The Advantages of Offering Small Business 401(k) Plans to Part-Time Employees
As a small business owner, you may wonder if it’s worth offering 401(k) benefits to your part-time employees. We’re here to answer that question (spoiler alert: It’s a yes). From retention to improving employee satisfaction, there are plenty of advantages to offering 401(k) plans to your part-time workers.
In fact, the government recently mandated that small businesses to do so. Secure 2.0 legislation states that businesses must now enroll part-time employees with at least 500 hours of service for two consecutive years into their company’s retirement plan.
Under Secure 2.0, the service years requirement decreased from three to two effective after December 31, 2024. The first group of long-term, part-time workers will become eligible for participation as of January 1, 2024, for employee contributions only.
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Boost employee retention
One of the biggest advantages of offering 401(k) plans to part-time employees is that it can help keep them at your small business longer. Offering retirement benefits can give your employees a sense of financial security, making them more loyal to your business. When your employees feel valued and taken care of, they are less likely to leave your company for another job.
Attract top talent
Offering 401(k) plans to part-time employees can also help you attract top talent. When potential employees are considering job offers, they often consider the benefits packages you’re offering. Providing retirement benefits to part-time employees can set your business apart from other companies that don’t have this type of benefit.
Get tax credits
Whether your employees are full-time or part-time, your small business can qualify for tax benefits. When you set up a new 401(k) plan from Ubiquity, you can qualify for up to $5,000 per year for the first three years, and for an additional $500 per year if you add automatic enrollment. That adds up to $16,500 – not too shabby!
Any contributions you make to your employee’s accounts (called employer matching) is tax deductible from the company taxes. Additionally, you can potentially reduce your own income taxes by contributing to your 401(k) plans.
Encourage retirement savings
Offering 401(k) plans to part-time employees can also help encourage retirement savings. Many part-time employees may not think about saving for retirement, so. by offering retirement benefits, you encourage your employees to start saving for their future.
Improve employee satisfaction
When your employees feel like they have a stake in the company’s success, and they feel cared for, it can improve their overall job satisfaction. By offering 401(k) plans to part-time employees, you can provide them with an additional benefit that can help boost their morale and job satisfaction.
Consider your part-time employees when implementing a 401(k) plan
- Check the eligibility requirements. Before implementing a 401(k) plan, you need to check the eligibility requirements. Generally, employees who work 1,000 hours per year or more are eligible for 401(k) plans. However, some plans have different requirements, so it’s essential to check with the plan administrator.
- Choose a plan administrator. You will also need to choose a plan administrator to handle the 401(k) plan. The plan administrator can help set up the plan, enroll employees, and provide ongoing support.
- Decide on contribution levels. As the employer, you will need to decide on the contribution levels for the plan. You can choose to match a percentage of the employee’s contribution or make a fixed contribution.
- Communicate the plan to your employees. Once you have chosen a plan administrator and decided on the contribution levels, you will need to communicate the plan to your employees. Make sure to explain the benefits of the plan, how it works, and the contribution options available to them.
- Monitor and review the plan. Regular monitoring can help ensure that the plan is meeting the needs of your employees (and that it is compliant with regulations).