not just reserved for the big dogs. In fact, where small businesses may lack resources, they make up by having a unique, tight-knit, and "I can make a difference here" culture.

Ways small businesses can build a unique culture is to focus on company identity, recruiting and hiring, offering the right benefits, offering challenging and interesting work with opportunity for advancement, and recognizing employees.

Health Insurance Options Best Suited for the Self-Employed

If you’re self-employed, know that you do indeed have options for health insurance. This section outlines Health_insurance_options_self_employedhealth insurance options for the self-employed.

Option #1 - Individual Health Insurance

Individual health insurance is a type of policy an individual purchases for himself and/or his family. Individual health insurance plans can be purchased through your state’s Health Insurance Marketplace, contacting a broker, or contacting any individual health insurance company.

Features of individual health insurance are:

  • It’s high-quality health coverage for you and your family.

  • It’s now available to everyone, regardless of health conditions.

  • It costs 20% to 60% less compared to work-based (“group”) health insurance. And, premium tax credits are available to help lower the cost even more.

  • It’s flexible - you choose your doctors and clinics.

  • It’s portable - you can take your plan with you to any job (as long as you’re still paying the premium).

  • The business can reimburse you (the owner) for the cost, and tax-advantages are available for some type of business owners.

Options for Tax Benefits on Individual Health Insurance

As a self-employed owner purchasing individual health insurance, you have a few options for the business contributing, and/or receiving tax benefits.

Self-Employed Tax Deduction: Most self-employed taxpayers can deduct health insurance premiums, including age-based premiums for long-term care coverage. The line 29 deduction on the 1040 return is available to those whose business income shows a profit, who are not eligible for employer-provided insurance (either from a side job or a spouse’s job), and who meet other criteria. Read more about this deduction.

Premium Reimbursement Arrangement: With this option, the business can contribute and receive tax benefits by setting up a tax-preferred premium reimbursement plan. As a small business owner, you have two options for tax-free reimbursement of individual health insurance:

  • If you are a one-person business, you can set up a one-person Stand-alone Health Reimbursement Arrangement (HRA) to reimburse yourself tax-free for your premium and medical expenses. HRAs are tax deductible to you as the employer, and tax-free to you as the employee. However, there are some restrictions on the tax benefits for some types of owners. Read more about HRA owner eligibility.

  • If you have two or more employees, or expect to hire W2 employees in the near future, you can set up a Healthcare Reimbursement Plan (HRP). An HRP allows you to reimburse your employees (and yourself) tax-free for their individual insurance premiums. But again, there are some restrictions on the tax-benefits for some types of owners.

Option #2 - Group Health Insurance

Group health insurance is the second main health insurance option available to some self-employed owners.

Group health insurance is a type of policy purchased by an employer (or organization such as a Union) to cover eligible participants and their dependents. The premium cost is shared between the employer and employee.

Small businesses can purchase a group health insurance through a broker, online, or through the ACA Small Business Health Options Program (SHOP) Marketplace. Small businesses can also join a small group health insurance plan through a co-op, PEO, or Union organization.

However, two major limitations of group health insurance for the self-employed are that:

  • Group health insurance is very expensive (average premium was $6,025/year in 2014 to cover a single person, $16,834/year for family coverage), and

  • Self-employed owners without employees likely will not qualify for a small group health insurance plan (unless purchased through a co-op, PEO, Union, etc).

Health Insurance Options Best Suited for Small Businesses

Many small businesses feel confused and overwhelmed by health insurance options. Under the Affordable Health_insurance_small_businessesCare Act, small businesses (with fewer than 50 employees) are not mandated to offer traditional health insurance coverage, but there is still great value in offering employees access to quality health insurance.

Small businesses have five main options for health insurance:

  • Individual Health Insurance (with or without premium reimbursement)

  • SHOP Marketplace

  • Private Exchange

  • Co-operative

  • Private Small Group Plan

1. Individual Health Insurance (with or without premium reimbursement)

The first option is a relatively simple approach, yet it achieves results: direct employees to the Health Insurance Marketplace in your state to purchase an individual or family health plan. Eligible employees can access discounts on their premiums via the premium tax credits. Or, employees can purchase an individual health plan “off” the Marketplace, through a broker or online.

If the small business would like to contribute to employee's health insurance expenses, they can use a premium reimbursement arrangement to reimburse employees for the unsubsidized portion of their premium. Premium reimbursement allowances can be given evenly to all employees, or provided based on job criteria (e.g. $300/month to managers and $200/month to entry-level).

For many small businesses, this is the most cost-effective health insurance solution because:

  • The business can contribute any amount to the healthcare allowances, and

  • Individual health insurance costs, on average, 20% - 60% less than small group plans.

This option is ideal for businesses who have been priced out of group health insurance, want to offer health benefits for the first time, or who do not want the administrative hassle of a group health insurance plan.

