Evolution of  Employee Benefits in a Business  In the Beginning: Your First Employee Benefits Plan What benefits should a new business owner look at? In the beginning, the new owner has usually left his or her prior employer and has given up the benefits  provided by that company. I usually see that the new owner has some life insurance and that's about it. They usually have elected COBRA for medical, have no disability income and have a pension of 401k to do something with. Where do they go from here? Medical Insurance Medical coverage is the most basic beginning need. Even though COBRA provides medical coverage for the owner, it is usually very expensive. And COBRA is not a permanent alternative. If you are going to have your own business and probably hire future employees or have employees at the beginning, it is time to examine the alternatives in medical insurance.  In Minnesota, where Business Planning Professionals is based, the state laws make it favorable to have your own group medical plan. There are many types of benefits available from HMO's to deductible plans. The better the benefits, the higher the cost. A plan with a $10 copay in the doctor's office and 100% in the hospital is quite a bit more costly than one with a $500 deductible plan. The best way to make a decision is to obtain pricing from different carriers for multiple products.  Read about the Health Savings Account (HSA). What we do is just that. In order to make an intelligent decision, you have to be informed. Most of the new businesses I work with, start with a lesser plan rather than the best one. The reason is cost. It is much easier to tell your employees that you've had a great year and want to enhance the benefits then have to do the opposite and tell them you have to reduce the benefits. Besides, at the beginning, costs are often a primary consideration. What you need is good coverage for a comfortable price. At this point we need to establish the beginnings of a benefit plan. An employee benefits plan is not a static. This will not be the only time you review it. You benefits plan will change with time, your needs and the profitability of your company. back to the top Group Life Insurance Most employees do not have adequate life insurance. They are not purchasing adequate coverage on their own and look for it from their employer. Fortunately, group life insurance is one the cheaper benefits to provide.  The usual benefit amount is either a flat amount such as $50,000 for all or a function of salary, such as 1X.  I have also set up plans that are a combination such as 1X salary to $50,000. Why is $50,000 a significant number in group life insurance? The IRS has determined that an employer can provide up to $50,000 of group life insurance with no tax consequences to the employees. Any amount over $50,000 causes a taxable event. The IRS has a table that determines the taxable income each employee must report. That means you as the employer must put that figure on each employee's W2 as additional taxable income. To simplify things, often we provide up to $50,000 and give the employees the option of adding to that amount on a payroll deduction basis. You can discriminate by class of employees giving group life insurance. For example; all officers and managers receive $50,000, as class 1. Class 2, could be all other employees with a benefit of $25,000. There are rules to limit the differences between classes. I rarely do "position plan" in group life anymore. I think most employees expect their group life to be a function of salary. This is a good time for you, the new business owner to take a look at your own personal life insurance situation. You probably lost coverage when you left your employer so your life insurance is less than it was. Your family is counting on you to be successful. You very well may have made a lot of promises to them as you embarked on this enterprise. Add a lot of term life insurance to your coverage just in case. If you die prematurely, your business will likely die with you, but you owe it to your family not to cheat them financially. Term life is very affordable.  Read more about group life. back to the top Disability Income Disability income is as basic coverage as medical. How long can you continue to pay a disabled employee before you would have to fire them? We all need income to live whether we can work or not. An employer can provide a good base of disability benefits for its employees. The largest problem of obtaining disability income for a business is qualifying for it. Most carriers require the business to have existed (survived) for a year or longer to even qualify for benefits.  Regardless, we take each situation to the carriers and argue the point of providing disability. Sometimes we win,  sometimes we don't. If you are thinking of starting your own business and have disability available to you as an employee, take a look at it PRIOR to leaving you employer. You will not qualify as an individual, new business owner for at least one to two years plus you will have to submit financial evidence to prove you are making an income that is adequate to insure. This is not the time to be without income if something happens and you can no longer work fulltime if at all. Business Planning Professionals offers a full line of group disability and individual disability income products. Disability income comes in three flavors: Group Short Term (STD) designed to cover the period of time before long term disability is available. You can pick different elimination periods from 0 day wait for accident and 8th day for sickness, to one week for accident and illness, to 30 days for both. The benefit periods are 13 weeks and 26 weeks. Group Long Term (LTD) designed for the long term disability. The waiting periods (elimination period) for being eligible for benefits are 90 days (13 weeks), 120 days, 180 days (6 months) or one year (365 days). the benefit period usually is to age 65 although most carriers offer a to age 67 benefit to coincide with eligibility for social security benefits. The benefit amount can be variable depending on the size of your group, your budget or personal choice. Most plans are 60% of income to a maximum benefit amount of say $3,000 to $5,000. The maximum  benefit amount is also a variable that should be designed to meet your objectives, budget and incomes of your employees. LTD plans can be all employer paid (non-contributory) or shared by the employer and employee (contributory). LTD can also be fully paid by the employee, but most aren't. LTD plans require a minimum participation by the employees. Contributory plans are more expensive than non-contributory ones due to possible anti-selection against the company, meaning employees expecting to use the LTD plan tend to buy and the rest not purchasing it. Individual Disability  Income (IDI) purchase by the employee to fill in around group disability. If a base group LTD plan exists, the maximum benefit amount for an IDI plan is 70% of income. IDI plans are more expensive than group for several reasons. Group premiums are not guaranteed. Group benefits are integrated with social insurance like workers compensation and social security. IDI plans are usually guaranteed renewable and can be non-cancelable. A good coordinated disability plan offers a good base LTD plan with the option of the employee buying up to increase the amount. Read more about employer sponsored disability. back to the top Voluntary Employee Purchased Benefits As an employer, you can't afford to provide total financial security for your employees. But few employees purchase adequate insurance protection outside the job. In fact, most look for those products at work. You can provide access for your employees on a voluntary with the convenience of payroll deduction. There are many voluntary products available: term life insurance universal life and whole life disability income long term care  prepaid legal dental, vision, chiropractic and prescription The largest issue early in the life of a new business are the minimum requirements of the carriers. Many have set minimums as to the number of enrollees required to establish a plan.  Different companies have different requirements as do various product offerings. Business Planning Professionals represents all the major providers of voluntary benefits. We can help you find what you need.  back to the top Buy and Sale Agreement Many businesses have more than one owner. You and your friend have a great idea and you see how it can grow into a profitable business. You both have skills and experience to make it happen. You put your resources together because it will take both of you to make it happen. Well what happens if one of you dies prematurely in a car accident? Are you going to be suddenly in business with your partners family? They are going to expect the same kind of income from the business. Are they going to be able step in and fill your partner's shoes? Wouldn't it be better to have an agreement giving you first right to purchase your partner's interest? That's called a buy and sale agreement. You will not necessarily get this agreement with an incorporation or partnership agreement. Talk to your legal advisors about the value of this agreement. I have worked with businesses that assumed it was part of their original legal documents and it is not. The best time to do an agreement is when both of you can sit and discuss it. The worse time to face it is when your partner is gone and you are dealing with his or her family and you have no prior agreement. What is the value of the business? Having an agreement is not enough. Even if you establish the procedure of what happens when and a fair value, where is the money going to come from to complete the agreement? This is the time to insure both of you with life insurance to fund the agreement. The action that causes the need also creates the dollars to solve it.  This is also a good time to add key person life insurance too. Owning the business outright will help you during the loss of a partner, but you have lost a valuable person to the business. Some extra cash can make the difference between surviving and prospering after losing your partner or struggling to survive. Read more about Buy & Sale Agreements. back to the top