Benefits and retirement savings plans can be critical elements to help attract and retain staff, business advisors say. Yet many entrepreneurs may be missing out on this competitive edge because of misconceptions about the cost and administrative burden.
Some small business owners feel that they lack the size or the budget to offer benefits programs, says Susan Cranston, Assistant Vice-President, Group Small Business Marketing & Advisor Services, Manulife Financial in Waterloo, Ont.
Yet programs are available to cover as few as two individuals, with medical, dental and life insurance, she says.
The expense is frequently less than small businesses anticipate, she adds. Companies can put in place a reasonable benefits package at a cost of perhaps 5 to 10 per cent of their total payroll, a manageable addition for many small businesses.
For a group RRSP (Registered Retirement Savings Plan) offering, it’s easy to set up a program where a percentage of each employee’s pay is automatically deducted. The costs depend on what, if anything, the employer wants to contribute. So the employer’s investment could be as little as the administrative time, Ms. Cranston says.
When Manulife Financial surveyed Canadian small business owners last year, it found that 86 per cent feel an obligation to take care of the people who work for them. Of all small business owners surveyed with between two and 100 employees, 42 per cent do not offer health benefits. Far fewer small business owners offer any type of retirement or other savings programs for their employees, such as profit-sharing plans (25 per cent), group RRSPs (20 per cent), or an employee pension plan (15 per cent).
For small businesses, offering benefits and retirement savings programs help create “sustainability,” Ms. Cranston says.
First, businesses need to consider their appeal as an employer. Benefits can play a vital role in their long-term business plan, by helping them compete in the job market, and allowing them to offer a tax-effective form of compensation.
Ms. Cranston says businesses should also view sustainability in terms of the relative importance of their employees. The smaller the business, the more valuable each employee may be. If a key employee is slow to return to work after an illness or injury, because an employer lacks coverage to pay for treatment and rehabilitation, the company’s health may suffer. “You have to think about how you manage the risk,” Ms. Cranston says.
Any owner may need help wading through the options. Group retirement solutions, for instance, may include defined contribution pensions, deferred profit-sharing, non-registered savings and employee share ownership plans, each with its own nuances.
Small businesses can struggle with these choices. Often, these businesses lack a dedicated human resources role, or the in-house financial expertise. The owner is also likely more focused on day-to-day operations than on personnel issues, says Ms. Cranston, another reason why it’s common to put benefits on the back burner.
Cost sharing, caps on drug spending, tax implications for the employer and employees, and the plan’s flexibility as the business grows are only some of the issues to address, Ms. Cranston says.
“Talk to a benefits advisor, who can create a framework that will suit your needs and budget,” she says.