The 4 Core Benefits Every Startup Needs (part 1 of 3)

?By Susan Alban

In this three-part series, Renegade Partners’ Chief People Officer, Susan Alban, explores how startups in the Supercritical Stage should approach their benefits strategy—from nailing the core offerings to communicating the long-term vision.

In 2022, there has never been a richer, more exciting ecosystem of benefits and perks than those that exist today—giving companies more options when deciding how they want to support their employees.?

This is a must for employers who, between the global transition to remote work and the effects of the Great Resignation, are caught up in a fierce war for talent.?

But this also raises many challenges. With so many options to choose from, where do you start??

How do you make sure your benefits are competitive, while also being mindful of the cost to the organization??

This is an especially prevalent problem for startups in what Renegade calls the Supercritical Stage, who are right at the cusp of scaling. These companies are relying on their benefits packages, among other elements, to attract and retain top talent.

Without a vision of what kind of employee experience a team wants to create, and a strong focus on fundamentals, it's easy to end up with a fragmented, expensive benefits package that doesn’t serve your employees’ needs.?

In part one of this series, I’ll explore why choosing the right benefits is critical to the success of your organization and take a deep dive into the four core offerings that every startup needs in its benefits package.?

Why your benefits package matters more than you think

Benefits aren't just about checking a box on your to-do list. Your offerings directly impact key organizational priorities, such as hiring goals and employee retention—key metrics to focus on as a company starts to scale. If you're not convinced, check out these statistics:???

• Companies that rate highly on compensation and benefits see 56% lower attrition.
• 78% of employees said they are more likely to stay with their employer because of their benefits program.
• 60% of employees rated benefits as a very important contributor to job satisfaction.

But it’s not enough to simply have benefits—you have to choose ones that will serve your employees and build the right foundation.

That’s why we encourage all startups to invest in four core offerings before building out the rest of their benefits strategy.?

The 4 core offerings you need in your benefits package

1. Health insurance

Medical, dental, and vision insurance are musts when it comes to your benefits package. But there are a lot of micro-decisions you’ll have to make about each of these plans.?

We recommend employers start with a Preferred Provider Organization (PPO) plan and, if offered in your state, a Kaiser Health Maintenance Organization (HMO) plan. If possible, you can also offer a high-deductible health plan (HDHP).?

The goal of offering all of these options is to let your employees decide which one makes the most sense for them, depending on their healthcare needs. Here are a few other insurance decisions you’ll need to think through:?

• Premium contributions: As an employer, you’ll be expected to pay for part or all of your employees’ premiums. For context: most tech companies with fewer than 500 employees and pre-IPO pay anywhere from 75% to 100% of employees’ premiums, and 50% to 75% of partner or dependents’ premiums.
• Health Savings Account (HSA): One of the benefits of offering a HDHP is that it allows employees to open up an HSA. This account lets them set aside money on a pre-tax basis to pay for qualified medical expenses. HDHP premiums are typically lower than premiums for HMOs and PPOs, which may lower costs to the employer. To make the HDHP attractive to employees, you can contribute some amount of money to the HSAs of employees who choose HDHPs.

Key takeaway: Start with a PPO insurance plan, as well as dental and vision coverage. If possible, add Kaiser and a HDHP.

2. Vacation and paid time off (PTO)

Currently, the dominant trend for PTO offered to knowledge workers in pre-IPO tech companies is the "unlimited” or “flexible” vacation policy. This is a compelling approach because it gives your employees the flexibility to reasonably take off as much time as they need, and it also doesn't create a liability for unused vacation on your balance sheet. The downside is that there is some ambiguity with this policy and employees may not always be clear on what is appropriate.

If you don’t want to take the unlimited approach or have hourly employees, you’ll need an accrual policy. This essentially means that your employees accrue vacation days based on the amount of time they’ve spent at the organization—with most companies capping at three to five weeks. Typically, upon resignation or termination, employees will receive the monetary equivalent of their unused days.??

One option for an accrual vacation policy is a tenure-based approach. For instance, employees with less than one year of service will receive three weeks of PTO, while employees with more than one year of service will receive four weeks.

Key takeaway: Consider an unlimited vacation policy or, if this doesn’t work with your company, you’ll need an accrual approach.

3. Retirement?

For most employees, their jobs are their primary source of wealth creation. Knowing this, it’s essential that your benefits package sets them up for financial success in the long term, as well as the short term.?

That’s why a 401(k) account is a core benefit you should offer. These pre-tax savings vehicles will help your employees save for retirement.?

The big question startups usually have about retirement accounts is: should I match my employees’ contributions? Historically, many companies used to delay matching until they were profitable or close to going public. However, this has changed significantly in the last few years, and companies now offer matching much earlier in their life cycle.

Our take: you can put off matching until you hit 100 employees or raise your Series B (data shows that around 50% of companies begin offering it at <100 employees), but it’s definitely something you should put on your benefits roadmap. And if you’re not adding a match now, communicate when you plan to do so with employees, so they’re aware it’s on your radar and coming in the future.?

If and when you do add matching, consider starting at the 4% rate because that will give you safe harbor from nondiscrimination testing, which your plan sponsor conducts annually to ensure your 401(k) plan doesn't favor highly compensated employees or key employees like owners.?

In general, it's best practice to talk to your 401(k) administrator about testing implications before launching any pre-tax savings plan to ensure you’re meeting all the requirements and won't be subject to penalties or required payments that can result from failing testing.

Key takeaway: Provide a 401(k) to help your workforce save for retirement. Consider matching contributions at 4% by the time you hit the 100 employee mark.

4. Parental leave

Supporting your employees on their family-forming journeys is also important to get right early in a business’s journey. While every state has different requirements, we encourage startups to start with 12 to 13 weeks of fully-paid leave and ramp into increasingly generous policies over time—with 16 to 20 weeks when you have a bit more redundancy in your organization.?

We encourage companies to create birth-parent-neutral, gender-neutral policies, and without a tenure requirement. This means that the leave is accessible to all employees—regardless of their gender or whether they’re choosing to start their families via gestational carrier services, adoption, or foster care.?

In addition to supporting your LGBTQIA+ employees, a gender-inclusive policy also encourages men in mixed-gender relationships to take leave, which has positive implications for them and for the women in your workforce. A study of two-parent, opposite-gender households found that fathers who took two or more weeks of leave were more involved in the direct care of the child than fathers who did not.

Increasingly, companies are also adding other types of leave policies, such as medical leave, pregnancy loss leave, bereavement leave, and caretaker leave.

Key takeaway: Start with 12 to 13 weeks of fully-paid birth-parent-neutral, gender-neutral parental leave, then ramp up over time.

Whether you’re crafting a benefits package for the first time or thinking of ways to strengthen your existing one, start with these four core offerings and go from there. They’ll help you build a strong foundation that attracts and retains top talent while helping your employees bring the best version of themselves to work.?

Once you’ve established your core benefits, where do you go from there? Stay tuned for the next post in our series, where I’ll dive into the topic of “fringe,” or rather, “expansion” benefits.?

Continue reading the series here:

Part 2 - "Expansion Benefits": What They Are, And Why You Need Them

Part 3 - Key Tenets to Guide Your Company’s Benefits Strategy