Opinions expressed by toptecheasy.com contributors are their own.
To most small businesses and independent contractors, the idea of 401(k)s or health insurance options can seem daunting. This touched me when I met stylists and salon workers to find out what popular or trending industry interests were — they were all eager to learn how to financially prepare for the future. If your small business doesn’t already offer savings options, or you haven’t started saving as an independent contractor yet, it’s important to understand the greater impact these financial planning tools can have on your business and your future.
Regardless of whether the benefit you offer is a 401(k), health insurance, or something else, people will place a value on that benefit. But the potential or perceived monetary value is often much greater than the actual cost of the benefit. The best example is health insurance, which all businesses with 50 or more employees must provide. Employers pay on average $6,227 per year for single coverage and $15,754 for family coverage. Compare that with the cost of a single operation, which can range from $16,000 to $170,000. Employees think of this gap when assessing what a perk is really worth.
Good options reduce stress and provide a solid foundation
Benefits can also have non-monetary value to employees. Suppose you have 10 employees who participate in a 401(k) program. The administrative costs for those employees are: less than $1,000 a year. Participants can rest easy knowing that their employer does the administrative work for them, and more importantly, they automatically save and invest money.
When companies provide financial and health coverage to their employees, the team will ultimately feel less stressed about the “what if” of their future. With less stress, employees can often be more productive and collaborate better. In addition, they are less likely to switch, even if other companies offer higher wages. A recent study showed that 80% of respondents would choose an employer that offered better working conditions with a lower salary. This bodes well for companies that cannot afford high salaries; competitive benefits can still attract and retain valuable employees.
Related: 8 Ways to Get Health Insurance When You’re Self-Employed
Small businesses can work their way up
When a business starts up, it may not be able to provide the same benefits as larger companies. If that’s the case for you as a business leader, don’t assume you’re stuck. If you only look at retirement benefits to prove this point, you can build a foundation with: multiple account types:
Traditional 401(k)s, where employee contributions are taxed at the time of withdrawal
Roth 401k(s), where employee contributions are taxed before investing
SIMPLE IRAswhere employees make deferred tax contributions through payroll deductions
More importantly, some employers avoid offering retirement solutions because they can’t match premiums when in reality they contribution matching is not a necessity. At the same time, you can select an account type where employees have autonomy over how much money they make available. So do what you can now, and as you grow, you can choose to provide more benefits whenever possible. As you get started, consider implementing HR software to help manage employee payroll and benefits.
Related: The Retirement Plan Strategy Small Business Owners Need To Know
Independent contractors also have options
Even before the pandemic, the gig economy and the number of independent contractors increased. Part of why the gig economy is growing is pure numbers, with many people taking part-time or temporary jobs to earn some extra money. Other individuals contract because they like the freedom and flexibility these arrangements provide. Regardless of their motivations, independent workers are interested in and in need of benefits such as health insurance and retirement savings options. And luckily they have different account choices like their regular payroll counterparts do.
Most independent contractors can set up traditional or Roth IRAs on their own, although Roth IRAs may be better initially if you’re probably not making a lot of money. But if you are self-employed or self-employed, you can also look at: Solo 401(k)s. With Solo 401(k)s you can contribute as an employee and employer, giving you more money to put away. Defined benefit plans are another option that essentially allows you to build your own pension. They have a large annual financial commitment and can be expensive to manage, so they are better for those with higher incomes. Finally, consider: SEP IRAsthat are designed for the self-employed or those with only a handful of employees.
For insurance, one of the biggest supports for freelancers is the Freelancers Union, which you can join for free. You can go through the union to sign up for an insurance plan under the Affordable Care Act. The union also helps with dental, life or disability plans.
Related: Did You Just Become a Gig Worker? Start Saving for Retirement Now – Or This Could Happen
Benefits play a powerful role in reducing stress and stabilizing businesses. For these reasons, while benefits can serve as differentiators, it is now more important than ever that everyone, including independent contractors, has access to them. To prepare yourself or your team for the future, identify short-term and long-term lifestyle and health goals. Then see which plans or accounts you can set up as quickly as possible that support those goals. Many plans or accounts are flexible or can be transitioned to other options, so don’t be afraid to make changes as you evolve to maximize your results. As the benefits become more important, you can now find options that fit your goals.