One of the best ways to show your team or coworkers that you’re committed to them are benefit packages. But how can small businesses and startups compete with established companies when it comes to benefit packages? On today’s podcast, Stephen Krausse goes through and talks about benefit packages, sharing some examples of how and why to do that, some challenges associated with it, as well as some pitfalls and obstacles to watch out for as we go through and create benefit packages for our employees.
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Scaling Benefits For Your Small Business | Up And To The Right | Episode 031
What is one of the best ways to show your team on your business, your coworkers that you’re committed to them? Another way to think about this is as employees, what do we all look for when we’re selecting an employer? We look for things like location, quality of life, school quality, accessibility of bike trails, pay and of course benefits. How can small businesses and startups compete with established companies when it comes to benefit packages? It’s time to roll up our sleeves and get to –work.
Let’s talk a little bit about what we’re going to do. I wanted to mention that I won’t be monitoring the comments during the program itself but when I’m done with my prepared live stream, I will go through the comments in the YouTube stream and respond if there are any. Go ahead and throw comments down and I’ll answer those questions. We’re going to go through and talk about benefit packages and how can we scale benefits for small business owners? I’ll provide some examples of how and why to do that, some challenges associated with it, some pitfalls and some obstacles to watch out for as we go through and create benefit packages for our employees. What do I mean when we talk about scaling benefits in the first place? The first thing we have to think about is we can’t always have a complete suite of benefits when we’re starting our business. We simply might not have the cash or the capital to fund a huge benefits package that a larger company could afford. At the same time, you may be competing for employees who are expecting them.
When I talk about scaling benefits, I’m talking about putting together a program to get from where you are, what you can afford to where you want to be and how you create that and articulate it in a way that’s meaningful to your coworkers or employees. Part of that is planning and having a documented set of criteria that allows you to increase benefits as the financial condition of your business changes or improves. The business principle involved here is the commitment to your employees. How do you show commitment to your team so that they know that you care on top of being able to compete with other entities?
We talked a little bit about this already but why would you bother to provide a scale benefit package? When you’re in a startup with growth potential or whatever, your prospective employees may be professionals who are comparing your opportunity, the idea of working for you with the idea of working for another company like Fortune 500 or something where they already have an established benefits package. Your job as a startup is to still generate interest for a talent pool that may have a lot of options. We want to give them as much as we can but we may not be able to give them a specific benefit, but can we provide them a pathway? That’s why we scale our benefits and document it.
We create an environment where they know that we don’t have paid parental leave, but we do understand that’s important to you, we want to show you that we value that and we have a plan to get there. When we can’t offer all of these benefits immediately, we create a plan to do so. You want to make it a documented permanent thing so that you can attract that talent so that you can say, “This is the plan. We do have a way of getting from where we are to where we want to be.” You may be a local small business that’s trying to compete with larger companies for talent. You may be a local retailer competing with a big-box store or a local barbershop competing with the chain. How do you make sure that your employees get the best that you can offer them?
We want to give them an incentive to stay with us versus something else. This also incentivizes our employees or coworkers to find new innovative ways to make the business stronger, so that we can achieve those financial goals because it has a direct impact on them. If we achieve those financial goals, we implement some portion of the benefits package and they know what that’s going to look like. That’s important.
Example Of A Small Benefits Package
This is an example of a small benefits package that I put together to demonstrate this concept. As we look at this, you’re going to see the benefit is in this column. Across the top, we have the financial condition that we want to meet before we can implement that. This is just an example, so don’t get caught up on the numbers that have written down or even the benefits that I’ve chosen because benefits change from industry-to-industry. Even geographically, what’s important to people in Colorado, Fort Collins or Loveland may not be at all important to the people in your area. Bear in mind that this is simply a group of examples that I put together but you can tailor it to whatever you want.
The idea is for example, in column B here, we have a baseline of benefits, and that’s some amount of paid time off and medical insurance. Medical insurance is a big deal. We have the opportunity to provide that. It’s something that’s important and we can’t compete without it or whatever. That’s our baseline and that’s where we’re going to start. We say, “When can we implement dental and vision insurance?” That’s the next tier in this example. What I’ve done here saying, “If we have $250,000 in the operating account, we’ll go ahead and start funding the dental and vision insurance in addition to our standard medical.” You walk down the line and you say, “Could we start managing a 401(k)?” You say, “What would it take to do that?”Make sure that your employees get the best that you can offer them. You want to give them an incentive to stay with you. Click To Tweet
Let’s say we want to have $100,000 in savings and that’s the financial criteria we want to use to create that benefit. We’ll implement that benefit when that happens. I should say that the intent for me when I did this document, and certainly you can make your own decisions is that each subsequent column is in addition to the column before it. The expectation is that we would not implement the 401(k) until we had $100,000 in savings and $250,000 average in our operating account at the same time. You’ll notice I’ve got profit-sharing in orange, that’s a little bit different.