2. SHOP Marketplace

The small business SHOP Marketplaces are new state- or federally-run exchanges for small businesses. Small group health plans are available on the SHOP Marketplaces for small employers with 50 or fewer employees, however there are eligibility requirements. For example, in Massachusetts employers participating in the SHOP must contribute at least 50% of the premium amount, employers with 1-5 employees must have 100% of the employees enrolled, and employers with 6-50 employees must have at least 75% enrolled.

For eligible small businesses, the SHOP Marketplace gives access to the small business tax credits, which since 2014 are only available through the SHOP.

3. Private Health Exchange

With a private exchange, the small business gives employees a set contribution to use towards a menu of plan options. The plan options can be individual - or group-based. Private exchanges are a type of “defined contribution” strategy.

4. Co-Op

Joining a co-op for health insurance is another option for small businesses, and a more traditional one. The co-op exists to increase buying power and spread the risk among a larger group. Each co-op is structured differently, so the co-op may offer better insurance rates than a group policy or a SHOP plan depending on regional insurance underwriting laws and the co-op itself.

5. Private Small Group Plan

Purchasing a traditional private small group health insurance plan is also an option for small businesses. Small businesses may find more options and carriers to choose from on the private market as compared to the SHOP, where some states only have one or two plans to choose from.

The Future of Small Business Health Insurance?

As many business owners know firsthand, traditional group health insurance is largely broken - it’s too expensive and it no longer works or employers and employees. The lack of portability, rising costs, and existing alternatives are all contributing to the mass abandonment of traditional group health insurance. Individual health insurance with premium reimbursement or private exchanges paired with individual health insurance are the future of small business health insurance -- and are the best options for all small businesses.

Recruiting Ideas for Small Businesses

Good hires are key to the success of any company. This is true for mom-and-pop shops, startups, and small businesses... as well as Fortune 500 companies. But recruiting the right employee can be tough. Small businesses with limited time and resources need to be smart about recruiting new talent and make each new hire count.

Here are considerations to efficiently recruit the best talent in the industry.

Prepare to Recruit & Hire Small_business_recruiting

All too often, small businesses start listing positions and interviewing before they truly know what or who they are looking for. To hire the right employee the first time, take a step back and ask yourself these questions:

What Roles Will They Fill?

As you post the job and interview candidates, having a clear job description will help you hire the best candidate for the position.

How Much Help Do You Need?

Consider how much time you need from an employee. Do you need full-time or part-time? A contractor or consultant? An intern?

How Much Can You Afford?

If you’re like many small business owners, you worry about the cost of hiring and the return on your investment. As with every investment, consider: monthly cash flow, monthly profit, expected additional revenue, payroll costs, monthly taxes and benefits, and additional overhead costs.

How to Get the Word Out

Getting enough qualified candidates in the door requires more than just putting up a “we’re hiring” sign.

However, knowing how to spend valuable time and resources can be challenging. Recruiting doesn’t have to be expensive or time-consuming, but you do want to cast a wide net to find the most well-qualified candidates.

Six ways to find the top candidates include:

  • Employee referrals

  • Career website

  • Online job boards

  • Colleges & universities

  • Social media

  • Networking events

Retention Ideas for Small Businesses

Employee Retention Ideas for Small BusinessFor a business to thrive in today’s economy, finding and retaining the best employees is key. This is especially true for small businesses competing with larger companies, and larger budgets, for top talent.

Happy Employees Help Businesses Thrive

Frequent voluntary turnover has a negative impact on employee morale, productivity, and company revenue. Recruiting and training a new employee requires staff time and money.

Some studies (such as SHMR) predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average. For a manager making $40,000 a year, that's $20,000 to $30,000 in recruiting and training expenses.

But others predict the cost is even more - that losing a salaried employee can cost as much as 2x their annual salary, especially for a high-earner or executive level employee.

So how can a small business keep their employees from jumping ship? As our workforce becomes increasingly mobile, a well-thought out employee retention strategy becomes just as important as recruitment (if not more).

Here are seven tips for small business employee retention.

1. Understand Why Employee Retention Matters

Employee turnover costs small businesses time and money. Turnover disrupts the flow of a functioning workforce. When an employee leaves there can be a significant knowledge gap left, creating more work as the remaining team members pick up the pieces.

Recruiting and training a new employee requires staff time and money. Every time a business replaces a salaried employee, it costs on average 6 to 9 months in salary. For a manager making $40,000 a year, that's $20,000 to $30,000 in recruiting and training expenses, along with other intangibles.

While some turnover is inevitable, having an intentional employee retention strategy in place mitigates the turnover, and its costs, for a small business.

2. Benchmark Your Employee Retention Rate

Do you know your current employee retention rate? Before you start thinking about formal employee retention activities, calculate your employee retention rate and track it periodically, such as quarterly or bi-annually.

