Everybody has the right to social security and through this provision, employees are guaranteed protection in more ways than one. One of its most known benefits is for funding a taxpayer’s retirement needs. Social Security funds are paid by both the employee and the employer through payroll tax deductions.
There’s more to social security than acting as a source of retirement income, in principle, it aims to provide different forms of assistance to employees who have reduced earning capacities.
As such, compliance with social security guidelines requires entrepreneurs to prepare for their employee’s eventual retirement. The law also dictates mandatory benefits that business owners must be aware of to assist their employees and to prevent significant problems down the road.
If you’re planning to open a startup business, here’s what you should know about the employer’s obligations within the ambit of social security:
1. Do Businesses Need a Social Security Number?
Entrepreneurs who plan on hiring workers will have to get an Employer Identification Number (EIN). This works like an individual’s Social Security Number and lets your business pay state and federal taxes, including your team members.
All transactions with the Social Security Administration (SSA), and the Internal Revenue Services (IRS) require EIN. The proprietor’s Social Security Number would suffice for sole proprietorships and Limited Liability Company (LLC), with only one listed owner and no employees.
2. Should Businesses Require Employees to Get a Social Security Number (SSN)?
The law doesn’t require employers to hire workers with SSN exclusively. However, do note that workers who need to file the W-4 or an Employee’s Withholding Tax Certificate must have an SSN.
The same holds for the W-2 form, or Wage and Tax Statement, which holds an employer liable for penalty fees when filed with incorrect SSN details. As such, businesses must ensure that their team members have SSN. Learn more here if you want to provide instructions to your employees on getting their SSN.
3. How Much Does an Employer Pay for Social Security?
Workers and employers equally share Social Security payments through payroll tax deductions. The amount will depend on how much income an individual is earning. Each party pays 6.2% of the taxable amount of USD$ 142,800 at the maximum.
Meanwhile, self-employed or business owners will have to shoulder 12.4% of the said taxable amount with no one to share the payment with. The good news is, the employer share can be used as a deductible expense for income tax purposes.
Additionally, employers and employees will have to share the 2.9% income tax deduction for the Medicare hospital insurance. It works similarly to the Social Security payment share, which puts each party responsible for paying 1.45%.
4. What Are the Mandatory Employee Benefits?
One way to keep employees happy and engaged is to provide them with both mandatory and voluntary social benefits. These benefits often vary based on the worker’s employer, whether federal, state, or the private sector.
Based on federal laws, businesses are legally mandated to provide the following benefits to their employees:
Social Security and Medicare
Businesses must provide these two types of employee benefits under the law. A federal employment tax system, enacted based on the Federal Insurance Contributions Act, is used to fund Social Security and Medicare to provide insurance to qualified retirees, disabled individuals, and children.
Employers must likewise set aside unemployment insurance for team members who lose their income opportunities. Part-time and full-time workers who no longer have jobs due to lay-offs and mergers are eligible to receive this type of insurance for a specific period, so they can continue to provide for their family’s needs despite the unemployment.
As a state-initiated mandatory benefit, the amount allocated for unemployment insurance is dictated by local employments laws and vary in each jurisdiction.
Workers’ Compensation Insurance
Also called workers’ comp, this benefit provides financial assistance to workers who can’t show up for work because of occupational injury or illness. When an employee meets an unfortunate accident while performing their tasks at work, employers are liable to cover the medical and other related expenses needed for an individual to recover.
Workers’ compensation insurance also varies from state to state. Based on the state’s employment laws, business owners may purchase an insurance policy from a state-backed program, or may hire a private worker’s comp insurance provider.
5. Are There Any State-Based Employee Benefits?
Apart from the federally mandated employee benefits, which are applicable nationwide, some states offer additional protection to workers, like the following:
Apart from Workers’ compensation insurance, some states, including New York, Hawaii, New Jersey, and California, require business owners to provide disability insurance benefits to their workers. Like worker’s comp, this benefit provides salary support to qualified employees suffering from serious work-related disabilities and can’t perform their duties for more than a week.
Large companies, particularly those with at least 50 full-time employees, must provide the latter with adequate medical coverage, including their qualified dependents.
While the deduction rate for this mandatory benefit varies based on the inflation rate, a corporation is required to set aside no more than 9.83% of an employee’s salary for premium payments, per rules under the Affordable Care Act.
In return, medical insurance providers must pay at least 60% of the medical costs of the plan.
Family and Medical Leave Act (FMLA)
The Family and Medical Leave Act (FMLA) provides eligible employees to opt for unpaid leave for urgent reasons and without fear of losing their jobs. Depending on the reason for the absence, a qualified employee can take time off from three months to 26 weeks.
Family and medical issues such as childbirth, a chronic illness, or providing care to a sick family member are often allowed under the law. This mandatory benefit applies to all public employers and private entities with more than 50 employees.
Businesses need to be aware of their obligations on both federal and state levels to prevent significant issues to arise in the future, including a potential lawsuit, down the road.
Besides compliance, company benefits can also encourage employee retention and engagement—which are fundamental in keeping a productive workforce.
In addition to the federal and state-mandated social benefits discussed in this article, businesses can also provide employees with other perks to show appreciation.
These benefits may include paid time offs, a 401k or a retirement savings plan, and different types of support which can make their workers’ lives easier and improve their overall well-being.