You move on down to the next column. You say, “Now that we’ve got $250,000 average in our operating account, $250,000 average in savings, we’ll start matching the 401(k).” The next thing is we want to say, “We want to be able to have a PTO Buy-back.” There’s debate about whether or not employees should be able to buy-back vacation or we should encourage them to take that time off. We want to have a time off to vacation and reset our spirit or whatever. For the purposes of this example, if we want to provide a PTO Buy-back or a PTO Carry-over and PTO being paid time-off, we want to have specific criteria.
In this case, what I said was we need to have the liability reserve available to cover that expense. What that means is we want to have the cash in a reserve account that would cover it if every employee said, “I want to sell the vacation that I can back to the company.” If every employee did that at once, we want to be able to cover that expense right there without hitting our savings and operating cash. We want it to come out of an account that is specifically designed whether you hold that reserve in the payroll account or in your accounting ledger or whatever. We want to make sure that reserve is held aside so that if every employee exercises that benefit, it would not impact the savings, operating account or operating amount that we have. That’s why I said Employee Liability Reserve.
The idea is it might not be a hard number. It might have to be a number that is going to fluctuate, and you’re going to have to build some intelligence into that when you design your system in order to make sure that you’re creating an environment where you can succeed but also the employees can win. They see that there’s a way to get to where they want to go. Finally, in this particular example, I said, “We’re going to have $500,000 in savings. At that point, we’ll start some other program.” I didn’t put an example for that here but that’s the chart that I put together. To summarize, you have a baseline of this is what we’re going to provide, no matter what, then you have the next tiers of financial stability growth success of the company, and tie those to the next benefit that you want to implement.
This could be completely different for your industry, geographic area or the way you want to run your business. You may want to put a profit-sharing or 401(k) much higher on the list. That’s completely up to you. The idea is to create a visible pathway and criteria that can help you manage your business but also help your employees see how they can help get to where they’re going to get something more back from the company. I want to talk a little bit about my keys. The blue is the active benefits, the things that under these conditions, these are what we’re going to offer. Inactive benefits are the gray. The orange is what I call a conditional benefit.
That means that they are benefits that would only be offered under certain specific conditions, in this case, profit sharing is only available if you’re profitable. Profit-sharing itself is a fairly complicated topic. Someday, I’ll do an episode about that because it isn’t very simple. You can’t just say, “We made $1,000 in profit this month. I’m going to split it over my five employees and I’m done.” There are specific rules about what you can call profit-sharing and reasons that you have to do that. That’s one thing I wanted to touch on. I’m a strong believer in profit-sharing but it is something you have to be familiar with and understand before you implement it. There are some other ideas here about the benefits. I put these down for my reference but there are tons and tons of benefit ideas out there.
You can do a Google search and find all kinds of things that people are offering. In the case of what I’ve got here, educational reimbursement and patent awards. If you have an employee that develops a technology that gets awarded a patent and the company is going to benefit from that, so you offer them some monetary reward. It’s fairly common in the tech companies that I’ve been familiar with. If you’re in the tech industry or you’re moving into the technological industry where you’re going to be competing with some of those other companies, that’s something you might want to think about. Time and service bonuses and paid parental leave, that’s something that a lot of people are talking about. Remote work and flexible work schedules, there’s news about that we’ll cover another time. Gym membership or fitness centers are also something that people talk about.
Things To Watch Out For
I wanted to talk a little bit about some of the challenges that you might face after we’ve seen that example and we say, “We’re going to start to put something together for our team. What are challenges that you might come across and what do we do about them?” The first thing is, if this is going to be effective, it has to be documented and implemented. That means that once you share this with your team, you can’t get up in front of a group of people and say, “I know we don’t have everything but if you’ll stick around and work hard, eventually we’ll have something.” That’s not going to be motivational. Even if you’re the best speaker in the world, that’s going to fall flat 2 or 3 weeks down the road when you’re not all in the same room, and people are comparing their jobs to another established company or a startup with a more forward-thinking program. You have to document it and you have to publish it. It has to be transparent. I don’t care if you put it on the wall of your conference room or over the coffee pot, but the employees have to have regular access to it so that they can see it. It would be a good idea to share the status of the company on a regular basis in regard to that particular program.Create an environment where you can succeed but also the employees can win. Click To Tweet
When you reach your goal, you need to honor that commitment and do the next benefit thing, whatever it happens to be. Consult with an HR professional when you’re designing a benefits package. There is a lot more to this than simply write down that you want to have PTO and 401(k) and then say, “I’m going to put that on Steve’s spreadsheet and I’m done.” There are legal issues, best practices, things that can help you avoid trouble and things that you can do that will get you into trouble. All of those things an HR professional can help you with. I would strongly encourage you to go ahead and put some notes down, get some idea of what you want to do and then sit down with an HR representative.
