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What Kind of Benefits Can I Expect Working at a Startup?

Q:  What kind of benefits do start-ups typically offer? I don’t mean salary or equity: about which you already posted a lot of information. I am talking about health and life insurance, disability insurance – all of the typical benefits one receives when working for a large and established business.

Do you recommend a particular benefits package configuration to your companies? Are benefits ever a part of your conversations with your companies about the ‘costs’ of running the business?

How do you see startups dealing with a regulatory landscape designed for an entirely different type of organizations?

A: (Jason)  In order to best answer your question, I asked Dan Cutler from TriNet to opine.  Dan and TriNet have been great partners to our portfolio companies – so much in fact that we decided to switch our own benefit offerings over to TriNet.  Here are some of Dan’s thoughts, below of which I agree with completely.

A typical VC backed company will offer to pay 100% of a good benefits package for the employee and between 0-50% for dependent coverage.  A good package will include medical options PPO and HMO and dental, long-term disability and a minimum of 10K life insurance with an option to buy more.

In order to hire and retain "A" players the savvy entrepreneur will use a PEO (Jason note:  "professional employee organization" like TriNet) that can offer self-help HR, online enrollment, several benefit plans to choose from,  a PeopleSoft HRIS,  tiered pricing,  and will pay a flat rate administrative fee.

Regarding compliance issues.  All energy spent by the business owner to keep compliant is a waste of time when you can outsource HR and allow your outsource provider to shoulder the risk.  The business owner’s job is to move the business forward and select good partners that will provide assistance in areas that are not core.

May 31st, 2008 by     Categories: Compensation    
  • Shane Jones

    I agree with all of the advice above. You can't use the 'we're just a startup' excuse and try to get away with a weak benefits package. The last thing you want is your team worrying about finding their own health insurance.

    One area that has been a struggle for me is whether or not to have a 401k plan. Generally, I think it makes sense to look into it around year 3 or 4 and have something in place if things are going well 5 years into the business.

    Dan, what are your thoughts on the 401k issue? What about a company matching policy?

    Another great benefit to offer is matching charitable contributions. Even if you put a low cap on the program at $100 or $200 per employee per year, it's a great way to build a good culture.

  • Dave

    Dave Note: PEO=Professional Employer Organization.

    If you are providing your benefits through a PEO, the cost of making a 401(k) plan available to allow employee contributions should not be that significant. I don't have market data on matching contributions

  • Jim Pollock

    Jason, Good post and (as many of your posts are) very timely for us. We are beginning to make the transition to revenue-positive and planning for a larger potential raise in the fall… which means we're reaching the point where we can be a bit more aggressive about offering “traditional” benefits to employees. And in fact, will need to in order to attract competitive talent, as you noted.

    Thanks!

    Jim
    AWhere, inc.

  • alex

    none, you'll get nothing … and like it ;p

  • http://blog.innovators-network.org Anthony Kuhn

    I'm surprised that startups would offer such generous benefits when many “regular” and established businesses don't offer them. Maybe my next gig should be for a cutting-edge startup methinks! Thanks for the Q&A, which I linked readers of my blog to in my post today.

  • http://iterasi.blogspot.com Pete Grillo

    We offer competitive salaries, nice stock options, health for employee and some family (up to a dollar limit), bottled water, peanut M&Ms, and the chance to work on a product without a lot of corporate overhead. Oh yeah we also offer risk.

  • AnAPlayer

    For the record, I disagree that “A” players would like a PEO. Using a PEO like Trinet means that said A player is not an employee of the company, but actually works for Trinet and is leased back to the company, like furniture. You are also subject to Trinet’s employee policies, which includes clauses you wouldn’t see in a normal startups agreements (e.g. drug testing, arbitration, dress codes etc ).

    There are many other implications, esp in areas such as taxation structure of option packages for the “A” players who are no longer employees of NewCo.

    It’s an arrangement which makes many employees feel uneasy and unwanted. I know this first hand from seeing employee reaction at my own company where it has had a negative effect.

    If you are competing against a cool startup or a big guy, using a PEO seems to be a big negative factor for potential hires.

    • jasonmendelson

      You have an interesting perspective- one that I haven’t seen. At Foundry Group, we’ve used several different PEOs over the years and have found them to be quite different than your experiences have been. We probably have a dozen companies that have, as well.

      First, we are co-employees, not employees of TriNet who are leased back. Because of this, there are no tax issues / options issues, etc. TriNet and other PEOs have handbooks that they suggest one uses, but the company can tailor to meet their own goals, not those of the PEO.

      Second, PEOs are never seen in the daily lives of the employees. All they know is that they get better healthcare and benefits than they would at a small company.

      I can’t speak for your experiences, but ours have been nothing but positive across the portfolio. At some point, the companies get large enough that it’s more efficient to take in house, but until then it’s a great option.