Employee benefits can be goods, services, or deferred compensation provided to employees in addition to wages. Federal law governs certain mandatory employee benefits, such as sick leave under the Family and Medical Leave Act (“FMLA”), while other benefits are voluntary perks of employment. In addition to the minimum requirements required by federal law, many states, including California require additional benefits.
For example, California requires employers to pay into or carry short-term disability insurance. Understanding mandatory employee benefits and the laws governing the same are crucial to starting a business in California. Business of all sizes that fail to adhere to federal and state employee benefits regulations may face costly litigation and/or tax penalties.
Types of Employee Benefits
“Deferred compensation benefits,” which means they have a monetary value that’s not immediately accessible. Examples of deferred compensation benefits include:
- Stock bonus plans
- Specialized retirement plans
- Excess benefits plans
- Salary reduction arrangements
- Bonus deferral plans
- Top-Hat plans.
Another type of employee benefit is goods, services, and items other than deferred compensation, such as:
- Holiday bonuses
- Health insurance
- Life insurance
- Disability insurance
- Other voluntary benefits such as loan repayment and travel reimbursement
These benefits are distinguishable under the tax code under Internal Revenue Code (“IRC”) § 401 and are subject to certain tax deductions and exemptions.
Required Employee Benefits
Subject to eligibility and exceptions, employers are required to provide health insurance through the Affordable Care Act, short-term disability insurance in California, up to 12 weeks of job-protected medical leave through FMLA, unemployment benefits in the form of mandatory payments, and worker’s compensation coverage in accordance with state law. Employers are not required to provide paid time off, vision or dental insurance, retirement benefits, or additional perks common in the private sector. However, employers providing voluntary benefits such as retirement plans, stock options, and long-term disability insurance are subject to mandatory federal and state regulations.
Applicable Employee Benefits Legislation
The IRC governs the tax incentives applicable to some of the elective benefits. These incentives normally take the form of employer tax deductions, but failure to adhere to the IRC, even with voluntary benefits can result in hefty tax penalties.
Federal employee benefits legislation is found in the Employee Retirement Income Security Act (“ERISA”), which governs employer-sponsored retirement, health insurance, and disability plans. Most employers providing retirement and insurance benefits are subject to complex ERISA regulations including:
- Fiduciary duties
- Reporting requirements
- Funding standards
- Plan requirements
- Employee appeal rights
The IRC, ERISA, the Americans with Disabilities Act, and various anti-discrimination laws also govern employee benefits. Employee benefits cannot be limited to high-ranking executives nor can they be denied on the basis of disability, race, religion, or sex. While small Silicon Valley startups may be exempt from the Affordable Care Act and certain ERISA regulations, any startup company voluntarily providing employee benefits is unwittingly agreeing to abide by federal and state employee benefits laws.
Call an Experienced Silicon Valley Employee Benefits Lawyer Today