How do state or federal laws affect small employers?

The effect on the employer depends on the type of law involved. For example, an employer with 15 employees which offers a variety of benefits is NOT required to offer continuation of health plan coverage under COBRA, offer family leave under the Family and Medical Leave Act, or comply with reporting and disclosure rules under ERISA for retirement or welfare benefit plans. However, the same employer generally will:

• follow the rules for workers' compensation, withholding for FICA and FUTA, state disability laws if in a state that requires the coverage, and pregnancy disability laws

• pay higher rates than a larger employer for group health coverage and other welfare benefits because there are fewer employees among whom to spread risk

• find it more difficult to provide life insurance coverage to the employee group and involve medical underwriting

• rarely offer flexible benefit programs because of costly administration and risky anti-selection

• have few design choices when offering a retirement plan, but be required to follow the rules for fiduciaries, eligibility, funding, vesting, and administration

• be less likely to offer fringe benefits due to the tax complexity.

Which laws or benefits have minimum employee requirements? The following chart offers you quick information about the minimum number of employees that an employer must have before it is required to follow certain laws or rules when offering employee benefits:

• COBRA (health care continuation):20

• ERISA (reporting and disclosure):100

• FMLA (family or medical leave):50

Even though employers with fewer than 20 employees often are not required to comply with laws that apply to larger employers, this does not necessarily mean, that an employer's smaller size is an advantage when managing employee benefits. Having fewer employees may means that benefits are more expensive or that there is far less design flexibility than would be available for a larger employer.