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What do startup founders find difficult about employee benefits?

What pain points do founders run into on this issue?

5 Replies

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X
Entrepreneur
Is this something you're struggling with or are you using FD to try to create a product?
Syed Bukhari
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Syed Bukhari Entrepreneur • Advisor
FinTech SME & Digital Business Innovation Strategist @ Gartner
It depends on the stage - once the startup is making a healthy revenue and scaled large enough then probably not much different than most mid sized businesses.

The real issue I see is the conflicting interest of the startups desire to remain small and keep costs low Vs the employee benefits company wanting to do business with large groups and giving the best rates to large employers.

If you can solve that problem, you have a business!
Gopi Mattel
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Gopi Mattel Advisor
Director, Chennai Area at The Founder Institute
Most startups i know, don't care about this issue and most founders and early employees ( the first 5 to 10 people) accept that this employee benefits are not available.
But very soon after this becomes an issue. The most critical requirement of course is Health Insurance and i would say about 90% of an employee's concern is related to this. Other benefits such as Vision, Dental, Long Term Care, Disability, Workers Compensation, 401K, etc are all a very distant second.
From a founder perspective, the costs are an issue, but if the company is funded, the time taken to deal with the legal and bureaucratic problems are even harder.
There are a number of options. There is a whole class of companies called PEOs or Professional Employer Organizations that reduce the paperwork and provide benefits and HR processes at low cost because they aggregate all member companies. We have used Insperity for this purpose for many many years.
A new class of companies such as Zenefits and Namely are getting into the game, but i dont know enough about them.

Aleksandra Czajka
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Aleksandra Czajka Entrepreneur
Freelance Senior Software Engineer, Developer, Web Developer, Programmer - Full Stack
Nathan,

I think one huge pain point would be gathering all the data to determine what structure for these benefits needs to be legally created, what the options are and how to do it. I would imaging start-ups would want a one button click to create all the benefit accounts easily and want a place to track them easily for the founders and the employees as well.

Best,
Aleks
Eric Wold
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Eric Wold Entrepreneur
CEO @ RingSeven • Web & Mobile Dev • Startups
Top issues founders have with employee benefits (in order):
  • Attracting top talent away from a cushy job with benefits to a startup lacking them.
  • Ignoring employee benefits (and other distractions, squirrel!) when they need to ship the MVP
  • Getting revenue to the point where they can pay for employee benefits.
  • Once they can afford benefits they sometimes forget the rules governing how benefits must be fair within the two permitted classes of staff
  • Employees forget (or never knew) how much benefits really cost the organization and maybe don't realize/appreciate their total compensation package
Mike Rozlog
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Mike Rozlog Advisor
Advisor at TechColumbus
The biggest stress for me is learning all the laws and gotchas that pop-up. An example, if you offer a medical flex spending account for your employees, the company is liable for all expenses day 1 and cannot recover those if employees leave. Therefore, for example, I will say emp1 takes the max, which is $2500.00 dollars in the flex account. These accounts are usually funded over the year at each pay, therefore the emp1 pays about 92.00 per pay on a 26 pay schedule, which is fine. However, one of the things I did not realize is that flex accounts are considered insurance by the feds, which can have ramifications.

Taking our example Emp1 leaves the company on Jan 20th of the year, the benefit started 1/1 of the year. On Jan 2nd of the month they have a procedure for xyz, which is $1400.00. First off you as the employer are required to cover the entire cost of $1400.00 for the procedure even though the Emp1 only paid $92 dollars. In addition, since the employee left on the 20th, you as the employer cannot get that money back from Emp1 in their final payroll. The company has to eat that loss. Keep in mind that if you have 20 employees and offer $2500 for flex you as the company are responsible for $50,000.00 day one of the benefit. As I stated not understanding the liability of offering a benefit and then the legal aspects of said benefit if an employee leaves is a learning experience. However, most employees don't use all of the funds in a flex account and at the end of the year you can use those leftover funds to administer the fund and recover some of the liability.

I would recommend having an independent benefits consultant to go over the benefits package being offered. I may cost some money but, that money can uncover liabilities and gaps in the package. I always want to give the most I can because I want my employees to stay and be healthy so they are at work as much as possible. When I say independent I do not mean the insurance provider or the head of benefits for your organization. There are many of these that I've learned over the years and that is why I say get an independent review and by the way I have nothing against flex spending, now that I understand the liability and extent of the law around them, they are still a great benefit to offer the employees.
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