Do employers have to offer benefits? Some, yes; most, no. Every U.S. employer, down to a single-employee shop, has to fund Social Security and Medicare, pay unemployment insurance, and in almost every state carry workers’ compensation. Once you grow past certain headcounts, federal law adds health coverage, unpaid family leave, and continuation coverage to the list. Almost everything else people think of as a job’s benefits package — paid vacation, retirement plans, health insurance for small businesses, dental, life insurance — is voluntary under federal law, offered because employers compete for workers, not because a statute forces the issue.
The catch is that “voluntary under federal law” isn’t the same as “voluntary.” State mandates fill in a lot of the gaps, and they often reach much smaller employers than the federal thresholds do.
What Every Employer Must Provide
Four obligations apply regardless of how many people you employ.
Social Security and Medicare
Payroll taxes for Social Security and Medicare are split between you and your employees. The Social Security (OASDI) portion is 6.2% each on wages up to $184,500 in 2026; the cap adjusts with average wages each year. Medicare is 1.45% each with no wage cap.1Social Security Administration. Contribution and Benefit Base Employees earning above $200,000 owe an additional 0.9% Medicare surtax on their side only; you don’t match it. There is no employer size threshold. Even a business with one employee withholds and matches.
Unemployment Insurance
Unemployment is a joint federal-state program funded entirely by employers. The federal FUTA rate is 6.0% on the first $7,000 of each employee’s annual wages, but employers who pay state unemployment taxes on time get a credit of up to 5.4%, dropping the effective federal rate to 0.6%.2Internal Revenue Service. Topic no. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return State rates and wage bases vary and generally track your claims history, so employers with frequent layoffs pay more over time.3U.S. Department of Labor. Unemployment Insurance Tax Topic
Workers’ Compensation
Nearly every state requires workers’ compensation insurance, which pays medical costs and partial wage replacement when an employee is hurt or made ill on the job. Rules vary. Some states exempt very small employers (typically those with fewer than three to five workers), and industries like agriculture or domestic work are sometimes carved out. Texas is the outlier: coverage is broadly optional for private employers, though construction firms on government contracts still have to carry it. Premiums are paid entirely by the employer and depend on industry, claims history, and state rate structures. In exchange, employers generally get protection from employee lawsuits over workplace injuries under the “exclusive remedy” rule.
Reemployment for Military Service
The Uniformed Services Employment and Reemployment Rights Act applies to virtually all employers regardless of size. If an employee leaves for military service, you must reemploy them in the position they would have held had they never left, with the same seniority, status, and pay.4U.S. Department of Labor. Uniformed Services Employment and Reemployment Rights Act Employees can take up to five cumulative years of military leave and keep their reemployment rights. Retaliating against or discriminating against someone for using those rights is prohibited. Employers who offer health coverage also have to make continuation coverage available for up to 24 months during the service period.
What Kicks In as You Grow
Three major federal mandates attach at specific headcounts.
COBRA at 20 Employees
If you have 20 or more employees and offer a group health plan, federal COBRA rules require you to let employees and their covered dependents continue that coverage after a qualifying event like job loss, reduced hours, divorce, or the death of the covered employee.5U.S. Department of Labor. COBRA Continuation Coverage You don’t have to subsidize it. Former employees can be charged up to 102% of the full premium, covering both the employer and employee portions plus a 2% administrative fee.6U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Employers and Advisers Standard coverage runs 18 months for termination or reduced hours and up to 36 months for other events like divorce or a dependent aging out.
FMLA at 50 Employees
The Family and Medical Leave Act requires covered employers to provide up to 12 weeks of unpaid, job-protected leave per year for qualifying reasons: the birth or adoption of a child, a serious health condition affecting the employee or a close family member, or certain needs tied to a family member’s military service.7U.S. Department of Labor. FMLA Frequently Asked Questions You also have to maintain the employee’s group health benefits during the leave as if they were still working. FMLA covers all public agencies and public or private schools, plus private employers with 50 or more employees working at least 20 weeks in the current or prior calendar year. Not every employee at a covered employer qualifies, so eligibility should be checked case by case.
