Startups often compete with established companies for talent. Salary is important, but surveys show benefits are just as critical: 46% of employees would trade a 10% pay increase for better well-being benefits (Mercer, 2024 People Risk Report).
For early-stage teams, a thoughtful benefits package can:
Help attract top talent without inflating salaries.
Reduce turnover by making employees feel supported.
Reflect the company’s values (e.g., flexibility, growth, wellness).
The core of any startup benefit package
Even lean startups should aim to provide coverage in three main areas:
1. Health insurance
Health coverage is often the most valued and expected benefit. Startups can provide it through:
Group plans: Traditional option, but usually expensive for small teams.
ICHRA (Individual Coverage HRA): Startups set a monthly budget; employees buy their own ACA-compliant plan. Scales easily for distributed teams.
QSEHRA (Qualified Small Employer HRA): Simpler version of ICHRA for teams under 50 employees, with annual IRS contribution limits.
Learn more about ACA coverage requirements and Essential Health Benefits.
2. Retirement options
Startups don’t need a full 401(k) out of the gate. Affordable options include:
SIMPLE IRA or SEP IRA: Lower-cost alternatives with fewer admin requirements.
401(k) via a PEO or fintech provider: Scales as the company grows.
3. Paid time off (PTO)
Even a modest PTO policy signals care for employee well-being.
Many startups adopt flexible PTO (trust-based) or minimum PTO policies to encourage rest.
Cost-effective non-mandatory benefits for startups
Non-mandatory benefits can be powerful differentiators for startups, especially when salaries lag behind big tech or corporate competitors.
Wellness & lifestyle
Gym or wellness stipends
Mental health support via Employee Assistance Programs (EAPs)
Pet insurance (low cost, high appeal to younger workforces)
Flexibility & culture
Remote or hybrid work options
Flexible schedules or “flex holidays”
Learning stipends for courses, books, or conferences
Financial perks
Equity or stock options (long-term retention tool)
Commuter stipends for urban teams
Student loan repayment contributions
These perks aren’t required, but they signal creativity and alignment with modern employee expectations.
How startups can control costs
Startups must balance offering attractive benefits with limited budgets. Some strategies include:
Defined contribution health benefits: With ICHRAs or QSEHRAs, startups set predictable monthly costs.
Tiered perks: Offer more generous benefits to full-time employees while keeping flexible/low-cost perks for contractors or part-time staff.
Surveying employees: Ask what matters most before committing dollars. Often, flexible schedules or professional growth opportunities rank higher than expensive perks.
Using PEOs: A Professional Employer Organization can provide access to group plans and retirement options at scale, while outsourcing HR compliance.
Example startup benefit package (Lean but competitive)
Here’s what a realistic package might look like for a 15-person startup:
Health coverage via ICHRA ($400/month per employee allowance)
SIMPLE IRA retirement plan with 2% match
10 paid holidays + flexible PTO
$50 monthly wellness stipend
Remote-first policy with home office reimbursement
Annual learning stipend of $500
This package costs less than traditional corporate benefits but still checks the boxes candidates care about.
Compliance considerations
Even startups must be aware of compliance obligations:
ACA mandate: Applies only to Applicable Large Employers (50+ FTEs), but smaller startups using ICHRAs/QSEHRAs must still follow IRS notice and reimbursement rules.
ERISA: Applies to most employer-sponsored benefits plans, including retirement and health coverage.
Tax treatment: Some perks are taxable (wellness stipends, personal use of company assets) while others (health insurance premiums, retirement contributions) are not.
FAQs about startup benefits
Do startups have to offer health insurance?
No, not until reaching 50+ FTEs under ACA rules. But offering coverage earlier helps attract talent and may qualify for certain state and federal tax credits for small businesses.What’s the cheapest way for a startup to offer health insurance?
ICHRA or QSEHRA arrangements are often the most cost-predictable for startups with under 50 employees.
Can startups offer equity as part of their benefits package?
Yes. Equity is not legally required but is a common “non-mandatory benefit” used by startups to attract and retain talent.
Key takeaways
Startup benefit packages don’t need to be extravagant, but they should cover health, retirement, and time off at a minimum.
Non-mandatory perks like flexibility, wellness stipends, and learning budgets are cost-effective differentiators.
ICHRAs and QSEHRAs are modern, scalable solutions that give startups cost control while keeping employees covered.
Benefits are a signal of culture. Even small investments can pay off in retention and recruitment.
Startup health benefit options: quick comparison
| Option | How It Works | Best For | Pros | Cons |
|---|---|---|---|---|
Group Health Plan | Employer chooses and manages a single group policy. | Larger startups with stable headcount (20+). | Familiar model; strong networks. | High cost; limited flexibility for employees; admin heavy. |
ICHRA (Individual Coverage HRA) | Employer sets a monthly allowance; employees buy their own ACA-compliant plan. | Startups of any size, especially remote or distributed teams. | Cost control; scalable; employees choose plans; ACA-compliant. | Requires employee education; employees must shop for coverage. |
QSEHRA (Qualified Small Employer HRA) | Simplified HRA for employers with <50 FTEs, capped by IRS limits. | Very small startups (1–49 FTEs). | Simple setup; predictable costs; tax advantages. | Annual IRS caps may limit employer generosity; less flexible than ICHRA. |
PEO (Professional Employer Organization) | Outsources HR/benefits; pools employees with other companies for group plans. | Startups wanting full HR outsourcing. | Access to richer benefits; reduced admin burden. | Ongoing fees; less flexibility; can be costly long-term. |
Last updated: September 2025
This article is for general educational purposes and is not legal advice. The opinions shared here belong to the author and are not official statements from Thatch. For legal and tax questions, please consult a qualified professional.
