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What are the employee benefits typically offered at startups?

The following answer is from a Q&A I answers on Quora this year about what startups tend to offer on benefits.

What are the employee benefits typically offered at startups? Startups can cover enough ground to the extent that this list may vary. I would tell you that if a startup company is just getting started and has an employee count of 10 or less, basically the founding team plus a few more, you are likely to see the following:

Medical/Dental/Vision: This one is pretty basic, medical coverage is a foundational benefit. it is where every company begins when putting their benefits package together. Dental and vision are typically joined at the hip. As a function of cost dental and vision are a fraction of medical and are more often than not tied to the medical (dental moreso than vision). Most startups will have this as it begins to put a core team in place. What will vary will be the benefit level of plan and how much the company will contribute to the cost.

A couple of determinants of benefit level and contribution amount will be the nature of the startup and what kind of backing they have. If the startup is operating in an industry that is ultra competitive on talent such as software or biotech, the better the plan and the richer the contribution. If you are in a war for talent, you have to be able to attract and retain talented people, good benefits (especially medical) goes a long way on that.

Once a company hits a few benchmarks, maybe raises some VC money money or is getting some traction on revenue, the next set of benefits that come into play include:

Group Life/DI; Retirement Plan (maybe): Group life and disability will usually come into play pretty quickly. As with dental and vision, as a function of cost it is a relatively inexpensive benefit when compared to medical coverage. If a the founding team is made up of pretty senior members, or if some of the initial employees needed to be recruited, you will typically see this type of benefit put into place sooner rather than later.

A company sponsored retirement plan, such as a 401k will usually come into play on the next round of hiring. Once a company gets past 10 or 15 people such a plan is more likely to come into play. Initially such a plan would not include a company match, that would come a little further down the line.

What has been referenced so far can be described as the ‘basics’ and pretty much what one would expect at most companies. As we are talking about startups, you need to crawl before you can walk. The next level of benefits are a bit fringy and come into play after a startup gets some traction and more employees in the door.

FSA: Flexible Spending Accounts. These can be tied to medical plans as well as for other qualified expenses on a tax free basis

Retirement Plan Matching: A company sponsored contribution match toward a 401k, usually 3–4%

Voluntary Benefits: Optional benefits such as life insurance buy-ups through a group life insurance plan.’

Commuter Benefits: Especially useful in large metro areas where most of the workforce is using public transportation to get to and from work.

If you are reading this and you think i’ve missed something (or got it wrong) feel free to leave a comment.

So here comes the shameless plug, if this is something your company has considered implementing and could use some more guidance feel free to reach out with a call or an e-mail. I’ll be happy to act as a resource.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014 x700 (p)
774-420-2719 (f)
[email protected]
www.bibsma.com

Adventures in Podcasting: How I got it started. I started recently getting into podcasting and researching how to go about putting one together. This blog post goes into some of the specific steps I have taken to do just that.

What Gear did I need?

When I started looking into things, one of the first steps that I needed to take was to look for podcasting  gear. What equipment did I need in order to start a podcast? To begin with, I looked into what I would need if I wanted to have a podcast with two people because I want to be a have guest. Getting gear for a podcast of two is different from having that one. If you want to put a podcast together where it’s just going be you, you can get a microphone, plug it into your computer with a USB cable and you’re off and running.

If you want to do a podcast where you plan to have a guest, you are going to need different equipment. What I found was that the first things that I needed were a mixer with XLR inputs, an XLR microphone  and headphones. For the microphone and headphones, you would need a set of two, one for you and one for your guest… pretty straight forward as to why. When I looked into this I found a good deal on Amazon where I was able to get a podcast bundle for two which included the mixer, two XLR microphones and two headphones for about $250 bucks, not a bad deal.

What software did I need?

The next thing that I looked into after getting the equipment had to do with software I needed. The first thing was recording software. There are many options for this, I use Zencastr. Zencartr is SAAS based podcasting software you can use to record your podcast in hi-def. It’s really easy to use and it’s free, so that’s nice. You will also need is some form of post-production software. I use Auphonic for this purpose. Once you record your podcast you upload the recording to Auphonic. For lack of a better term, Auphonic will run the recording ‘through the wash’. It gets rid of a lot of background noise and automatically adjusts volume levels basically cleaning up the audio file and making the recording audience ready. Auphonic is also a free software service up to a certain amount of recorded time.

One thing about Auphonic that I like is that it allows for transcription services. This means the software will take all the verbiage from the audio and turn it into text so you can create a written document out of your podcast. From a content standpoint, what you can do with the transcription is include it in your podcast show notes so that people can go back and read though. You can also take that content and  turn it into a blog post. Transcribed podcast audio is the basis for this blog post you are reading now. You just take the natural language transcription, put it into a word doc, clean up the grammatical and spelling errors and boom, you get yourself a nice blog post that is repurposed from the podcast.

My next blog on this subject will get into setting up YouTube channels, using video content and how to apply it to different platforms like LinkedIn, so stay tuned for that. In the meantime, if you would like to subscribe to the podcast or check out the how-to videos I have created on this subject, check out the following links.

