When Setting Up Your First Employee Benefit Plan as a Small Business

Stepping into the world of employee benefits as a small business owner can feel overwhelming. Smaller employers face a different process than larger organizations, and there are many moving parts to consider before offering your first health plan.

This guide highlights what matters most when designing a benefit program that is sustainable, compliant, and supportive of your employees.

1️⃣ Employee Headcount Matters More Than You Think

In the small group health insurance market, employee headcount has a major impact on your available options.

Key thresholds to know:

• Under 5 employees: Many carriers will not quote due to small risk pools and high administrative costs.

• Between 5 and 50 employees: You generally qualify for “small group” plans, though availability still varies by state and carrier.

• One employee in California: Platforms like CalChoice allow very small groups to access multiple carriers under one program.

Knowing your benefit headcount, meaning eligible full time employees, determines which plans and carriers will consider your business.

2️⃣ Specialized Platforms Support Small Employers

Traditional carriers can be challenging for very small groups to access. Several platforms are designed specifically for micro and small businesses.

Helpful options include:

• TakeCommand for Individual Coverage HRA (ICHRA) programs

• HRA administrators for tax advantaged reimbursement models

• Rippling for HRIS, marketplace plans, and benefits administration

• CalChoice is a marketplace designed for California small businesses that provides multiple carriers under one umbrella. Employees can choose from different plans while the employer pays a single bundled bill.

These tools simplify enrollment, billing, and compliance, which are common pain points for new benefit providers.

3️⃣ Learn Basic Benefit Terminology

Understanding core insurance terms helps you make informed decisions about cost and coverage.

Important terms to know:

• Deductible: Amount paid by the employee before insurance coverage begins

• Co insurance: Cost share between employee and carrier after the deductible

• Out of pocket maximum: Total annual amount an employee pays before full coverage

• High deductible health plan: Often paired with an HSA for tax advantaged savings

• PPO, HMO, EPO: Network types that affect provider access and plan flexibility

Knowing these terms will help you select a plan that fits both your budget and your team’s needs.

4️⃣ Understand COBRA (and State “Mini COBRA”) Responsibilities

Continuation of coverage rules apply differently depending on your state and size.

Key points:

• Federal COBRA applies only to employers with 20+ employees

• Many states, including California, require continuation coverage for any employer offering health insurance

• Requirements may include:

  • Notice distribution

  • Election form timelines

  • Payment tracking

  • Carrier coordination

Missing these steps can create compliance risk even for very small companies.

5️⃣ Finding a Broker Can Be Difficult for Small Groups

Brokers often prioritize larger clients, leaving small employers without adequate support.

HR consultant can assist with:

• Broker introductions

• Open enrollment preparation and management

• Employee education on plan options

• Carrier communication

• Ongoing compliance

This partnership can save time, reduce errors, and prevent renewal surprises.

6️⃣ Budgeting for Benefits

A realistic budget is essential before reviewing plans.

Costs to consider:

• Employer contribution strategy

• Employee cost sharing

• Platform or administrative fees

• Annual renewal increases (often 5–12% annually)

• Time for onboarding and administration

Creating a sustainable budget early helps you avoid unexpected expenses.

7️⃣ Create a Clear Decision Making Framework

Establish your benefit goals before comparing plans.

Questions to answer:

• What percentage of premiums will you cover?

• Will you subsidize dependents?

• Will you offer one plan or multiple plan options?

• Do you prefer lower premiums or richer coverage?

This framework makes plan selection faster and reduces confusion.

8️⃣ Stay Aware of Compliance Requirements

Offering benefits comes with ongoing compliance obligations.

Potential requirements include:

• ERISA notices

• Summary of Benefits and Coverage

• HIPAA privacy protections

• Form 5500 filings for applicable plans

• Required communication during onboarding and exits

HR consultants can help you stay compliant throughout the year.

💬 Final Thoughts

Offering benefits as a small business is a significant milestone. It can feel complex, but with the right tools, knowledge, and support, you can create a meaningful and competitive benefits program for your team.

If you need help navigating brokers, benefit platforms, open enrollment, or compliance, partnering with an HR consultant can make the process much easier and ensure your employees receive the support they need.