Attracting Top Talent: How Small Business 401k Matching Can Help Your Company Stand Out

Attracting Top Talent: How Small Business 401k Matching Can Help Your Company Stand Out

As a small business owner, attracting top talent can be a challenge. You may not have the same resources as larger companies, but there’s one benefit that can give you an edge: a 401k matching program. According to a recent survey by Glassdoor, 70% of employees said they would choose a job with a strong benefits package over a job with a higher salary. Here’s how small business 401k matching can help you stand out in the eyes of potential hires.

What is a 401k Matching Program?

A 401k matching program is an employee benefit offered by many companies. An employer contributes to an employee’s 401k account, up to a certain percentage of the employee’s salary. For example, a common 401k matching policy is “50% of the first 6%”. This means that the employee contributes 6% of their salary to their 401k, and the employer contributes 3% (50% of 6%). The maximum employer contribution allowed by the IRS for 2020 is $37,500, or 25% of the employee’s salary (whichever is less).

Why is a 401k Matching Program Important?

A 401k matching program can make a significant difference in an employee’s retirement savings. For example, let’s say an employee makes $40,000 per year and contributes 6% ($2,400) to their 401k. If their employer offers a 50% match on the first 6%, the employer would contribute an additional $1,200 per year (3% of $40,000). Over a 30-year career, that employer contribution could add up to $36,000 (not including investment earnings).

In addition to helping employees save for retirement, a 401k matching program can also be a powerful recruiting tool. It shows potential hires that you care about their long-term financial well-being and are willing to invest in their future. In fact, a study by MetLife found that retirement savings benefits are the most important factor to employees when considering a job offer.

What are the Advantages of a Small Business 401k Matching Program?

While small business 401k matching programs may not offer the same level of employer contributions as larger companies, there are still several advantages to offering this benefit:

1. Competitive Edge: As mentioned earlier, a strong benefits package can help you attract and retain top talent. Even a modest 401k matching program can make your company stand out from competitors who don’t offer this benefit.

2. Tax Savings: Employers can deduct their contributions to employee 401k accounts on their business tax return. This can help offset the cost of providing this benefit.

3. Employee Retention: Offering a 401k matching program can help retain your current employees by showing that you value their contributions and want to help them plan for their future.

How to Implement a Small Business 401k Matching Program

Implementing a 401k matching program for your small business doesn’t have to be complicated. Here are the basic steps:

1. Choose a 401k provider: Look for a provider that offers affordable fees, a range of investment options, and user-friendly online tools.

2. Decide on your matching policy: Determine how much you can afford to contribute to your employees’ 401k accounts, and set a matching policy that aligns with your budget. A common policy is “50% of the first 6%”.

3. Educate your employees: Make sure your employees understand how the 401k matching program works and the benefits of participating. Encourage them to contribute at least enough to take full advantage of the employer match.

Conclusion

A small business 401k matching program can help you attract top talent, save on taxes, and retain your current employees. It’s a valuable benefit that shows you care about your employees’ long-term financial well-being. If you’re thinking about implementing a 401k matching program, start by choosing a provider, setting a matching policy, and educating your employees.