Offering group benefits is one of the smartest and most strategic investments a business can make. These benefits help support your workforce, attract talent, and reduce turnover.

Most importantly, they come with tax advantages for both employers and employees. Thanks to Section 125 of the Internal Revenue Code, many benefits can be offered on a pre-tax basis, lowering taxable income for employees and reducing payroll taxes for employers.

Whether you’re just getting started or reevaluating your current setup, here’s what you need to know about group benefits, pricing, legal requirements, and more.

Why Group Coverage Is a Cornerstone of Employee Retention

Employee benefits are an important factor to over 90% of employees (PeopleKeep Study). Offering excellent helps you stand out in a competitive hiring landscape.

78% cite benefits as a top reason for changing jobs (Quickbooks & Allstate Study). Companies that offer comprehensive, affordable benefits will see higher productivity, engagement, and retention.

If you're struggling with turnover or having trouble attracting quality candidates, a well-structured benefits package can make all the difference.

What Types of Coverage Are There?

The most common types of benefits offered are:

• Medical insurance
• Dental insurance
• Vision insurance
• Group life and accidental death & dismemberment (AD&D)
• Short-term and long-term disability
• Employee Assistance Programs (EAPs)

But many employers also offer a much broader range of options, including:

• Voluntary benefits like critical illness or hospital indemnity plans
• Health club memberships or wellness stipends
• Pet insurance
• Travel insurance
• Identity theft protection
• Legal assistance plans
• Tuition reimbursement or student loan repayment programs

The right mix depends on your goals, budget, and workforce. A good strategic advisor can help you evaluate which benefits are valued most by your employees.

How Group Medical Insurance Pricing Is Structured

Group medical plans are typically priced in one of two ways:

• Age-banded rates: These are offered for groups with under 101 full-time equivalent employees in California and under 50 in most other states. Premiums are based on the age of each covered individual (employee and dependents), with older employees costing more, sometimes dramatically more.
• Composite rates: These are offered to groups with 101+ full-time equivalent employees. Premiums are averaged across the group into tiered rates (the most common tiers are employee-only, employee + spouse, employee + children, employee + family). These are available to “small groups” through certain level-funded or self-funded programs.
• What counts as a full-time equivalent (FTE)? Under the Affordable Care Act, the FTE calculations accounts for full-time workers and the part-time hours worked to arrive at an employee count. This calculation is critical for determining group size and plan eligibility.

Employer Contributions and Participation Requirements

Most insurers require employers to contribute 50% of the employee-only premium or $100 per employee. The percentage-contribution method can apply to one specific plan or to any plan in a plan line-up. This helps ensure broad participation and risk sharing.

Participation Requirements

In California:

• Small group plans (1–100 full-time equivalent employees) generally require at least 25% of employees who do not have valid waivers to sign up. Valid waivers include Medicare, Medicaid or Medi-Cal, coverage under a spouse, or coverage under a parent (for employees under age 26). Some carriers may accept additional waiver types. Select HMO carriers may start a plan with as few as two non-owner employees.
• Large group plans (101+ full-time equivalent employees) have requirements that vary significantly by carrier. Some require as few as two enrolled employees. Others require participation thresholds as high as 50%, regardless of waivers.
• Self-funded and level-funded plans are subject to different guidelines depending on the structure of the plan. Rented PPO networks, reinsurance carriers, and third-party administrators each have their own underwriting requirements. Self-funding should always be done with a seasoned strategic advisor guiding the process.

Tax Advantages of Group Benefits

One of the most overlooked benefits of offering group coverage is the tax savings.

Under Section 125 of the IRS Code, employers can offer many group benefits on a pre-tax basis. This includes:

• Group medical, dental, and vision premiums
• Health Savings Account (HSA) contributions (if paired with a qualified high-deductible health plan)
• Flexible Spending Accounts (FSAs) for medical or dependent care expenses

Benefits for employers:

• Contributions are generally tax-deductible as a business expense
• Employers avoid payroll taxes on employee pre-tax contributions
• HSAs may lower overall claims when employees become better health consumers

Benefits for employees:

• Reduces taxable income and increases take-home pay
• Provides access to group-rated plans not available on the individual market

Note: Some plans that pay out cash benefits — such as life insurance, short-term disability, or accident plans — may be better left as taxable. This ensures that when the employee receives a payout, the benefit is not subject to income tax.

How to Choose a Carrier and Plan Mix

Selecting the right carrier and plan mix comes down to a few key considerations:

• Network access (especially critical in California, where provider networks can be narrow and vary by region)
• Plan design flexibility and cost sharing
• Reputation for claims service and support
• Bundling opportunities for discounts when packaging multiple lines

Groups with older employees or with more employees who have families may prefer richer plans with low deductibles and broad networks. Younger, healthier teams may prefer high-deductible health plans (HDHPs) paired with HSAs. A strong strategic advisor will help you compare these factors and design a package that meets the needs of your workforce without blowing your budget.

Do We Have to Offer Group Benefits to Our Employees?

For medical insurance, the answer depends on your size.

• Applicable Large Employers (ALEs): If you have 50 or more full-time equivalent employees, the Affordable Care Act requires you to offer affordable, minimum-value coverage to full-time staff or face penalties. This is known as the employer mandate.
• Smaller employers (under 50 FTEs): You are not legally required to offer medical coverage, but there are still plenty of reasons to do so. Not only do benefits improve recruiting and retention, but many basic offerings such as dental, vision, life insurance, and voluntary plans can be added with little or no cost to the employer. These are highly valued by employees and often unaffordable on the individual market.

A good strategic advisor can help you tailor your program to your company’s size, growth goals, and workforce needs.

Let’s Build Something Better

At Kern Island Insurance Services, we believe that every business and workforce is unique. We deliver custom strategies that balance cost, coverage, and compliance.

Whether you’re building a benefits package from scratch or fine-tuning your current offering, we will help you:

• Improve employee retention
• Control costs
• Reduce time spent on administration by up to 50%
• Stay compliant with California and federal regulations

Let’s talk about what your benefits program could become.