Not Offering a 401K Plan Can Put Your Business at a Disadvantage
This guest post was contributed by Justworks.
A 401(k) program is one of the most common benefits that large companies offer. But many small companies seem to avoid them for one reason or another. Either the companies believe that it’s too expensive or, worse, they just don’t understand them.
Your company is at a serious disadvantage if it doesn’t offer a 401(k). Even if you’re a small, seven-person startup, you risk losing top talent if you don’t offer a 401(k) to your employees. You don’t have to match anything; rather, it is creating the system so that employees can contribute to their retirement. If you don’t offer it, employees are immediately suffering because they have to find another, less lucrative, alternative.
Here are our top five reasons to offer a 401(k) as a small business.
Offering a 401(k) Attracts Top Talent
Like it or not, employees expect to receive a 401(k). If you are trying to recruit an exceptional engineer and one of your competitors offers a 401(k) plan but you don’t, you’ll have to increase your salary enough to justify the difference.
A 401(k) is an important investment to an employee—its compounding growth is crucial to saving money for retirement. But it can be offered at rather minimal costs to your company – especially if you don’t offer a company match.
If not offering a 401(k) could be a dealbreaker for top talent, and is a low-cost benefit, why wouldn’t you do it? Recruiting, employee turnover, and hiring all cost money that could partially be prevented by taking care of your team with great benefits.
You Save on Small-Business Taxes
Small businesses under 100 employees qualify for a special tax credit for offering a 401(k) to their employees. As a business owner, for the first three years, you get a maximum of $500 off per person at your company.
However, it doesn’t have to end there. Company matches, if you decide to offer them, also become a tax write-off. You are offering an additional benefit to your employees and you get to deduct that amount your taxes, which becomes a double win.
You (Yes, You) Need a 401(k)
The third reason that you should offer a 401(k) has nothing to do with your employees and everything to do with you as its leader, CEO, and/or founder. You are likely taking a salary every year. And you likely have a significant amount of your net worth tied up in your business. That’s the entrepreneur’s gamble and it’s one that many of us take willingly.
However, if you set up a 401(k) for your employees, you also get to enjoy the benefits from doing so, which includes tax free contributions. More importantly, you get to reduce your overall risk in the event that your business fails. The reality is, many do fail and many people don’t take their own retirement into consideration.
A 401(k) is a Must
The reality is, employees expect a 401(k). And for top prospects, that benefit can be a deciding factor. Putting yourself at a disadvantage when trying to recruit top talent will only hinder your business. The sooner employees start saving, the stronger their retirement will be down the line.
To top it off, you’ll save money both as the business owner and as a personal saver. Deducting the contributions from your taxes can help you to gain better talent and then redeploy the tax savings to other perks.
Even better, is that offering a 401(k) as a small business doesn’t have to be difficult. Many companies offer low-cost options.
Justworks is a technology platform that helps entrepreneurs grow and manage their businesses by offering a comprehensive one-stop-shop approach for self-service payroll, compliance, and benefits (including health insurance, commuter benefits, and 401k).