Cost of Employee Benefits in Small and Large Businesses

by Joel Popkin and Company

Washington, D.C. 20036. 62 pages. 

Under contract no. SBAHQ-03-M-0562

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

This study examines the cost of the benefits that

employers provide to their workers and how these

costs vary with company size. It focuses on benefits

that employers voluntarily provide: health insurance,

private pension plans, paid vacation, and sick leave.

Overall Findings

Employees of small businesses have access to fewer

benefits than do the employees of large businesses.

Small and large businesses continue to provide benefits to their employees, but at a declining rate.

Companies of all sizes have reduced the availability

of health insurance to their employees due to the

increasing cost associated with benefits in recent

years. Access to retirement benefits is more prevalent

among large firms than among small firms.

Highlights

• Paid vacation leave is the most frequently available benefit; access to pension plans is least common.

• Rates of access to paid vacation for both small

and indeterminate size firms with more than 100

employees were similar to those in large businesses.

• Access to paid sick leave varied by firm size;

over 81 percent of employees working for large

firms reported having access to paid sick leave versus 65 percent for employees of small firms.

• The data indicate that large firms pay more in

leave benefits per employee than do small businesses, since a larger share of employees have access to

leave benefits in large firms than in small firms.

• The weighted average cost of health insurance

premiums per enrolled employee is relatively high

for the very smallest firms (fewer than 10 employees), and declines as firm size increases (25-99

employees); it increases again for the largest firms

(more than 1,000 employees).

• The availability of health insurance benefits

among small firms increased during the economic

boom of the 1990s. Health insurance premiums per

enrolled employee are usually highest in the very

largest firms, but among smaller firms, the cost per

enrolled employee tends to be highest among the

smallest companies. Small companies experienced a

faster increase in health insurance premiums than

large companies did during the period from the mid1990s through 2002.

• In 2002, a smaller share of employees were eligible to enroll in businesses’ health insurance plans

than in 1997, regardless of the size of the business.

• The smallest firms often make substantially

larger contributions per participant than the largest

firms. As a whole, more firms have defined-contribution plans than have defined-benefit plans.

• Access to retirement benefits is more prevalent

in large firms than in small firms. Between 1998 and

2002 there was very little change in access to retirement plans.

• The smallest firms often make substantially larger contributions per participant for pension plans than

the largest firms do. As a whole, more firms have

defined-contribution plans than defined-benefit plans.

• In the largest firms with more than 500 employees, 75 percent of employees have access to a retirement plan, compared with 11 percent of employees in

firms with fewer than 5 employees. In establishments

with fewer than 5 employees that are contained within small firms with fewer than 500 employees, about

35 percent have access to retirement plans.

August 2005 No. 262

Small Business Research Summary

www.sba.gov/advo Advocacy: the voice of small business in government

Office of Advocacy
• In the largest firms, 95 percent offered at least

one type of defined-contribution plan and 55 percent

offered at least one type of defined-benefit plan. In

the smallest firm size group, 88 percent offered at

least one type of defined-contribution plan and about

10 percent offered at least one defined-benefit plan.

• Small firms tend to pay more in administrative

costs per participant than do large firms in general.

Scope and Methodology

The main source of data for this study was the

Medical Expenditure Panel Survey (MEPS) conducted by the U.S. Department of Health and Human

Services’ Agency for Health Care Research and

Quality. Since the MEPS lacked several variables

needed to conduct the study, it was supplemented by

other databases such as the Statistics of U.S.

Businesses (SUSB) and the Department of Labor’s

5500 and 5500C/R forms (for private pension plans).

MEPS data from 1997, 1999, and 2002 were used

to analyze health insurance coverage, retirement programs, and leave benefits. The Statistics of U.S.

Businesses (SUSB) for 1997 and 2001 were used to

determine payroll costs. Retirement costs were estimated using information from the 1998 5500 and

5500C/R filings; the share of employees covered by

private retirement plans was obtained from MEPS.

Data analysis was limited by comparability issues,

which made it impossible to make generalizations

for certain years and industries. In particular, while

SUSB data uses NAICS industry definitions, MEPS

used SIC codes then switches to NAICS. In addition,

after 1998 the 5500 and 5500C/R forms stopped

including information about the size of the firm

sponsoring the pension plan. Firm-size categories

used in the various databases also differ.

This report was peer-reviewed consistent with

Advocacy’s data quality guidelines. More information on this process can be obtained by contacting

the director of economic research at

advocacy@sba.gov or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available at www.sba.gov/advo/research. Copies are

also available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703) 605-6000

(703) 487-4639 (TDD)

www.ntis.gov

To receive email notices of new Advocacy

research, press releases, regulatory communications,

and publications, including the latest issue of The

Small Business Advocate newsletter, visit

http://web.sba.gov/list and subscribe to the appropriate Listserv.