The calculation is simple. Divide the number of employees who left during a period by the total number of employees at the end of a period to get the percentage. According to industry standards, 85% or higher is considered a healthy employee retention rate.

3. Use Retention Strategies, Not Guesswork

There are several theories in employee retention strategies. Here's a sample of four common theories:

  1. Positive Organizational Behavior is defined by Fred Luthans as "the study and application of positively-oriented human resource strengths and psychological capacities that can be measured, developed, and effectively managed for performance improvement in today’s workplace"

  2. Valence, in Victor Vroom's Expectancy Theory, is the extent to which an employee's goals match the company's goals. The more aligned these are, the higher the employee retention rate.

  3. Abraham Maslow's Hierarchy of Needs theorizes that companies should first take care of an employee's basic needs, such as job security, payment, and health benefits, and then advance to bigger aspirations, like his or her place in the company.

  4. How important is it that employees feel they are being treated fairly? According to John Stacey Abrams' Equity Theory, if a worker feels he is getting what he considers to be fair for the job he is doing in return, he will be happy and remain in the position.

4. Don't Assume Employees Are Happy

One of the worst mistakes a small business can make is to assume that, because an employee is still there, he or she is happy.

Schedule regular, one-on-one reviews with employees. These review meetings serve as a forum where the employee can receive constructive feedback.

Feedback is important. Even the most productive employees should be given feedback as a part of the retention strategy. Studies show employees not only want acknowledgment for work done well, but also want constructive criticism and routine review of goals and expectations. This makes an employee feel valued and helps keep morale high.

Conduct regular, formal evaluations. Employee evaluations are also a good time to get feedback from employees on what will make them happy. With a retention strategy, always keep a balance between what the employees want and what's best for the business.

5. Health Benefits Are a Key Part of Employee Retention

Health benefits are a vital part of an employee's compensation package, and thus an important strategy for employee retention.

Work with an insurance agent or broker to evaluate your small business health insurance options including private exchange and individual health insurance premium reimbursement.

If your business can't afford a group health insurance plan, or cannot meet minimum participation requirements, work with your broker to design a premium reimbursement plan. Premium reimbursement allows your business to provide employees healthcare allowances for their individual health insurance policies. This is an alternative to an employer-sponsored group health insurance plan.

6. Provide Different Benefits for Different Employees

Turnover of certain employees may be more costly than others, thus it is common to provide different levels of benefits to different classes of employees. This is routinely done by major corporations. For example, sales managers are compensated differently than customer service representatives.

Because health benefits are such an important part of compensation and retention, why not provide health benefits that vary by class of employee? Small businesses can do this with premium reimbursement arrangements.

As there are no minimum or maximum contribution requirements with premium reimbursement, a small business can design their health benefits plan to fulfill their exact recruiting and retention needs.

7. Conduct Exit Interviews

Exit interviews provide businesses valuable information on the reasons employees seek employment elsewhere.

Develop an exit interview survey that asks for feedback on the work environment, employee benefits, areas for improvement, training, supervision, and workload.

Evaluate the exit interview surveys and incorporate the feedback into your small business’s employee retention strategies.

Additional Reading to Help Small Businesses

The Simple Guide to Small Business Health Insurance

Building a successful business is hard work. Navigating small business health insurance, however, doesn’t have to be. While each small business has its own unique goals and challenges when it comes to finding health insurance, the good news is there are new opportunities for affordable health insurance. Wondering where to start? Read more.

Employee Retention - The Real Cost of Losing an Employee

For businesses to thrive in today’s economy, finding and retaining the best employees is important. This is especially true for small businesses and nonprofits competing with larger businesses, and larger budgets, for top talent. Read more.

FAQ: Does My Small Business Have to Provide Health Insurance?

As a small business owner, you may be asking, “Do I have to provide health insurance to employees?" No business has to offer health insurance. However, the Affordable Care Act includes a mandate for certain large employers (with over 50 full time equivalent employees) to either offer qualified and affordable health benefits, or pay a tax penalty. Read more.

Small Business Health Insurance Options for 2015

The cost of group health insurance is becoming unsustainable for small businesses, startups, and small non-profit organizations. Since offering healthcare is a crucial part of employee recruiting and retention, dropping healthcare benefits altogether is not a feasible option for most small employers. Read more.

Startups Don't Have to Forgo Health Insurance - 5 Tips for Finding Affordable Options

Many startup entrepreneurs feel daunted by the task of taking full responsibility for health insurance for themselves and their employees. This article provides tips for finding affordable options. Read more.

How to Calculate HR Employee Retention Rates

This article provides an overview of how to calculate HR employee retention rates, why employee retention strategies matter, and a best practices checklist for employee retention. Read more.

Employee Retention - How to Keep Millennials Motivated and Happy

What are Millennials looking for in a job? And, how can small businesses adapt their employee retention strategies to retain younger employees? Read more.

The Comprehensive Guide to the Small Business HRA