Should your nonprofit company offer an employee benefits package? And perhaps more importantly, can you afford it?
According to the Nonprofit Times, a survey found about 87% of nonprofits offered some kind of medical plan to their employees. In addition, the average percentage paid by an organization for an employee-only plan is about 84%.
If you’re evaluating your options, read on for some information on how the Affordable Care Act (ACA) impacts nonprofits offering benefit plans, how you can select a group benefits provider, and how you can offer free or low-cost perks to retain your best employees.
Why Nonprofits Should Offer Employee Benefits
As it turns out, there are many compelling reasons to offer your employees benefits. The first reason is intrinsically linked to your values as a company. Nonprofits set out to make the world a better place. It only makes sense that you also want to help your employees by keeping them healthy and happy.
Offering a benefits package is also a potent tool for recruiting and retaining the best talent, which can be a huge challenge when your salaries aren’t as competitive as many other for-profit companies.
According to research from Glassdoor, top five most desired company benefits include:
Vacation and paid time off
Paid sick days
401(k) or retirement plan
A quality benefits package also can improve employees' work/life balance. In an employee retention study conducted by Work Institute, poor work/life balance was cited by 12% of employees as the reason they left their job, while 9% said they left due to reasons around compensation and benefits.
Studies have also shown that the hiring process can cost companies a significant amount of money each year. So by retaining your employees for a longer period of time, you’ll actually be saving money in the long run.
Get 110 ways to appreciate employees on a budget, free.
How does the ACA affect nonprofits offering health insurance?
Nonprofit companies are no more exempt from ACA rules than for-profit companies.
Various federal, state, and local laws require that certain minimum benefits be provided to employees. The legally required benefits you need to offer largely depends on your company size and location.
Here are a few legal provisions you should have on your radar.
The Affordable Care Act
If you have fewer than 50 full-time equivalent employees (FTEs) on average during the prior year…
The ACA does not require you to offer healthcare benefits. However, it does offer an incentive for you to do so. You may be eligible for the Small Business Health Care Tax Credit if you:
Have fewer than 25 FTEs; - pay average annual wages to your employees for the year of less than $50,000 per FTE; and - cover at least 50% of your full-time employees’ health insurance premium costs.
Generally, a FTE is defined as an employee who works an average of at least 30 hours per week, or 130 hours per month.
But take note that the hours your part-time employees (PTEs) work can add up to equal those of an FTE. To calculate whether a number of PTEs aggregated together count as FTEs, divide PTEs aggregated monthly hours (not to exceed 120 per PTE) by 120 (what’s defined as FTE).
You have four PTEs who each work 60 hours during a particular month.
(4 PTEs * 60 hours) = 240 / 120 = 2
These four PTEs would count as two FTEs for definition purposes of the ACA for this particular month.
If you have 50 or more FTEs on average during the prior year…
You are subject to the Employer Mandate, which requires you to either offer affordable minimum value health coverage or pay a penalty.
According to SHRM, the 2017 Tax Act will not alter the ACA's mandate that employers with 50 or more full-time equivalent employees offer their full-time workers ACA-compliant health coverage, nor will it change employers' reporting obligations under the ACA.
Minimum value health coverage must meet certain federal government standards. For example, federal government standards require coverage of pre-existing conditions and removing caps on lifetime benefits.
Other required benefits to be aware of:
Unemployment insurance - Workers’ compensation - Family and medical leave - Paid sick leave (may be required under applicable state or local law) - Commuter benefits (may be required under applicable state or local law)
How do nonprofits go about choosing benefits providers?
There are a few ways to go about selecting a benefits package provider based on your nonprofit company’s time, budget, and objectives.
Direct purchase is mostly intended for people who are buying insurance individually. Employers can’t buy plans in bulk this way, which means employees would have to pick out the plans they want and see whether the company can provide stipends to help pay for the cost of the coverage.
Although employees can customize their plans through this option, it is usually a confusing experience and employees have to use post-tax dollars to pay for their premiums. It also may not be beneficial for employers, in part because if an employer decides to contribute to the employee's premiums, they may end up having to contribute more than with a group health plan.
