Small Biz Survey Says More "Bang" For Bucks Than Benefits

August 8, 2003 ( - Small companies may not provide as rich a benefits package as larger firms, but that's because their workers prefer higher pay, not because entrepreneurs are stingy, according to a new industry group survey.

According to the National Small Business Poll: Compensating Employees, prepared by the National Federation of Independent Business (NFIB), small firm owners are simply trying to generate workforce goodwill by putting more resources into salary. A whopping 82% of the 750 survey respondents said they believed workers preferred a $1-per hour pay hike to more benefits.

If small-business owners wanted to give their employees the equivalent of that $1.00/hour increase in compensation, 73% said they would give it in the form of higher wages, but other methods were also noted, including an increase in:

  • 5.2% paid time off
  • 4.7% health insurance benefits
  • 2.4% pension benefits
  • 2.3% profit-sharing
  • 2.1% some other benefit

Roughly 9% said they either did not know, or did not answer.

Preferred Proffered

While most small employers believed that employees would prefer a bump in compensation, 6% believed workers would prefer it in some benefit not listed (such as paid parking), while 4% identified paid time off and health insurance benefits. However, four of five would offer what they believe employees most want.

“Employers give cash because that is what their employees want,” the NFIB report said. “In fact, when small employers spurn perceived employee compensation preferences, they are more likely to turn employee wishes for additional cash into additional benefits than additional cash. They thereby risk a lot of opportunity to foster maximum good will by providing employees what the employer believes employees should have rather than what employees prefer.”

Those firms offering a benefits package have one that typically includes:

  • paid vacations, 75%
  • employee health plan, 61%
  • paid sick leave, 59%
  • disability insurance, 41% (most commonly in the construction industry)
  • job-related educational reimbursement, 39%
  • pension plan, 30%
  • life insurance, 29% (a result the report attributes to tax laws, not employer preference)
  • dental insurance, 24%.
  • cafeteria plan for benefits, 12% (though 31% of those with > 20 workers offered these)

Owners of firms with 20 or more employees are substantially more likely (usually in the range of 20 percentage points, according to the report) to offer any of the benefits listed above than are those employing fewer than 10.

Pecking Order

The report notes the likely existence of a “benefits pecking order” that plays a role in determining which benefits an employer decides to offer. Cost is obviously a factor, but employee preference is also an issue – which the study suggests may account for the fact that 35% of responding firms offer health insurance and no pension plan, while only 4% offer a pension plan and no health insurance. Twenty-six percent offer both, while 34% offer neither (not surprisingly, employer size makes a difference in pension plan availability – nearly 58% of those with 20-250 workers offered one, compared with just 23% of those with 9 workers or less, and 40% of those with 10-20 workers).

Similarly, the study data notes that roughly one in five (21%) offer paid vacation and no health insurance, just 6% offer health insurance but no paid vacation (More than half – 54% – offer both, and 18% offer neither). However, the study notes that small employers don’t tend to target benefits to coincide with recruiting efforts. Rather, survey respondents target:

  • 41% – all employees
  • 28% – just full-time employees
  • 8% – their most valuable workers
  • 8% – owners and their family needs (more common among smaller firms)
  • 4% – their longest-tenured workers

OT Practices

One-third (33%) of small employers pay a majority of their full-time employees on an hourly basis. Seven percent reported at least one full-time employee, including tipped employees, working at the minimum wage or below – though most of those were in rural areas.

Two-thirds of small employers ask their employees to work overtime, however, they employ a variety of methods to determine who (and who not) to pay overtime to. In making that determination, survey respondents said they:

  • 29% – follow industry practice
  • 29% – make all hourly employees eligible
  • 17% – make everyone who works overtime eligible
  • 12% – make everyone except management employees eligible
  • 9% – classify employees by earnings and occupation into eligible and ineligible for purposes of overtime pay

More than half (52%) said that they paid employees periodic bonuses or profit-sharing based on the performance of the business. More than half (54%) provide discounted or free goods or services from the business, with about 30% saying those goods or services are worth over $1,000. The survey of 750 small firm owners was conducted in February 2003. also found that some 29% of respondents said all hourly employees were overtime eligible and 12% made everyone except managers eligible.

A full copy of the report is available at .