How Small Businesses Can Offer Better Benefits to Employees Through a PEO

Small business owners can no longer afford to overlook employee benefits. Today's workers expect more than just a paycheck, and 70% of them are willing to change jobs to secure better perks.

However, delivering these benefits is challenging when running a lean operation. You're likely to have a tight budget and lack the internal HR and payroll expertise to administer programs, which makes it hard to manage the costs, complexity, and compliance requirements that come with offering competitive benefits.

Faced with this challenge, thousands of small US businesses have turned to PEO services. This lets them outsource key operations like HR, payroll, and benefits administration and access packages that would otherwise be out of reach.

Alongside easing their administrative burden, data shows that small businesses in partnerships with PEO providers tend to grow twice as quickly as before.

Is your small business struggling to manage employee benefits without stretching resources? This guide covers what to include, how to set up your plans, and how a Professional Employer Organization like Deel can support you throughout the process.

What's legally required for US small businesses?

Every US employer, regardless of size, must withhold and match Social Security and Medicare taxes under FICA. Beyond that, most federal requirements kick in at specific headcounts, and several benefits are governed at the state level.

When structuring your small business employee benefits package, make compliance your first step. Even companies with only a handful of employees are still required to offer many types of contributions, coverage, and insurance plans under state and federal law. Getting this step right minimizes the risk of legal issues and fosters trust among small, tight-knit teams.

Social Security and Medicare

All employers must withhold and match Social Security and Medicare contributions under FICA. This applies regardless of your business size or the state where you operate:

See also: What are Medicare A, B, C, and D? An All-in-One Resource

Health insurance under the ACA

Businesses with 50 or more full-time equivalent employees must provide health insurance under the ACA. Your plans must also meet the Act's minimum coverage and affordability standards.

For plan years beginning in 2026, coverage is considered affordable if the employee's required contribution for self-only coverage doesn't exceed 9.96% of household income, up from 9.02% in 2025.

See also: A Guide to ACA Compliance Requirements

COBRA

COBRA requires you to offer continued health insurance coverage after qualifying employees leave if you offer a group health plan and have 20 or more employees.

Not all contract terminations trigger COBRA. Employees must experience a qualifying event, such as a reduction in working hours or involuntary dismissal for any reason other than gross misconduct. You can require departing employees to cover the premiums after they leave, but these contributions can't exceed the standard cost of coverage, including administrative fees.

FMLA leave

Under FMLA, businesses with 50 or more employees must provide up to 12 weeks of unpaid leave for the birth, foster placement, or adoption of a child; an employee's recovery from a serious health condition; caring for an immediate family member with a serious health condition; or a qualifying military family emergency.

New employees aren't immediately eligible. They must work for your business for at least 12 months and log at least 1,250 hours during that time.

State unemployment insurance

SUI is a federally authorized program managed at the state level. It typically involves registering with local authorities and contributing to a public fund through payroll tax withholdings. Rules vary by state: some use fixed percentages, while others calculate an individual rate for each business based on payroll and termination history.

Workers' compensation insurance

Most states require you to obtain workers' compensation, which covers medical bills and lost wages for employees with job-related illnesses and injuries. Requirements vary more than SUI: some states only require registration after your third or fourth hire, though state governments often encourage earlier coverage even where exemptions apply.

Disability insurance

California, New York, New Jersey, Rhode Island, and Hawaii require disability insurance on top of workers' compensation. This program covers employees who can't work due to illness or injury, regardless of whether their job caused it. Costs are typically shared between employer and employee, with rates and limits set annually by the state.

Compliance cheat sheet

How to calculate your FTE count

The ACA counts full-time employees (those averaging 30 or more hours a week) as one FTE each. For part-time employees, add up their total monthly hours and divide by 120 — that gives you their equivalent FTE count. Add the two totals together.

Worked example: A business with nine full-time employees and three part-time employees who each work 80 hours a month:

• Part-time hours: 3 × 80 = 240 hours a month

• Part-time FTE: 240 ÷ 120 = 2

• Total FTE: 9 + 2 = 11

At 11 FTE, this business is well under the 50-employee ACA threshold, so the mandate doesn't apply, though FICA, SUI, and workers' compensation still do.

