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October 16, 2024

The Hidden Challenge of Part-Time Employee Retirement and Healthcare Plans for Business Owners

Here's Why Benefits for Part-Timers Could Be Your Secret Weapon to Stop Top Talent Drain

You're at the helm of a small or medium-sized business in Southern California. To say the environment for keeping a business profitable, healthy, and attractive to top talent is tough is an understatement. And if you hope that offering retirement and healthcare plans to part-time employees is easy, you are going to need expert help with a strong dose of experience. The requirements, the costs, the compliance hoops—it's a lot to manage alone. You're probably sensing that ignoring these challenges could mean missing out on some big opportunities such as loyal workers, peace of mind, and keeping those talented folks right where they belong—on your team. So let’s demystify this with some clarity and figure out what works for your business.

The Eligibility Barrier—Why Are Part-Time Employees Left Out?

Most companies leave their part-time employees out in the cold when it comes to retirement and healthcare plans, thanks to some pretty rigid eligibility rules. According to the Pension Rights Center, part-time employees lag way behind their full-time counterparts in participation rates mostly because they just don’t hit the hours needed to qualify. Now the SECURE Act 2.0 is trying to change that by lowering the eligibility threshold to 500 hours per year for three consecutive years. Sounds great, right? Sure, but now a whole new class of employers have to track all those hours and stay compliant, which means upgrading systems or creating new ones—no small feat without some real help.

The Cost of Non-Compliance—What Are the Real Risks?

This is not just about extra paperwork. If you don’t get this right, the cost could be big. Let’s talk about the Affordable Care Act (ACA). Not following ACA guidelines could land you with penalties of up to $2750 per full-time employee per year (2024 rate). There are real-world cases where small businesses racked up hefty fines—because they missed healthcare coverage requirements—and that’s not just bad for the wallet, it's bad for your reputation.

The SECURE Act 2.0 also says if you offer a retirement plan, you need to allow part-time employees who work at least 500 hours per year for three years to participate. Not doing so could get you in trouble with ERISA—more penalties and a magnifying glass on your business from regulators. Now, if you’re a smaller operation with fewer than 50 full-time equivalent (FTE) employees, you’re off the hook for ACA healthcare requirements and if you don’t have a retirement plan at all, there’s no requirement to offer one to part-timers. So the key here is understanding where your business fits and what rules apply, but there may still be compelling reasons to offer these perks anyway.

How Does Offering Employee Retirement and Healthcare Plans Benefit a Smaller Business?

In Southern California, where the job market is ultra-competitive, not offering benefits could lead to turnover that’s as high as a SoCal summer heat wave. Workers highly value that security. If you’re not supplying a competitive level of benefits for part-timers, someone else is going to ultimately look more attractive to them. Companies that have the most difficulty retaining top talent usually share common, easily identified characteristics. They’re typically smaller businesses (10-250 employees), and they’re often in industries like tech, healthcare, and professional services. Larger corporations promote these perks as the norm to prospective employees early and often. This makes it tough for smaller companies to get by without the same kind of benefit offerings. The high cost of living in Southern California only adds to the challenge, pushing employees toward those companies that offer better pay and more comprehensive benefits.

The Proof Is in the Data—Retaining Valuable Employees Through Smart Plan Design

Look, data does not lie. The Department of Labor shows that automatic enrollment and well-designed plan features help employees—including part-timers—build meaningful retirement savings. Vanguard found that automatic enrollment bumps up participation rates to around 92% for eligible employees compared to just 47% for voluntary enrollment. But here’s the catch—if you don’t plan it right, it can backfire. Many employees cash out early, especially those with small balances. This is why adding features like automatic escalation, where contributions gradually increase, or limiting early withdrawals to emergencies can make all the difference. These moves help part-time employees build up their savings even if they're only with you for a short stint.

