Employee benefits for small business, done properly
You do not need a corporate budget to build a benefits package your team actually values. You need to know which three or four things are worth paying for.
Book a 30-min benefits reviewThis guide covers which employee benefits are a legal requirement, which ones small businesses can offer cheaply, and which ones genuinely move the needle on employee retention.
We are a mortgage and protection broker who understands the small business end of the market. We arrange group protection and private medical insurance for companies from two employees upwards. The workplace pension side belongs with your accountant or payroll provider, and we say so plainly wherever it comes up.
What employee benefits are small businesses legally required to offer?
Less than most employers assume. The statutory floor for a UK small business is a workplace pension, statutory sick pay, statutory holiday and statutory family leave. Everything beyond that is your choice.
Auto-enrolment requires a total minimum contribution of 8% of qualifying earnings, of which the employer must pay at least 3%. For 2026/27 the qualifying earnings band runs from £6,240 to £50,270 and the enrolment trigger is £10,000. Statutory sick pay changed materially in April 2026: it is now £123.25 a week or 80% of average weekly earnings, whichever is lower, the three waiting days have gone so it is payable from day one, and the lower earnings limit condition has been removed so every employee qualifies regardless of pay. It runs for up to 28 weeks and you cannot reclaim it. Statutory holiday is 5.6 weeks including bank holidays. Statutory maternity and paternity pay sit at £194.32 a week or 90% of earnings, whichever is lower, and small employers can usually recover 109% of that.
That sick pay change is the one to sit up for. Day-one cover with no earnings floor raises the cost of absence for every employer with a low-paid or high-turnover workforce, and most have not repriced it.
What benefits do small businesses actually offer?
The CIPD's February 2026 reward survey is the best picture we have. Among small and medium-sized firms, the most common perks are free drinks and snacks (50%), work social events (49%), flexible working (40%), the voluntary living wage (38%) and 25 or more days of paid leave (36%). A pension contribution above the 6% mark reaches 29%.
of small businesses offer private medical insurance — against 68% of employers with 250+ staff.
of those same small businesses say private medical insurance is the benefit that would best support their objectives.
of all employers use a broker when reviewing their benefits package. Most packages are never shopped.
Employers already know what would work. Cost and inertia are what stop them, in roughly that order. And 15% of employers with stated objectives never review whether the package meets them. A benefits package loses value quietly, and nobody notices until someone resigns.
Group life insurance, income protection and critical illness cover
These are the three employee benefits small businesses skip most often and regret most sharply, and they are cheaper than almost everyone expects.
Group life insurance
Still widely called death in service. Pays a multiple of salary — typically two to four times — to an employee's family if they die in service. The industry paid £1.8bn in group life claims in 2025, averaging £143,436 a claim.
Group income protection
Pays 50% to 75% of salary if someone cannot work long term. Set the deferred period at 26 weeks and it picks up where statutory sick pay stops. 68% of newly absent employees returned to work under it in 2025.
Group critical illness
A lump sum on diagnosis of a listed condition. The fastest-growing group risk line, up 6.5% in 2025, and it works well offered voluntarily where employees choose and pay for it themselves.
All three are available to very small companies. Several insurers will write group life for two or three lives, and more than 90% of in-force group income protection policies in the UK cover fewer than 250 members. You are not too small.
Private medical insurance for a small team
Business health insurance is the benefit employees ask for by name. It gets people diagnosed and treated quickly rather than waiting, which matters to them personally and matters to you as lost weeks of productivity.
Group private medical insurance is typically available from two employees upwards, so a five-person firm can have a proper scheme rather than five individual policies. Small business schemes tend to be simpler than corporate ones: a core hospital list, outpatient cover you can dial up or down, and either moratorium or full medical underwriting depending on how you want pre-existing conditions handled. Small businesses are also more generous with it than large ones. Where a small business provides private health insurance, 66% give it to every member of staff; among employers of 250 or more, only half do.
A health cash plan is the cheaper cousin. It reimburses everyday costs such as dental, optical and physiotherapy rather than paying for surgery, and it can cost a few pounds per employee per month. For a small business on a tight budget it is often the most sensible first step into health coverage.
How can small businesses offer competitive benefits on a limited budget?
Start with the free ones and mean them. Flexible hours, remote work where the job allows, an extra day of leave on birthdays, paid time for volunteering, and a genuine commitment to flexible working cost nothing and consistently rank near the top of what UK employees say they want. These are not filler. For a small business they are often the difference.