At a glance: Mandatory vs. voluntary benefits in the US

Mandatory, by category:

• Health-related: ACA coverage, required at 50 or more FTE employees; COBRA continuation coverage, required at 20 or more employees with a group plan

• Workers' compensation: required in most states, typically from the first or second hire

• Unemployment: required in every state, with contribution rates that vary by state

• Disability: required in California, New York, New Jersey, Rhode Island, and Hawaii

• Leave: FMLA unpaid leave, required at 50 or more employees

• Financial wellness: FICA contributions for Social Security and Medicare, required for every employer

Voluntary, by category:

• Health-related: vision, dental, and mental health support, for example an employee assistance program or teletherapy access

• Financial wellness: retirement plans, HSAs and FSAs, and life insurance, for example a modest 401(k) match

• Leave: paid parental leave, paid time off, and paid vacation, for example two weeks of PTO plus four weeks of paid parental leave

• Lifestyle and perks: flexible working arrangements and professional development stipends, for example a remote-work policy or an annual $500 learning stipend

Learn more: What Employee Benefits Are Required by US Law?

Voluntary benefits

Once you've met the legal minimum standards, consider which benefits you can add to sell yourself as an employer to candidates and retain your best people. The ideal benefits depend on your team's needs and preferences: a predominantly Gen Z workforce is more likely to appreciate student loan repayment than older demographics who have already paid off most of what they owe.

That said, the following employee benefits tend to have general appeal.

Health-related benefits

While your small business may already offer mandatory health insurance, look for opportunities to extend and top up your plans. Recent studies show that 42% of employees would rather be put on an improved plan than receive a pay raise.

• Health insurance: Even if you're exempt from ACA requirements, register anyway. You're likely eligible for the Small Business Healthcare Options Program (SHOP), which entitles you to a 50% tax credit on qualified employer contributions.

• Dental and vision: Most health plans don't include these, but employees consistently rank them among their top three benefits.

• Mental health support: Often excluded from standard insurance, but high on employees' wish lists. Use a mix of options, such as employee assistance programs, teletherapy, and wellness programs, depending on whether your team is on-site, hybrid, or remote.

Financial wellness benefits

Research shows that people who feel financially secure report more job satisfaction, and a pay raise only helps in the short term. Benefits like retirement plans and savings accounts help employees plan ahead and feel more in control.

• 401(k)s or retirement accounts: 98% of employees expect employers to offer some kind of retirement benefit. Even a modest match shows you're investing in your team long term.

• Savings accounts: HSAs and FSAs help employees cover medical and dependent care expenses, reduce taxable income, and lower payroll taxes for your business.

• Life insurance: Often overlooked, but basic life insurance offers employees with families real peace of mind, and it's inexpensive to add to a group plan.

See also: Difference Between HSA and FSA: How to Choose the Right Option

Lifestyle perks

Lifestyle perks are where you can get personal and reflect your business culture, enticing top talent away from larger competitors with a less distinct employer brand.

• Paid time off: Half of employees report feeling distracted by work during vacation. Extra paid leave signals that your company genuinely wants people to take time off.

• Parental leave top-ups: Going beyond the legal minimum can win over the 25-to-40 demographic as they plan families.

• Flexible working arrangements: Remote work and location flexibility are cost-effective and still in high demand; many employees would give up 20% of their salary to work from home.

• Professional development stipends: These appeal to career-minded employees and prepare them to step into new roles as your business grows.

How to offer employee benefits as a small business

Step 1: Determine what's required

Input: Your headcount, locations, and industry. Output: A list of the federal and state benefits that apply to your business.

Start by understanding the federal and state requirements based on your size, location, and occasionally your industry. For example, unemployment insurance rates run higher in construction because project-based work leads to more frequent layoffs.

Bookmark these for federal requirements:

• IRS: Social Security and Medicare withholding rates

• Healthcare.gov: coverage options for small businesses

• DOL: COBRA continuation coverage

For your state, find the departments that handle workers' compensation, unemployment insurance, and disability insurance, typically your state's departments of revenue and labor.

Step 2: Set a budget

Input: Your required benefits list and current headcount. Output: A per-employee dollar range for mandatory and voluntary benefits, plus a contribution buffer.

Calculate how much funding you need for mandatory benefits, including a buffer for potential headcount growth. Then estimate what you can realistically spend on voluntary benefits — you may need to start small and build as your company's financial standing improves. Before you confirm your budget, benchmark against similar small businesses to see if you're under or overspending.

Step 3: Choose a delivery path

Input: Your budget, headcount, and internal HR capacity. Output: A selected delivery model — broker, platform, tax-advantaged allowances, or PEO.

• Broker: Helps you compare plans and negotiate rates, but doesn't typically manage ongoing admin, so you need the internal capacity to handle that.

• Benefits platform: Lets you shop plans, run enrollment, and sync deductions to payroll automatically.

• Tax-advantaged allowances: A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) lets businesses with fewer than 50 employees reimburse individual health insurance and eligible expenses tax-free, without sponsoring a group plan.