ACA Health Coverage at 50 Full-Time Equivalents
The Affordable Care Act’s employer mandate applies to Applicable Large Employers: those averaging 50 or more full-time equivalent employees during the prior calendar year.8Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer Cross that line and you have to offer minimum essential coverage to at least 95% of your full-time employees and their dependents.9Internal Revenue Service. Employer Shared Responsibility Provisions The coverage also has to be “affordable,” meaning the employee’s share of the premium for the lowest-cost self-only plan can’t exceed 9.96% of household income for plan years beginning in 2026. The IRS provides three safe-harbor methods (W-2 wages, rate of pay, federal poverty line) so employers can test affordability without knowing an employee’s actual household income.
Failing to offer coverage to 95% of full-time workers costs $3,340 per full-time employee per year in 2026, minus the first 30 employees. Offering coverage that isn’t affordable or doesn’t provide minimum value triggers a separate penalty of $5,010 per year for each full-time employee who ends up receiving a Marketplace premium tax credit. The lower of the two totals applies. Employers below 50 full-time equivalents have no federal obligation to offer health insurance.
State Requirements That Reach Smaller Employers
The federal thresholds are only half the picture. Several categories of state mandates hit businesses well below 50 employees, and some apply from the first hire.
Paid Sick Leave
There is no federal paid sick leave law, but roughly 22 states and the District of Columbia have enacted their own. Some guarantee a set number of hours per year (commonly 40 to 56); others use an accrual model of one hour earned per 30 or 40 hours worked. Qualifying uses generally include the employee’s own health needs, care for a sick family member, and preventive appointments. Several jurisdictions also cover absences tied to domestic violence or stalking. Cities sometimes layer their own rules on top of state law.
Paid Family and Medical Leave
As of 2024, 13 states and the District of Columbia had enacted mandatory paid family and medical leave programs covering events like bonding with a new child, caring for a seriously ill family member, or handling needs related to a military deployment.10National Association of State Workforce Agencies. Paid Family Medical Leave These typically replace part of the employee’s wages during leave, funded through payroll taxes paid by employers, employees, or both.
Short-Term Disability
A handful of states also require short-term disability insurance for non-work-related injuries, illnesses, or pregnancy-related conditions.11U.S. Department of Labor. Temporary Disability Insurance It runs alongside workers’ comp and covers what happens off the job.
Mini-COBRA
Federal COBRA doesn’t apply below 20 employees, but many states have “mini-COBRA” laws that impose similar continuation-coverage requirements on smaller group health plans.
Because these programs change often, checking with your state workforce agency before assuming what you owe is time well spent.
What’s Voluntary but Common
Most of what employees consider a standard benefits package is not legally required.
Retirement plans like 401(k)s and 403(b)s are voluntary. Employer matching contributions, when offered, are widely regarded as one of the best financial returns available to a worker, but no federal law requires them.
Health insurance from employers below the 50-employee ACA threshold is voluntary. Even so, most small businesses with 10 or more employees offer some form of health coverage, often paired with dental and vision. Life insurance, long-term disability insurance, and employee assistance programs are common add-ons.
Paid time off — vacation, holidays, personal days — has no federal mandate behind it. The legal floor is zero. But it’s so expected that not offering it puts employers at a real hiring disadvantage. Flexible schedules, tuition reimbursement, commuter benefits, and wellness programs fall into the same voluntary bucket.
Once You Offer a Plan, ERISA Attaches
Choosing to offer a retirement plan or group health plan pulls you into the Employee Retirement Income Security Act. ERISA sets minimum standards for most private-sector retirement and health benefit plans, requiring employers to give participants clear information about plan features and funding, meet fiduciary standards when managing plan assets, and provide a grievance and appeals process. Participants can sue for benefits or for breaches of fiduciary duty.12U.S. Department of Labor. ERISA
ERISA doesn’t force any employer to offer a plan. But the moment you do, mismanaging funds, missing required notices, or making changes without proper disclosure can trigger lawsuits and Department of Labor enforcement. Government plans, church plans, and plans maintained solely to comply with workers’ comp or unemployment laws are exempt.
The Gap Small Employers Miss
Businesses below 50 full-time equivalents skip the ACA mandate, FMLA, and much of the reporting that follows. Below 20 employees, federal COBRA also drops out. What doesn’t drop out: Social Security and Medicare, unemployment insurance, workers’ compensation in nearly every state, USERRA, and any state-level paid sick leave, paid family leave, short-term disability, or mini-COBRA rule that applies where you operate. Small employers most often stumble in that last category, on the assumption that federal thresholds are the only thresholds that count.