There are usually HR reps that are consulting or business groups that can help with that, get you set on a path that will succeed, and then review the criteria with financial experts so you’re not overburdening your company. You’re not putting so much of your capital or committing of your resources to a long-term benefits package that it’s unworkable or unmanageable in the future. You want it to be something that you can continue and be happy to do as long as those criteria are met. A few things to watch out for, employees watch what you do. If you ask them to commit to you based on this promise, they’re going to be watching what you do when you hit those measured goals.
Only add benefits that you can commit to, not only financially but personally. Don’t go on the internet, find the top twenty benefits that some internet website author thought was important and say, “These are the ones I have to do.” They’re not just ideas that somebody had. In many cases, if it’s on the internet, you have no idea how to vet that. How do you know that employees value those things? They might sound like good ideas and some of them are. I’m not discounting that. It’s a great way to get ideas, but you have to also do things that you can commit to as a business owner and as a person.
Add benefits that are relevant to your employee pool. My example here is adding a fitness center when you’re most likely expecting most of your employees to be remote workers. Having a fitness center and your headquarters might not be a motivating thing. It might not be a bad idea but it isn’t going to motivate the team that you’re trying to build if it’s not going to affect them. That’s another one. Be very clear about what benefit is going to be included and equally or clearer about the criteria that you’re going to use to establish that benefit in your business. It’s important to be clear on both sides. What’s the benefit going to be and what are the criteria to get there?
The last thing to watch out for that I want us to talk about is using time as a criteria. It might be tempting to say, “We don’t have 401(k) but two years from now, we’re going to put the 401(k) in place.” When you do that, the assumption is that two years from now, the financial condition of the company is going to be something. The assumption is that it’s going to be something better than it is now and that it will support a 401(k). It’s much better to put a hard number on that and say, “This is what we must have in order to implement this benefit.” We don’t want to say, “We’ll do it after two years or we’ll do it quarterly or something like that.” Use things that can be very concrete that have a way of financially backing the benefit that you’re trying to implement. That’s key. Having said that, things don’t always have to be financial.
There are examples where you could come up with a benefit that doesn’t require direct financial backing on the part of the company. Let’s say that once there are twelve people in the production area, we each get a floating month off. The reason we can do that is because we have twelve people who can cover the workload for one day if one person takes a day off. The company is covering that expense in shared work or whatever, but it doesn’t have a direct cash impact. That’s possible but you have to understand what the production capacity is and how much eleven people can do versus twelve people. You have to understand your business. I’m not saying that you can’t ever have a non-financial criteria, but it is important to understand the business impact of those non-financial criteria because ultimately everything does hit the finances whether it hits revenue or expense. It always hits somewhere at some point.
That’s an overview of creating a scaled benefits package that includes criteria to add benefits that we don’t have as a business. We went through an example of the spreadsheet that I did, talked about some of the things to watch out for and some actions to take to prevent the pitfalls. If you don’t have the benefits package that you want or that your employees expect, go ahead and start creating one. Download the template and create your own pathway to having the benefits package that you want for your team. If you have an existing group, you can ask them, “What benefits would you like that we don’t have?” and get an idea of what your gaps are. Then go ahead and put it together and start thinking about how we implement this in a way that’s meaningful to my team.
Get an HR expert to talk to you about how to implement HR benefits. It’s always good to talk to a financial expert or other business owners that have been there and look at what are the risks of the kind of benefits that you’re trying to implement in terms of the business risks, not the HR risks. The only people I would trust with discussing the HR portion of it are HR professionals. Don’t ask every other business owner what the HR issues are because that’s the blind leading the blind in a lot of cases.
Next time, we’re going to talk about growth and whether or not you need to worry about growing. If you’re a startup and you have a product that you’re going to launch, you probably got a growth mindset, but if you’re running a local business, what does growth mean to you? Do you have to worry about growth in the face of competition and innovation? What does that look like? We’ll talk about that. What kind of growth should you strive for? If you’ve enjoyed this program, please subscribe to Beyond 50 Percent YouTube channel. We do this weekly. You can find out more at Beyond50Percent.com. If you could use a hand developing and implementing your own scaled benefits program for your business, that’s part of what we do. Please give us a call at (970) 218-2018 or email at [email protected]. We’d love to talk to you. If you have a question that you want to ask about this topic, you can put it in the comments for the YouTube video. We do monitor that feed. We’ll pick up questions there. You can also email us at [email protected] and that goes with topics suggestions as well. If we haven’t covered something that you find interesting or you think will help your business, please go ahead throw out those topics suggestions and we’ll be happy to look at them.
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