• PEO service: Acts as the co-employer and handles plan sourcing, enrollment, and ongoing administration, while assuming some of the legal liability for compliance. Deel's PEO adapts to your business, whether you use our employee benefits or your existing provider. Scale into our benefits plans later if you want.

How benefits administration works alongside PEO

Because Deel already runs payroll for PEO clients, benefits enrollment and payroll deductions share the same source of truth: when an employee elects or changes a plan, the deduction updates in payroll without anyone re-entering it manually. That matters most around open enrollment and life events, like a marriage, birth, or move, where mismatched elections and deductions are the most common source of payroll corrections.

This is the same benefits infrastructure Deel uses for its own PEO and EOR employees, and it's built to handle life events with compliant enrollment windows applied automatically. If you later expand outside the US, the same platform runs benefits across 100+ countries, so you're not switching systems as you grow, though that's a separate consideration from the US-specific compliance this guide covers.

Step 4: Implement and communicate

Input: Your chosen delivery path and finalized plans. Output: An enrollment timeline, a company-wide announcement, and a record of employee acknowledgment.

Introduce plans through a company-wide message with a dedicated contact channel for follow-up questions, and keep an FAQ document in your shared drive. Ask everyone to confirm they've read the update and understand their options. If you use Deel HR, you can send your team a document, require an electronic signature, and monitor completion.

Keep communicating as you update plans: larger annual updates ahead of enrollment season, and smaller ones as voluntary benefits change.

Step 5: Stay compliant with changing laws

Input: Ongoing headcount and location changes. Output: An updated compliance status and an early warning before you cross a new threshold.

Governments regularly change eligibility criteria, contribution rates, and wage bases. Also monitor internal changes like headcount and annual income so you can see when you're about to cross a threshold, such as the 20-employee COBRA trigger or the 50-employee ACA and FMLA thresholds, before it happens.

Two scenarios

Scenario 1: A 12-employee, single-state retail shop

Nine full-time employees and three part-time employees averaging 80 hours a month puts this shop at 11 FTE, well under the 50-employee ACA and FMLA thresholds, and under the 20-employee COBRA threshold.

Mandatory: FICA, SUI, and workers' compensation from the state where the shop operates. Recommended: A QSEHRA to offer tax-free health reimbursements without sponsoring a group plan, plus a modest PTO policy to compete for retail talent. Next step: Confirm the state's workers' compensation registration trigger, since some states require it from the first or second hire.

Scenario 2: A 48-employee, multi-state startup

Forty full-time employees plus 16 part-time employees averaging 60 hours a month works out to 40 + (960 ÷ 120) = 48 FTE, just under the ACA and FMLA thresholds, but close enough to require active monitoring as the company scales.

Mandatory: FICA, SUI, and workers' compensation in every state where the company has employees; COBRA, since the company has more than 20 employees and offers a group plan. Recommended: Monitor FTE count monthly, since crossing 50 triggers ACA and FMLA obligations; consider a PEO so payroll, compliance, and benefits administration stay in one place across states before that threshold hits. Next step: Model the cost of ACA-compliant coverage now, so there's no scramble if headcount crosses 50 mid-year.

Affordable options for offering benefits

• QSEHRAs: Let small businesses without a group plan reimburse employees for individual health insurance and some medical expenses. You must have fewer than 50 employees to qualify.

• Stipends for wellness or learning: Let individual employees decide what they need, keeping costs predictable while supporting your team.

• Flat-rate perks vs. premium plans: A set dollar amount toward benefits can be more financially viable than high-cost premium plans, giving employees flexibility while keeping spending in check.

• Pooled benefits through PEOs: Leading services like Deel often co-employ thousands of employees at once, letting them negotiate volume discounts that a small business could access even with only a few people on staff.

Final thoughts: Offer smart benefits, not just legal minimums

Offering benefits isn't just about meeting compliance requirements. A comprehensive package is essential to attract and retain top talent in a competitive labor market, and relying on the legal minimum can put your company at a real disadvantage.

For many small businesses, the best approach is to start with mandatory benefits and build on that foundation by maintaining continuous compliance with federal and local requirements, then add voluntary benefits like retirement plans and savings accounts to stand out to skilled candidates.

Deel's PEO supports you through structuring your benefits package and beyond.

Deel's in-house team gets you access to top-tier packages in the US, and benefits administration is built into the service and payroll-connected, so plan renewals, open enrollment, and deductions stay in sync without a separate system to manage. As you expand across state lines, or eventually into other countries, PEO grows with you and keeps benefits consistent and compliant.

Ready to expand your small business? Book a 30-minute call with Deel to see how we can turn your employee benefits from an administrative burden into a growth enabler.