Youtube channel:  https://bit.ly/3cse5zr

Podcast home page:  https://natetalksbizness.transistor.fm/

How much do employee benefits cost per employee for a young startup?

For starters let’s assume that you want to limit this to the basics, medical and dental. Let’s also assume that you want to make a competitive contribution of 75% on a moderate to high level plan for both benefits.

On medical coverage, a good cost yardstick for a plan in CA, NY or MA (tech heavy in Boston, SF, NY) would be $500/month for a single employee, $1,000/month for couple or single parents and $1,800/month for a full family. For dental coverage, yardstick numbers would be $50, $100, $150/month for single/couple or single parents/family plan price points.

If you are a funded startup looking to recruit and retain employees, that 75% employer contribution will make for a good yardstick as far as how much an employer will contribute. If a startup isn’t funded it will be less. If you are not a startup at all and in the tech space, it will likely be more. Industries where perhaps the fight for talent isn’t as bad (manufacturing, retail) this may a lesser percentage for startups.

Getting to the bottom line on a 75% contribution on medical and dental, the employer contribution costs break out a follows:

-Single Participant: medical is $500/mo, dental is $50, $550 total. 75% of this would be $550 x .75 or $412.50/mo ($4,950/annual)

-Couples or Single Parents: medical is $1,000/mo, dental is $100, $1,100 total. 75% is $825/mo ($9,900/annual)

-Family: $1,800/mo, $150 dental, total $1,950/mo. 75% is $1,462.50/mo. (17,550/annual)

Keep in mind, properly set up the 25% employee contribution will be pre-tax payment on the coverage. Both parties would gets the tax break on the contribution so it’s not straight after tax dollar expense. These employer contributions in the mock up example would constitute what a startup would pay in benefits per year in pre-tax dollars on medical and dental coverage.

I advise my startup clients to take these numbers into account as well as the demographics of their hiring. Use a contribution model that works in terms of average total annual outlay for benefits expenses per employee and figure that into a total compensation package when setting up and offer for a potential hire. Don’t just go throwing extra salary at a potential employee with a family. Have a very low contribution level on benefits ? Expect some issues. Benefits matter to those with spouses and children.

Here comes the plug. If this is something you would like to discuss in more detail I would be happy to help. Feel free to reach out if I can provide the resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]

https://bibsma.com

Q&A: How do health insurance deductibles and coinsurance work? For the following post I was asked how these two concepts worked within a health insurance plan. A specific design that is referenced as part of the question is a medical plan with a $1,000 deductible with 100% coinsurance, here’s the answer. 

First let’s define the two terms you are asking about. First there is the deductible, similar to other forms of insurance such as auto coverage, deductibles are a set amount of money you have to pay first in the event of a claim. For the purposes of health insurance, most deductibles will range from zero to $2,000 for an individual. If you have a less expensive plan you can see those deductibles get upwards of $5k if you have a Bronze level benefit plan.

The second term to define is Coinsurance. Coinsurance is the percentage split of cost between you and your insurance company for covered services. Whatever the stated coinsurance amount is on a policy is your responsibility toward the cost. In many cases a policy will have a 90/10 or 80/20 split. This means that if you had services rendered that are subject to coinsurance, your insurance company would pay 90% of the bill, and you pay 10% (90/10) or your insurance company would pay 80% of a bill and you pay 20% (80/20). So what does 100% coinsurance mean? It means that for services subject to coinsurance, your insurance company will pay 100%, fully covered.

Deductibles will always come first followed by coinsurance. In the example you are describing, the $1,000 deductible would need to be paid. Once the deductible is satisfied the insurance company would cover the rest since the example has 100% coinsurance.

For the sake of argument, what if you had a 10% coinsurance feature, how would that look?

Let’s say you had a $1,000 deductible with a 10% coinsurance and a $3,000 out of pocket maximum. All plans have some form of annual cap called an out-of-pocket maximum, this way coinsurance costs can be managed and don’t get completely out of control. Then let’s say you had an incident and ran up $41,000 in medical bills. Here’s how that would play out.

– First you pay $1,000 on a deductible, that leaves $40k from $41k

– Then comes the coinsurance on the remaining $40k, 10% of this is $4k

– The out of pocket max is $3k and you’ve paid $1k on the deductible already, this leaves $2k subject toward the out-of-pocket max.

– Even though the $4k is the amount of coinsurance on $40k, you wind up paying only $2k on the coinsurance because you will hit the out of pocket max at $3k ($1k deductible plus $2k coinsurance equals $3k annual out of pocket max).

All this said, in your particular instance if you have the $1k deductible with 100% coinsurance and you had services where just the deductible and coinsurance applied, you will pay $1k. Hope that helps.

Here is a link to some related information from our blog. Q&A: How much do first year startups pay in employee benefits per month?