When it comes to purchasing for a bigger group like a small business, direct purchase quickly becomes a headache. The savings may far outweigh the value of your time as someone running a small business. Additionally, because of the ACA, once you hit an average of 50 full-time equivalent employees, your company may be liable for penalties for not offering a group benefit plan in place of individual plans.
For the most part, companies with 50 or fewer FTEs are eligible for the SHOP (Small Business Health Options Program) Marketplace. With the SHOP model, brokers may help you select small group plans through an exchange.
In 2016, however, eligibility numbers expanded in Colorado, New York, and Washington for up to 100 employees. Also in order to be eligible in most states, you must offer insurance to at least 70% of your employees or have coverage from a different source.
Is a nonprofit required to purchase health insurance through the Marketplace?
No, a nonprofit is not required to purchase insurance for employees through the SHOP Marketplace. If you would like to purchase health insurance via a SHOP program, however, your nonprofit is eligible to do so if your organization has fewer than 50 employees.
Going directly through a broker doesn’t have the same eligibility requirements as the SHOP Marketplace. Brokers act as a consultant to your employees by setting up defined contribution allowances and selling them individual policies.
If you aren’t eligible for small group health insurance, going through a broker could be the right choice for you. However, some people feel they’re priced out of group health insurance, which is when a PEO may be a better fit.
PEO stands for Professional Employer Organization. PEOs are an all-in-one solution for small businesses that handle payroll, benefits, compliance assistance, and other functions required in running a business.
With a PEO, small businesses are, in effect, grouped together in order to obtain enterprise-level benefits. For example, depending on the state, companies under 50-100 employees have to pay small group prices with healthcare carriers, sometimes up to 30% more than what larger companies pay. Group rates generally reduce overall healthcare costs.
Justworks is a PEO, and we offer access to a wide array of benefits and perks, from full medical plan packages at competitive prices to 401(k)s, Citi Bike memberships, access to same-day appointments with One Medical, and access to consumer advocacy with Health Advocate.
Employee Compensation with Benefits
Nonprofit organizations rely on their team just like any other company or organization. And it’s common knowledge that unless you’re compensating your employees fairly, you risk higher turnover and attrition.
That’s why offering perks and benefits, including those beyond health insurance, are so important to the overall growth of a nonprofit organization. Finding quality company health insurance at a reasonable price is just one part of the equation.
In addition to finding a benefits provider, there are plenty of other steps you can take as a nonprofit company to give your employees encouragement. You can start with free and low-cost perks.
401(k) for Nonprofits
Nonprofit organizations have the ability to offer 401(k) retirement plans to employees.
Although some tax-exempt organizations choose to offer 403(b) retirement plans, 401(k) plans are acceptable and in many cases preferred — many workers are familiar with 401(k) as this is the most common retirement plan of for-profit companies. In many ways, 401ks and 403bs are comparable retirement vehicles.
For the purposes of attracting and retaining talent with benefits, 401(k) plans can go a long way towards recruiting the right team for your nonprofit.
Remote Work Perks
Perks are a little less formal.
If you want to level up your employees’ remote workplaces, send employees company swag items they can use in their remote workspace (think phone chargers, leather padfolios, desk lamps, posters with the company logo, etc.).
Consider food-related perks, like gamifying workday snacks or meals with monthly or quarterly cooking challenges! Choose an ingredient and challenge employees to create a workday snack or meal that incorporates it and submit photos for voting.
You could also provide a company subscription to online fitness classes or apps that employees can access from wherever they are. Justworks offers Classpass memberships that enable employees to book fitness classes, massages, meditation sessions, and more.
Partner with a local guide or use a popular app to lead a regularly scheduled guided meditation. Justworks holds weekly sessions via Zoom that are open to employees and the public.
If you’re looking for additional perk ideas, you can download our free eBook, 110 Ways to Appreciate Employees on a Budget. One of our favorite ideas? Encouraging free mentorship programs between employees.
How Justworks Helps Nonprofits
Justworks is a PEO that helps small- and medium-sized businesses attain access to enterprise-level benefits for their teams. Justworks also helps your company administer payroll and with certain governmental and compliance forms.
Many nonprofits are Justworks members, and we even offer a nonprofit discount. Learn more about Justworks and our features to see how it’s a great fit for nonprofits.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.