Running a small or mid size business means having a dozen things competing for your attention at any given moment. You’re juggling compliance, morale, recruiting, retention, and trying to keep the whole operation moving forward without losing your grip. Somewhere in the middle of all that are two deceptively tricky questions: “What benefits do I have to offer, and what benefits should I offer to stay competitive?”
That’s where the difference between mandatory and voluntary employee benefits comes in. One is about staying compliant and avoiding penalties. The other is about building a workplace where people want to come and stay. And knowing where each begins and ends is a key part of how you support your team and build a resilient business.
Let’s unpack the must-haves, the nice-to-haves, and how to build a package that covers both.
Which Benefits Are Mandatory?
Mandatory benefits are those required by law. Federal and state rules vary, but this category includes the essentials that protect your employees and shield your company from legal trouble. Failing to offer these can put you in hot water legally and financially. But just because they’re required doesn’t mean they’re basic. They form the foundation of employee protection and trust.
Here’s a quick breakdown:
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- Social Security and Medicare (FICA): You withhold a portion of each paycheck and match it as the employer. This withholding applies to all W-2 employees.
- Unemployment Insurance: Paid by you (not your employees) and required in most states to provide income for workers who lose their jobs through no fault of their own.
- Workers’ Compensation: If someone gets injured on the job, it helps cover lost wages and medical bills. Most states require it, even for very small teams.
- FMLA (Family and Medical Leave Act): If you have 50 or more employees, you must offer eligible team members up to 12 weeks of unpaid, job-protected leave, with continued benefits during that time.
- Short-Term Disability (in some states): States like California and New York require this coverage to protect employees who can’t work due to illness or injury unrelated to work.
If you aren’t sure whether your state has this requirement, ask your broker.
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- Health Insurance (for larger employers): If you have 50 or more full-time equivalent employees, the Affordable Care Act requires you to offer affordable, minimum-value health coverage, or pay a penalty.
These benefits form the legal foundation. If you’re missing any of them, you’re vulnerable to lawsuits, fines, or simply losing the trust of your team.
What Are Voluntary Benefits?
Voluntary benefits are just what they sound like: benefits the law doesn’t require. But they’re increasingly essential if you want to stand out and retain great people.
They’re often employee-paid through payroll deductions, though many employers choose to chip in. The real strength of voluntary benefits lies in their flexibility. You can offer what makes sense for your budget and your team’s needs. Your package can evolve as your team grows or their needs and priorities shift.
Common options include:
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- Employer vision insurance
- Dental Insurance
- Life insurance
- Long-term disability
- Mental health and wellness programs
- Pet insurance
- Legal and financial services
- Identity theft protection
- Critical illness and accident coverage
These perks can speak volumes. They tell your employees you see what matters to them and are trying to support it. That message is often more powerful than another point or two on a salary offer.
Understand Why Voluntary Benefits Drive Retention
There’s a big difference between meeting the legal minimum and building a benefits strategy that supports long-term engagement. Employees don’t just want coverage. They want care, flexibility, and support that feels personal.
The difference between the mandatory and voluntary offerings is where employee benefits for retention come into play. Voluntary offerings often tip the scales for someone deciding whether to stay or take a call from a recruiter. And for applicants on the fence about whether to accept your offer or the one from the competition. These benefits improve morale, show employees they’re valued, and help boost work-life balance and financial security.
Even modest options can move the needle. With guidance from a broker or benefits consultant, you can design a well-rounded program that feels generous without being expensive.
Help Employees Understand What’s What
Employees don’t always know what’s required by law and what you’ve chosen to provide. If you don’t make the distinction clear, they might take everything for granted, or worse, not use what’s available to them.
Use onboarding materials, benefits guides, and enrollment meetings to clarify:
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- What’s mandated by law
- What they’re eligible for
- What you’re contributing toward
- What they can opt into
This step is about more than just education. It’s about making your investment visible. Employees who understand what you’re offering and why are more likely to value it. If they assume you are just doing what’s legally required, you lose the goodwill generated by a generous benefits package.
Design a Strong Strategy
You’re not just a benefits provider. You’re the architect of a system that helps your business thrive. That means knowing where the legal requirements end and where strategic choices begin. A skilled benefits broker can help with that.
A broker can help you stay compliant and competitive, so you’re not missing out on talent or taking on more cost or risk than necessary.
Start with the mandatory floor, then layer in voluntary perks that reflect your culture and values. Take feedback. Track what employees use. Adjust each year based on what’s working and what’s gathering dust. What felt optional five years ago might be a must-have today. What employees enthusiastically embraced a few years ago may have fallen out of favor.
Embrace the Big Picture
Mandatory benefits set the legal baseline. Voluntary benefits are where you show who you are as an employer. You need both to attract and keep great people, especially in a small or mid size business.
Employees don’t stay because you check off a compliance list. They stay because they feel supported, seen, and set up for success. That’s what thoughtful benefits do. They protect your business, reflect your values, and give your team something real to count on during life’s everyday moments and its curveballs.
If it’s been a while since you reviewed your offerings, now’s the time. Talk to your broker. Ask your employees what they value. Look at your plan usage. There’s no one-size-fits-all formula, but there is a right fit for your company and your people.
Building a better benefits strategy doesn’t have to be overwhelming. It starts with knowing what’s required, choosing what’s right, and getting the right help. So take the first step. Get clear, get intentional, and give your team a reason to stay.