Healthcare Benefits—Be Sure You Don’t Lose Your Best Talent

Healthcare for part-time employees is often mandatory, and applicants know it. They’re looking for just the right package and will require it for any employer they might choose. Under the ACA, if your company has at least 50 full-time employees, you’re required to provide healthcare coverage. Some businesses try to dodge this by keeping part-time hours below 30 per week, but let’s be honest—that’s a risky strategy that can lead to unhappy workers and high turnover. Offering healthcare to part-timers is a powerful way to hold onto talent in Southern California, where healthcare can be as big a deal as salary. Negative pressure on employees has been increasing in recent years, and a sweeter deal all around is needed just to keep your workforce loyal. Every industry is dealing with acquisition and retention of top-quality labor. For example, the American Hospital Association reports that worker shortages have driven up labor costs, and offering solid benefits is a surefire way to keep your crew happy and stable. Plus, providing healthcare doesn’t just boost retention—it also reduces absenteeism because healthier employees mean fewer sick days.

The retail, hospitality, and healthcare sectors face a rising tide of challenges in retaining talent, especially given the demanding nature of the jobs and wages perceived as not keeping up. High turnover rates are common due to long hours, stress, and limited career advancement opportunities, particularly in high-cost areas like the Los Angeles area. Employees in these industries often leave for better-paying sectors or less demanding roles.

Real-World Advantages of Offering Benefits to Part-Time Employees

You may be asking yourself, is there a real payoff to offer benefits to part-time employees? Can this actually help my company’s bottom line? The answer is yes in two ways. Here is what the data reveals. The World Economic Forum found that increasing part-time employees by 10% can lead to a 2% increase in firm-level productivity—more than double the average productivity growth seen in the EU over the last decade. Why? Because flexibility and work-life balance make for happier, more productive employees. And offering flexible arrangements doesn’t just boost productivity—sick days drop by 3-7%, which means healthier and more efficient teams. While many employees are happy to work fewer hours, they still expect to receive benefits that are comparable to full-time staff.

Data from the Chartered Institute of Personnel and Development (CIPD) shows that benefits like healthcare, retirement plans, and flexible work options significantly improve employee retention. Keeping your current employees is a heck of a lot cheaper than constantly recruiting and training new ones. When you offer these kinds of benefits, part-time workers feel incentivized to stay, which means you’re cutting down on turnover costs. So when you offer part-time employees health and retirement benefits, more work gets done, and you avoid the very real and unplanned expense of replacing your best talent.

The Solution—Partnering with Experts for Seamless Benefits Administration

So what’s the answer? You need to design retirement and healthcare plans that are flexible, compliant, and work for your part-time employees and your business. Simplify eligibility rules, use automatic enrollment to get people involved, and partner with experts like Benefit Equity Inc. to take care of the heavy lifting. A third-party administrator can handle the compliance headaches and make sure everything runs smoothly so you can focus on what you do best…running your business. BEI can help you track eligibility, stay compliant, and even educate your employees about the value of their benefits.

Turn Challenges into Company Growth Opportunities by Building a Loyal Workforce

Protect your top talent and trained workforce by offering retirement and healthcare benefits to part-time employees right away… and it doesn’t have to be a headache with our expert help. In fact, it’s a golden opportunity to build a loyal, dedicated workforce. It’s all about finding the right balance and getting the right support to make it happen. Take the step now and get in touch now with our plan design team at Benefit Equity Inc. (714-480-1364) and create a benefits package that works for everyone—including you.

Note: While BEI specializes in retirement plan services and does not directly offer health insurance, we collaborate with trusted referral partners who can assist with health insurance needs. Employers seeking comprehensive employee benefit solutions are encouraged to contact us for guidance and referrals to our partners who specialize in health insurance.

Effective January 1, 2025, the eligibility requirement for long-term part-time employees to participate in a 401(k) plan will change from three consecutive years of at least 500 hours of service per year to two consecutive years, as mandated by the SECURE 2.0 Act of 2022.

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