Ancillary benefits are supplemental benefits employers offer in addition to core health insurance. They can include dental, vision, life insurance, disability insurance, accident coverage, critical illness insurance, retirement plans, wellness programs, employee assistance programs, and other perks.

For small and mid-sized businesses, ancillary benefits can help round out a benefits package, often without adding significant employer cost. Many are offered as voluntary benefits, which means employees can choose the coverage they want and pay some or all of the premium themselves.

In this article, we’ll explain what ancillary benefits are, how they differ from traditional employee benefits, common types to consider, and how to decide which options make sense for your workforce.

When discussing the differences between ancillary and traditional employee benefits, the lines can become blurred. That’s because when most workers think of traditional employee benefits – health insurance, life insurance, vacation or paid time off, and retirement plans come to mind – options that have been standard for many decades. However, some of these options, like life insurance and retirement plans, actually fall under ancillary benefits.

Traditional employee benefits, then, are those foundational offerings that form the core of your employee benefits package and are typically offered to – and perhaps expected by – employees.

Ancillary benefits for employees are secondary benefits that cover expenses beyond basic medical insurance, such as dental, vision, long-term and short-term disability, retirement plans, and accident and critical illness coverage.

Traditional employee benefits may include ancillary options, but not all ancillary benefits for employees are considered traditional.

Ancillary employee benefits, often called fringe benefits, serve the same purpose no matter the name: they are supplemental benefits or perks provided in addition to an employee’s compensation and health insurance.

Over time, the types of ancillary benefits offered to employees have evolved as the needs of the workforce have changed. For example, life insurance and retirement plans have long been offered by employers. But more recently, the types of ancillary benefits have expanded to address the overall well-being of employees, such as mental-health and financial well-being resources.

Ancillary benefits also provide employers a way to stand out in a crowded and competitive labor market.

Here are some common types of ancillary benefits:

• Life insurance
• Retirement or pension plans
• Paid time off (holidays, vacation, and/or sick leave)
• Paid time off, vacation, and sick-leave accrual
• Dental insurance
• Vision insurance
• Short-term disability insurance
• Long-term disability insurance
• Accident and critical illness coverage
• Flexible spending account
• Health savings account
• Paid medical leave
• Mental-health assistance
• Employee assistance program
• Wellness program
• Education/tuition assistance
• Employee discounts
• Adoption assistance
• Childcare support
• Paid parental leave
• Pet insurance
• Gym memberships or reimbursement
• Employee stipends
• Flexible schedules

It’s also worth noting that the IRS defines certain types of fringe benefits and provides a guide on how to report these benefits. Examples of these types of fringe benefits include:

• Cars and flights on aircraft provided by employer
• Free or discounted commercial flights
• Vacations
• Country club memberships
• Tickets to sporting events

Once you’ve decided to offer ancillary employee benefits, you have several options available to acquire plans for your small or mid-sized business. Later in the article, we’ll discuss the process of choosing which ancillary benefits to offer, which begins with understanding the needs of your employees and determining your company budget.

When it’s time to begin shopping for ancillary benefits, finding affordable and high-quality plans on the open market can be challenging for small and mid-sized businesses. To help alleviate these challenges, you can work with a third party, such as a:

• Benefits broker or advisor
• Insurance company
• Professional employer organization (PEO)

With a PEO, you gain access to top ancillary insurance carriers at affordable rates. That’s because a PEO enters into a unique co-employment relationship with each client, which allows them to manage HR tasks, benefits administration, payroll, and more on behalf of the client. With PEO services from G&A Partners, businesses can access greater benefits buying power across a large client base, helping them offer competitive employee benefits plans.

But once you have ancillary benefits plans in place, who handles the administration? That’s an important consideration for most small and mid-sized businesses, which may lack the time and resources to manage ancillary benefits effectively. A PEO will handle benefits administration on your behalf, from open enrollment to claims and invoice reconciliation to answering employee questions.

Offering ancillary benefits for your employees allows you to enhance your benefits packages, providing several advantages including the ability to:

• Address the diverse needs of your workforce
  
  Today’s workforce spans five generations, each with its own diverse and unique needs. What might be important to a Baby Boomer can vary substantially from a Gen Z employee. With ancillary benefits for employees, however, you can address the diverse needs of your workforce and appeal to workers in each generation.

