In CA, employers with fewer than 100 employees are in Small Group Insurance and are limited to age-banded rates, which means that rates are not negotiable, and plans are standardized. The goal is to put standard benchmark plans in place and to prioritize benefits as follows:
- Medical Insurance
- LTD Insurance
- STD Insurance if there are out-of-state employees (if only in CA, this can drop to the bottom of the list)
- Dental Insurance
- Vision Insurance
- Life Insurance
Almost all start-ups in the Bay Area/Silicon Valley will offer benefits on a fully insured basis (versus self-funded).
Employee benefits then becomes a conversation around technology. Resources are limited at this stage and it is crucial that an employer put a system in place that can manage benefits administration, payroll, and HR. Typically, employers will outsource these functions along with at least a portion of their HR. There are two main options:
- PEO (co-employment arrangement) – i.e. TriNet – this can be a good option for well-funded companies who do not expect to grow past 100 employees for 3+ years. Much time and effort is required to exit a PEO, so if a company is scaling more quickly, then this solution does not make sense.
- For greatest customization, independence, and cost containment, employers utilize their own EIN and lean on one of the following systems to manage the administrative aspects of Payroll, HR, and Benefits:
- Fidelity (if 401k is there)
- ADP (best for 50+ employees)
- Paylocity (best for 50+ employees)
An important caveat is that some systems will offer to act as broker on the benefits (i.e. Gusto, Paychex, Namely, Rippling) but there are major advantages to working with a true benefits broker, like ABD. These all-in-one systems can work for your first 20 employees, but certainly by the time you have 50 employees, you will want to be working with a true employee benefits consultant.
Why choose ABD?
- To ensure that you are offering the RIGHT benefit plans to remain competitive in your market—benchmarking at this stage is critical to attract employees from larger organizations. ABD will let you know what lines of insurance need to be offered, which plans are competitive and will consult with you to develop a contribution strategy that makes sense. We will also be looking at the overall well-being of employees and consult on out-of-the-box benefits that will supplement a traditional offering to ensure a Total Rewards Package is being offered.
- — there are too many compliance issues to list, but if you’re offering benefits, there are an abundance of rules and regulations that must be followed and if you happen to have employees in San Francisco, the list is even longer. ABD’s in-house ERISA attorney and compliance team have you covered.
- A seasoned account management team — anyone who has offered benefits without a strong service team knows that hours are wasted dealing with eligibility issues, claims issues, and billing issues. Growing companies with limited resources simply don’t have the time to manage this in-house and don’t want employees wasting their time advocating for themselves. At ABD, we will manage your carrier relationships and field your employees’ questions and concerns.
- You need a long-term benefits strategy to get you from 10 employees to 100. The leap from small group to large group insurance (at 100 employees) is a major opportunity to leverage the market and lock-in what can be deep savings. You will need a benefits broker to plan this transition with you and an underwriting and marketing team who can secure the most favorable outcome. Companies who make their payroll provider their broker end up leaving tens to hundreds of thousands of dollars on the table when they move from 99 to 100 employees. Don’t let that be you!
Once a group reaches 100+ employees, they will typically be hiring some level of in-house HR support, their systems will be in place, and the focus can shift from outsourcing and technology to focusing on a true Benefits Strategy. As a company scales, they will likely want to evaluate alternatives to a fully insured solution (i.e. level-funded or self-funded options). They may need to cater to both a domestic and international population. They will begin to have access to greater data and claims transparency to better inform their decisions. They will desire greater control over their plan designs, and it will become important to explore expanded benefits around (in)fertility, mental health, transgender coverage, and other point solutions addressing the needs of their population. At this stage, your broker should be a trusted advisor who acts as an extension of your HR team.
In our opinion, these are the best technology systems at this stage:
- 50-1000 employees – ADP and Paylocity
- 250-1500 employees – Ultimate Software UltiPro
- 1000+ employees – Workday
Ideally, fast growth start-ups start working with a broker from the very beginning so that they choose the right system that can evolve with them as they grow, so they offer the right plans in order to attract top talent and so that they have a roadmap for moving from small group or PEO to large group insurance.
About the author
Fiona, Vice President on the Employee Benefits team, brings over 18 years of experience in benefits consultancy and human capital management systems technology to the Newfront team and her clients. Fiona’s interest in flexible benefits, long-term cost-containment strategies, and her commitment to a holistic approach to total reward programs makes her an essential partner to her clients.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
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