Compensation and Benefits: What Small Businesses Can Offer

You Can't Compete on Salary Alone

Let's get the obvious out of the way: if you're a 15-person contracting company, you probably can't match the salary and benefits package of a Fortune 500 corporation. But here's what most owners miss -- you don't have to. The best employees don't always go to the highest bidder. They go to the employer who offers the best total package for their life.

Getting the Base Pay Right

Research the Market

Before you set a salary, know what the market pays for the role in your area. Free resources include:

• Bureau of Labor Statistics (BLS): Occupation-specific wage data by metro area
• Indeed and Glassdoor salary tools: Real-world salary data from job postings and employee reports
• Your industry association: Many publish annual compensation surveys

Set pay at or above the median for your area. Paying below market is a false economy -- you'll spend more on turnover than you save on wages.

Choose a Pay Structure

• Hourly: Required for non-exempt employees under the FLSA. Clear, straightforward, and easy to administer
• Salary: For exempt employees who meet FLSA thresholds. Provides predictability for both sides
• Commission or bonus-based: Can work for sales roles but make sure the base is livable. A 100% commission structure attracts gamblers, not builders

Overtime Rules

Under the FLSA, non-exempt employees must receive overtime pay (1.5x regular rate) for any hours worked over 40 in a workweek. The salary threshold for exemption is updated periodically -- check the DOL website for current numbers. Getting this wrong is one of the most common (and expensive) wage violations small businesses commit.

Benefits That Matter

Health Insurance

If you have fewer than 50 full-time equivalent employees, you're not required to offer health insurance under the ACA. But offering it gives you a massive competitive advantage. Options for small businesses:

• SHOP Marketplace: The Small Business Health Options Program lets businesses with 1-50 employees buy group health plans
• Health Reimbursement Arrangements (HRAs): Reimburse employees for individual health insurance premiums. The QSEHRA and ICHRA programs were designed specifically for small businesses
• Association health plans: Some industry associations offer group coverage

Even contributing a portion of premiums makes a difference. Many employees will take a lower salary for good health coverage.

Retirement Plans

You don't need a complex 401(k) to offer retirement benefits:

• SIMPLE IRA: Designed for businesses with 100 or fewer employees. Lower administrative costs than a 401(k). Requires employer contributions (either 2% of compensation for all eligible employees or a dollar-for-dollar match up to 3%)
• SEP IRA: Simple to set up, but only the employer contributes. Good if you want to make contributions but don't want employees making their own
• Solo 401(k): If it's just you and a spouse, this offers the highest contribution limits

The IRS offers tax credits for small businesses that start new retirement plans. Check IRS Form 8881.

Paid Time Off

There's no federal requirement for paid vacation, sick leave, or holidays. But an increasing number of states and cities mandate paid sick leave. Beyond legal requirements, offering PTO is table stakes for attracting and keeping good people.

A simple, competitive PTO policy for a small business: 10-15 days PTO plus major holidays. Some businesses combine vacation and sick time into a single PTO bank for simplicity.

Benefits That Don't Cost Much

These perks cost little or nothing but consistently rank high in employee satisfaction surveys:

• Flexible scheduling: Let people shift their hours when possible
• Remote work options: Even one day a week matters
• Professional development: Pay for certifications, training, or conference attendance
• Tool and equipment allowances: Especially in trades -- quality tools make work better
• Performance bonuses: Tied to measurable outcomes, these align incentives without increasing base cost
• Mileage and phone reimbursement: Small dollar amounts that show you respect their investment

How to Talk About Compensation

Be transparent. More and more states require pay transparency in job postings, and it's good practice regardless.

When making an offer, present the total compensation package -- not just the salary. If you're paying $55,000 plus $8,000 in health insurance contributions, a $3,000 retirement match, and 15 days PTO, the total package is worth significantly more than the base number suggests.

Annual Reviews and Raises

At minimum, review compensation annually. Cost of living increases aren't optional -- if you don't give raises, you're effectively cutting pay every year. A 3-5% annual increase is a reasonable target for solid performers. Exceptional performers should get more.

Document everything. Compensation decisions that can't be explained with data and performance metrics create legal risk.

What You're Really Competing On

The small business advantage in compensation isn't about matching corporate dollars. It's about offering things corporations can't: direct access to ownership, meaningful work, genuine flexibility, rapid advancement, and the chance to build something real. Lead with those, back them up with fair pay and solid benefits, and you'll build a team that sticks around.