• Attract and retain top talent
  
  Ancillary benefits coupled with high-quality health insurance create a more competitive benefits package, and a competitive benefits package will help you stand out in the crowd and attract top talent to your organization. It will also help to improve retention and minimize the costly effects of employee turnover.

• Promote overall well-being for employees
  
  When you build a benefits package that addresses overall well-being – from emotional and financial, to physical and social – you provide your employees with a supportive environment where they can rest assured their needs are met. This can lead to a happier, more productive workforce.
  
  Think of it this way: When your employees know they have access to insurance that addresses costly dental issues, promotes financial security, or provides mental-health resources in times of need, they gain peace of mind, which improves their overall well-being.
  
  And improved well-being and preventive care that employees can access through ancillary benefits can also reduce the number of sick days your employees need to take.

• Fund through pre-tax dollars
  
  Some ancillary employee benefits are funded with pre-tax dollars, which means some deductions may reduce an employee’s taxable income. Pre-tax deductions may also reduce some employer-paid taxes.

With all of the advantages ancillary employee benefits provide, it’s easy to see the value in offering them to your employees. The great news for small and mid-sized business owners is that offering ancillary employee benefits doesn’t have to be expensive or time consuming.

For example, you can offer voluntary ancillary benefits, meaning you contribute zero to 49% toward the premium. Though increasing the employer contribution will strengthen your overall benefits package, your employees will still find value in voluntary ancillary plans, which are typically better than plans employees can obtain on their own.

Or you can opt to offer employer-contributory ancillary benefits. With this option, your company pays 50-100% of the cost. Many small and mid-sized businesses choose to contribute more, as it can encourage more participation amongst your employees.

Managing ancillary benefits doesn’t have to monopolize your time, either. When you partner with a PEO to provide and administer your benefits, they will manage benefits administration on your behalf. For example, a PEO will:

• Handle open enrollment with your employees
• Help you build a competitive benefits package within your budget
• Provide guidance to help ensure you’re meeting state and federal labor laws
• Manage claims and invoice reconciliation

You’ve decided to add ancillary employee benefits to your overall benefits package, but which options should you offer?

Understand the needs of your workforce

To help you decide, you need a clear understanding of what your employees’ needs are. Ultimately, you want to offer benefits that appeal to a majority of your workforce, which will lead to greater participation in the plans. You also want to ensure you’re meeting the needs of today’s employees so you can feel confident your benefits package will be competitive with other companies’ offerings.

To find out what your employees are looking for in a benefits package, consider:

• Asking your employees about their preferences through a survey
• Forming an employee focus group to explore options and make recommendations
• Consulting with an HR professional to learn about current trends and to evaluate what other companies within your region and industry are offering

Define your benefits strategy and budget

Will you contribute toward your ancillary benefits or will you offer voluntary ancillary benefits with little employer contribution? In either case, you’ll need to know what your benefits strategy is and how it fits within your overall budget.

For example, if improving employee retention is a business priority, then you may need to increase your budget for employee benefits. This will allow you to offer employer-contributory ancillary benefits and build a more attractive benefits package.

However, if you’re unable to increase your benefits budget, then you may need to focus on voluntary ancillary benefits, where the employee pays the most or all of the cost. As an employer, you can also add other no- or low-cost benefits to your offering such as flexible schedules, additional paid time off, or employee assistance program.

Consider labor laws and tax implications

The federal government and several states have employment-related requirements that may impact your decision on which ancillary benefits to offer. For example, more and more states have laws and regulations regarding retirement plans and paid leave.

It’s helpful to have a compliance expert in your corner who can offer guidance on what you are required to offer as an employer, both on the federal and state level. At G&A, our compliance and benefits experts will provide this guidance, in addition to helping ensure that the plans you choose are compliant.

You’ll also want a clear understanding of tax implications of certain fringe benefits. The IRS clearly defines fringe benefits and which are taxable in this guide. A trusted PEO can work with you to navigate these requirements.

Armed with all of this knowledge, you can then begin to identify a list of ancillary benefits to match your employees’ needs and preferences – allowing you to be competitive within your region and industry, meet your benefits strategy and budget, and be compliant with state and federal labor laws.

Choosing which ancillary benefits to offer can be easier with the right support. G&A’s ancillary and voluntary benefits services can help employers expand their benefits package with options such as dental, vision, disability, accident insurance, and other supplemental coverage.

G&A can also support benefits administration, enrollment, and ongoing employee benefits questions, helping your team offer a stronger benefits experience without adding more administrative work.