Mandatory Employee Benefits: What US Employers Must Provide

Mandatory employee benefits—often called statutory or legally required benefits—are the non-negotiable items every US employer must fund or facilitate, from Social Security and Medicare taxes to workers’ compensation coverage. They exist to keep employees financially secure when illness, injury, job loss, or retirement strike. Ignore even one requirement and the bill arrives as IRS penalties, state fines, or employee lawsuits that drain profit and reputation faster than any payroll error.

Getting compliance right, however, does more than avoid trouble; it protects your people, stabilizes operating costs, and frees leadership to focus on growth. This guide breaks down exactly what must be provided under federal law, where state and local rules add extra layers, and how to keep every form, tax deposit, and policy straight. We’ll start with the federal core—Social Security, Medicare, unemployment, and workers’ comp—move into ACA health insurance and leave mandates, then finish with a practical checklist you can plug into your calendar today. By the last line, you’ll know exactly which boxes are mandatory, which perks are optional, and where expert help makes sense.

Federal vs. State/Local Rules: Understanding Who Regulates What

The U.S. system is a layer cake: federal law lays down the first layer of mandatory employee benefits, while states—and even cities—add extra frosting. That means the federal “core four” (Social Security, Medicare, unemployment, workers’ comp) apply nationwide, but health insurance, paid leave, and disability rules can shift the moment your employee crosses a state line. HR teams must track both levels and apply whichever rule is more generous to the worker.

Who polices what? Keep this cheat sheet handy:

Employer size also matters. The ACA and FMLA kick in at 50 full-time equivalents (FTEs); some states require workers’ comp or disability with just one employee. Industry exceptions exist for railroads, maritime, and federal contractors, so always confirm the fine print before deciding you’re “too small” or “exempt.”

Key Terms Employers Must Know

• Statutory vs. voluntary benefits – required by law vs. nice-to-have perks
• Full-time, part-time, seasonal, 1099 – classifications that change tax and coverage rules
• Applicable Large Employer (ALE) – 50 FTE threshold under the ACA
• FUTA, SUTA, FICA – separate payroll tax buckets for unemployment and Social Security/Medicare
• ERISA – federal law governing pension and welfare benefit plans

Grasp these concepts first; the rest of compliance becomes far less intimidating.

Social Security & Medicare Contributions (FICA Taxes)

FICA taxes are the bedrock of mandatory employee benefits funding in the United States. Employers must withhold—and match—6.2 % of each employee’s wages for Social Security and 1.45 % for Medicare, sending a combined 15.3 % to the IRS. Social Security contributions stop once wages hit the annual wage base ($168,600 for 2025), but the 1.45 % Medicare tax continues with no cap. Employees who earn more than $200,000 in a calendar year pay an extra 0.9 % Additional Medicare tax; employers do not match that surplus.

Deposits follow the IRS semi-weekly or monthly schedule tied to your prior-year payroll liability. Amounts are reported quarterly on Form 941 and summarized each January on Forms W-2/W-3. Miss a deadline and the IRS can impose penalties of up to 15 % plus interest—an expensive way to discover your payroll system is out of sync.

Example: An employee earning $60,000 in 2025 triggers $3,720 in employer Social Security ($60,000 × 6.2 %) and $870 in employer Medicare ($60,000 × 1.45 %) for a total employer cost of $4,590.

Common slip-ups to avoid:

• Misclassifying 1099 contractors who really meet the employee test
• Forgetting tip income or fringe benefits in wage totals
• Filing Form 941 late or using the wrong deposit frequency

Unemployment Insurance: FUTA & State Programs

Unemployment insurance (UI) cushions employees when jobs disappear and is financed almost entirely by employer payroll taxes. Mastering both the federal and state pieces keeps you compliant and prevents surprise rate hikes.

Under the Federal Unemployment Tax Act (FUTA) you owe 6.0 % on the first $7,000 of each worker’s wages. Pay your state taxes on time and you earn a credit of up to 5.4 %, dropping the net FUTA bite to 0.6 %—a maximum of $42 per employee each year. FUTA is deposited via EFTPS and reconciled on IRS Form 940.

States handle benefit payments through State Unemployment Tax Act (SUTA) systems. Your initial rate is statutory; thereafter it moves with your “experience rating,” meaning every claim can nudge next year’s percentage up or down. Wage bases and rates differ dramatically (roughly $8,000 in FL versus $56,500 in WA), so accurate quarterly wage reports and on-time e-payments are table stakes.

To collect, workers must meet base-period earnings tests and be jobless for reasons beyond their control—layoffs, reductions in force, or constructive discharge.