Then add one insured benefit a year rather than trying to build the whole package at once. Group life insurance is usually the right first purchase because it is the cheapest per pound of perceived value and covers everyone equally. Mental health support through an employee assistance programme is often the second, because it is inexpensive and, if the product is structured correctly, it is not a taxable benefit for your employees.
And ask your team. A one-page survey costs nothing and stops you spending money on a perk nobody wanted. Employee surveys are the most underused tool in small business benefits planning.
Not sure which single addition would make the biggest difference this year?
Talk it throughWhich employee benefits are tax-efficient?
Premiums for group life, group income protection, private medical insurance and health cash plans are all normally an allowable business expense for the employer. The question that actually differs is whether your employee gets taxed on it.
Group life under a registered or excepted scheme is not a taxable benefit in kind for the employee. Neither is group income protection, although the benefit is taxed as earnings through PAYE if it ever pays out. A properly structured employee assistance programme is exempt as welfare counselling. Private medical insurance and health cash plans, by contrast, are reportable on a P11D and attract employer Class 1A National Insurance.
Salary sacrifice is narrower than most people think. Since 2017 it only delivers a tax and National Insurance saving on pension contributions, pensions advice, employer-supported childcare, cycle to work and ultra-low emission cars. Sacrificing salary for medical insurance or a gym membership no longer saves tax. Separately, from April 2029 only the first £2,000 a year of pension contributions made by salary sacrifice will escape National Insurance. That is three years away and is not a reason to change anything now. Confirm any tax position with your accountant, because it depends on your circumstances.
How much do employee benefits cost for a small business?
Honestly, less than the number in your head, and we will not pretend to price it in a web page. Group risk premiums are quoted on the age profile, occupations and salary bill of your specific workforce, and two firms of the same size can be quoted very differently. Anything you read as a rule of thumb is indicative at best.
What we can tell you is the shape. Group life is the cheapest of the three group risk products by a distance. Group income protection costs more and does more, and the price moves sharply with the deferred period you choose: moving from 13 weeks to 26 weeks makes a material difference. Private medical insurance is the most expensive line and the one most sensitive to how you handle outpatient limits. Get all of it quoted together and the numbers usually come in lower than getting them piecemeal.
How to build an employee benefits package for your small business
Four steps, in this order.
Get the floor right
Pension, sick pay, holiday, family leave. Nothing else matters if the legal requirement is wrong.
Decide what it is for
Attracting top talent, employee retention, reducing absence, or health and wellbeing. Those pull in different directions and you cannot chase all four.
Pick benefits that align
Choose against that objective and against how your people actually work — not against what a competitor's careers page says.
Tell everyone, repeatedly
Nearly four in ten employers leave take-up entirely to employees. An unused benefit is a wasted premium.
Put the package in the offer letter, the induction and the annual review. Then review it every year against the objective you set, and change it when the objective changes.
Employee benefits for small business, answered
Do I have to offer health insurance to my employees?
No. Private medical insurance is entirely voluntary in the UK. The only health-related legal requirement is statutory sick pay.
Can a small business offer benefits to some employees and not others?
Yes, provided the basis is objective and consistently applied, for example by length of service or role rather than anything that could be discriminatory. Most small employers find it simpler and better received to cover everybody.
How few employees can we have and still get a group scheme?
Group private medical insurance usually starts at two employees. Some insurers will write group life for two or three lives. Below about ten people expect each member to be medically underwritten rather than covered automatically.
Are employee benefits tax deductible for my business?
Premiums are generally an allowable business expense where they are wholly and exclusively for the purposes of the trade. Whether the employee is taxed is a separate question, covered above. Check with your accountant.
How often should we review the package?
Annually. Rates move, your headcount changes, and people's circumstances change. A package set up three years ago and never looked at is rarely still the right one.
Should we use a broker?
Only 4% of employers do, which tells you how much of the market goes unshopped. A broker costs you nothing directly, compares the whole market and handles the claim when it matters. We would say that, but the 4% figure is not ours.
Let's build something your team will actually use
Book a 30-minute call and we will look at what you have, what you are legally required to provide, and what one addition would make the biggest difference to your workforce this year. No jargon, no 40-slide deck.
Book a 30-min benefits reviewGeneral information, not a personal recommendation. Statutory rates are 2026/27 and may change. Tax treatment depends on individual circumstances.