Quick compliance hits:

• Register with each state as soon as you hire an employee there
• Respond to separation requests and benefit claims swiftly (often within 10 days)
• Review charge statements; protest errors before the appeal window closes
• Retain payroll and correspondence records for at least four years

Who Pays for Mandatory Unemployment Benefits?

Employers foot 100 % of FUTA and SUTA in every jurisdiction except Alaska, New Jersey, and Pennsylvania, where employees kick in a small payroll deduction as well.

Workers’ Compensation Insurance

Workers’ compensation is the safety net that pays when an employee is hurt or made ill by the job. Every state (plus D.C. and Puerto Rico) mandates coverage once you hire even a single worker—though the details are entirely state-specific. Fail to carry a policy and penalties can run from daily fines to a court-ordered stop-work injunction.

What the policy typically covers:

• Medical treatment from the first clinic visit to long-term rehab
• Wage replacement—usually two-thirds of average weekly wages, up to a state cap
• Permanent impairment or disfigurement awards
• Survivor benefits for work-related fatalities
• Employer liability protection against most injury lawsuits

Where to buy: private carriers, state insurance funds, or approved self-insurance pools, depending on the jurisdiction. Premiums follow a simple formula: premium = total payroll × classification rate × experience modifier (EMR). Lower injury frequency and quick return-to-work programs drive that EMR—and your cost—down.

Administrative must-dos include posting the state workers’ comp notice next to your OSHA Form 300A, reporting injuries within 24–72 hours, and forwarding wage statements to the carrier. Picture a warehouse associate slipping on a wet floor: file the claim immediately, provide the panel-physician list, and start the return-to-work clock.

Carve-Outs & Special Cases

Some states exempt sole proprietors, partners, real-estate agents, or certain farm hands. Gig-worker status is hotly litigated; ABC tests (CA, NJ) often pull “independent contractors” back into mandatory coverage.

Health Insurance Mandate Under the Affordable Care Act

If you averaged 50 or more full-time employees (or full-time–equivalent hours) during the prior calendar year, the ACA says you are an Applicable Large Employer (ALE)—and the rules below are no longer optional.

An ALE must offer:

• Minimum Essential Coverage (MEC) that meets minimum value (pays at least 60 % of expected costs), and
• Coverage that is “affordable,” meaning the employee’s self-only premium cannot exceed the indexed percentage of household income (8.39 % for 2024; the IRS will release the 2025 figure soon).

Miss either test and the IRS can assess Employer Shared Responsibility Payments under §4980H:

• 4980H(a) “sledgehammer” – no offer to 95 % of full-time staff triggers a penalty of roughly $2,990 per FTE (2025 estimate) after the first 30 employees.
• 4980H(b) “tack hammer” – unaffordable or sub-par plan costs about $4,460 per subsidized employee.

Administration matters as much as plan design:

1. Track hours monthly; re-measure annually.
2. Distribute Form 1095-C to employees by January 31 (paper file to IRS by February 28; e-file by March 31).
3. Limit waiting periods to 90 calendar days maximum.
4. Reconcile payroll deductions against affordability each open enrollment to avoid creeping over the threshold.

Finally, remember state individual mandates (CA, MA, NJ, RI, DC). Even small employers may need to furnish employee coverage data to those exchanges, so verify reporting portals when you onboard workers in those jurisdictions. Staying ahead of these moving targets beats scrambling for last-minute corrections—and expensive penalty notices.

Family and Medical Leave Requirements

The federal Family and Medical Leave Act (FMLA) is the starting point. Covered employers—those with 50 or more employees within a 75-mile radius—must provide up to 12 weeks of unpaid, job-protected leave every 12-month period for the birth or adoption of a child, a serious health condition of the employee or a close family member, or certain military exigencies. Service-member caregivers are entitled to 26 weeks in a single 12-month period.

Eligibility hinges on three tests: (1) the employee has worked for you at least 12 months (need not be consecutive), (2) has logged 1,250 hours in the previous 12 months, and (3) works at—or reports to—a covered location. During leave you must maintain group health benefits on the same terms as active employees and restore the individual to an equivalent position upon return.

Administration counts. Require 30-day advance notice when foreseeable, send the WH-381/WH-382 designation forms promptly, and lock documentation in a confidential file for at least three years. Coordinate FMLA with PTO banks, short-term disability, and workers’ comp so employees are not “double-dipping” or exhausting leave unexpectedly.

State Paid Family & Medical Leave Programs

Unlike the federal FMLA, many states replace a portion of wages while an employee is out. Funding, duration, and benefit percentages vary, and payroll taxes can start long before workers file a claim.

Key compliance moves: register for each state program, set up payroll deductions on day one, and post the required workplace notice. Federal FMLA and state paid leave usually run concurrently when both apply, but check each statute’s definition of “family member”—some include siblings, grandparents, or “anyone related by affinity.” Adopting the broader definition in your handbook avoids the headache of tracking separate buckets.

COBRA & Mini-COBRA Continuation Coverage

COBRA keeps health coverage alive after employment ends. Employers averaging 20 + staff last year must let qualified beneficiaries stay on the group plan for 18 months (29 if disabled, 36 for divorce, death, or a dependent aging out). Within 14 days of a qualifying event, send an election notice; the employee gets 60 days to sign and 45 to pay. You may charge 102 % of the premium (150 % during a disability extension).

Smaller firms aren’t off the hook. Many states run “mini-COBRA” programs for groups under 20. Miss a step and the IRS can assess $100 per day per person, plus ERISA penalties and carrier retro-terminations.

Best Practices for Smooth Offboarding

• Provide election notice on exit day
• Record send date and method
• Outsource mailing and payment tracking
• Reconcile premiums with the carrier

Disability Insurance & Other Location-Specific Mandates

Mandatory employee benefits don’t stop with the federal programs. Five states—California (SDI), Hawaii (TDI), New Jersey (TDB), New York (DBL), and Rhode Island (TDI)—require employers to provide short-term disability insurance that pays a portion of wages when a non-work injury or illness sidelines an employee. Funding is typically split through payroll taxes, but the balance varies: New York allows employers to charge workers up to $0.60 per week, while California’s SDI is 100 % employee-funded at 1.1 % of wages up to the annual cap.

Keep an eye on other location-specific mandates that often piggyback on payroll:

• City transit-benefit ordinances (NYC, Washington DC, SF Bay Area) require pre-tax commuter programs once headcount hits a small threshold.
• State-run auto-IRA plans—CalSavers, OregonSaves, Illinois Secure Choice, and others—force employers without a retirement plan to enroll workers and submit contributions.
• Local paid-sick-leave laws (Seattle, Philadelphia, dozens more) dictate accrual rates, carryover, and usage rules that may exceed your PTO policy.

Multi-State Employer Compliance Tips

Juggling a patchwork of rules? Build a living “mandate matrix” that lists every state where you have even one employee, adopt the most generous standard across sites when feasible, and let your HRIS automate accruals, tax rate updates, and notice delivery. A quarterly audit of that matrix beats scrambling after a surprise state penalty.

Staying Compliant: A Practical Employer Checklist

Even seasoned HR teams can lose track of deadlines and documents. Use this compact list to keep every piece of your mandatory employee benefits puzzle in place:

1. Mark the Calendar

   • Jan 31: W-2/W-3, 1099s
   • Feb 1: Post OSHA 300A summary
   • Feb 28/Mar 31: 1094-C/1095-C to IRS
   • Apr 30, Jul 31, Oct 31, Jan 31: Form 941 deposits
   • Jan 31: Form 940 FUTA tax
   • Sept 30: VETS-4212 (federal contractors)

2. Document Policies

   • Update employee handbook sections for each statutory benefit; include eligibility charts and claim steps.

3. Audit Posters & Notices

   • Confirm current federal, state, and local posters are displayed (and emailed to remote staff).

4. Retain Records

   • Payroll and benefits files: 4 years
   • OSHA and FMLA: 5 years
   • Retirement and pension: 6 years

5. Quarterly Self-Check

   • Headcount affects ACA, FMLA, UI rates.
   • Validate payroll deductions against new wage bases.
   • Review workers’ comp classifications and insurance renewals.

6. Know When to Call Reinforcements

   • Multi-state expansion, merger activity, or your first 50-employee milestone usually signals it’s time for outside HR or legal expertise.

Key Takeaways for Confident Compliance

Keeping up with mandatory employee benefits isn’t about memorizing every citation—it’s about knowing the core obligations and watching for thresholds that flip new rules on. Use the recap below as your North Star:

• Social Security & Medicare: Withhold and match FICA taxes on every paycheck until the federal wage base is reached.
• Unemployment insurance: Pay FUTA, register for each state’s SUTA, and guard your experience rating by responding to claims quickly.
• Workers’ compensation: Carry a valid policy (or approved self-insurance) in every state where employees clock in—one lapse can shut down operations.
• Health insurance: Once you hit 50 full-time equivalents, the ACA’s affordability and reporting standards apply, plus any state individual mandates.
• Leave and disability: FMLA covers 50-employee worksites; several states layer on paid family, medical, and short-term disability programs funded through payroll taxes.

Size, location, and industry determine which rules land on your desk—revisit them whenever headcount or geography changes. Need a second set of eyes? Book a quick compliance health check with Soteria HR before the next filing deadline sneaks up.