If you’ve read this far and feel this is something you could use more guidance on, here comes the shameless plug. I work with my clients in the startup space quite often on getting company level medical plans established. If it is something you could use some help with feel free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com

What is EPLI Insurance and why is it important? EPLI Insurance (Employer Practices Liability Insurance), provides coverage against claims stemming from employees and former employees allegations of Discrimination, Harassment, Retaliation, Wrongful Termination and Improper Workplace Conduct. This type of coverage is unique in that the risks mentioned are not picked up in other policies, not General Liability, not Errors and Omissions, not Directors and Officers. A lot of people will make the incorrect assumption that amongst those policies there is coverage for such risks, that can become an expensive mistake.

The risks to a company making such an incorrect assumption can be risky, and that risk is increasing. Claims related to EPLI have been and continue to be on the rise. According to the U.S. EEOC (Equal Employment Opportunity Commission), for 2017 the most common form of employment related charges is retaliation followed by discrimination based on race, sex or disability. Between these categories there have been over 122k claims made in FY 2017. Some other common forms discriminatory practices that can result in such a claim include religion, age and pregnancy.

In terms of the expense and time associated with an EPLI claim, the following information comes from The 2017 Hiscox Guide to Employee Lawsuits 

A representative study of 1,214 closed claims reported by small to medium-sized enterprises (SMEs) with fewer than 500 employees showed that 24% of employment charges resulted in defense and settlement costs averaging a total of $160,000. On average, those matters took 318 days to resolve.

So what you have are claims that take a long time to settle, can cost hundreds of thousands of dollars and are covered by this specific type of insurance coverage. The short answer to the question of why is it important is pretty self explanatory, if a company doesn’t have EPLI coverage it would be looking at such claims resulting in defense costs  and damages being paid by the company itself … maybe yours.

According to Chubb’s 2018 Top Risks for Private Companies in the U.S. more than one in four private companies reported experiencing an EPLI loss in the last three years. What’s interesting is that despite these numbers one-third of the respondents to the study have not purchased EPLI coverage.

What that says is that while the risks are prevalent, companies aren’t taking the steps they need. Why? The Chubb report goes on to say that one-third of non-buyers think it is covered by another form of insurance, nope.

So what are the benefits and why is it important? The benefit is coverage against some of the most prevalent forms of insurance claims made against companies today. As a broker I can tell you that a majority of the claims actions I see now are in the EPLI space. To be frank I explain EPLI exposures as a ‘when’ situation and not an ‘if’ to my clients and impress upon them the importance of getting it.

If this is something your company has considered implementing and could use some more guidance feel free to reach out with a call or an e-mail. I’ll be happy to act as a resource.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014 x700
[email protected]
www.bibsma.com 

What does directors & officers insurance cover and how do you know if you need it?

First off, directors and officers insurance is specialized coverage designed to specifically protect the management of a company. The insurance covers litigation expenses and damages should a director or officer be sued directly by an outside party. Such third parties may include investors, customers, employees or other interests. In the event of such litigation, the personal assets of those directors and officers may be at risk. Directors and Officers insurance is the type of coverage that will indemnify a director or officer for legal defense costs and damages. This type of coverage would also indemnify a company in instances where the company covers such costs for its directors or officers.

So what are some instances in which a director or officer could face this kind of situation? This is an area that has been getting more and more attention due to the frequency with which such suits are being brought. Claims made against a companies management can cover a lot of ground including instances such as

• Breach of Fiduciary Duty
• Fraud
• Claims of illegal business practices
• Misrepresentation
• Regulatory violations
• Shareholder lawsuit

There’s more than this to the list but you get the idea that there is quite a bit of risk that this type of insurance will cover. Essentially claims aimed at the leadership of a company involving management decisions or company policy can fall into these category.

Hopefully this give a bit of insight as to what the insurance is designed cover. As far as knowing if you need it, if you are a publicly traded company, you do need it and you already have it (at least you better). More likely if you are asking this question it is because your company is a privately owned and you are debating if you need it. From my experience the answer comes down to three rationales.

A prerequisite to a funding round

One point at which it makes sense to insure your directors is if getting a pile of money depends on it. In many cases, venture capital or private equity firms will make directors & officers insurance a contingency to closing a round of funding for a company. The amount of coverage will be set by the funding entity but more often than not this figure will start at $1mm coverage. As the size of a funding round increases, the amount of coverage will go up.

You are trying to land a board member and they require it

I’ve had clients out in Silicon Valley try to bring experienced people in to become part of a board of directors. The people that were targets of these companies were experienced old hands in the tech and startup space, so one of the first requirements these folks had was making sure that D&O was in place. If you are trying to put a board in place made up of experienced industry veterans, be prepared to have Directors and Officers coverage become part of the conversation.

A third rationale is a little more of a judgment call on the timing, but if you yourself are an officer and are asking this question, you will want to consider it when you feel it is time to……

CYA-Cover Your Ass

As soon as there are directors and officers acting in a management capacity, there is a need for this type of coverage. Most bootstrapping startups will put it off until there is a trigger and that’s understandable but if the company has some traction and is moving along well enough where the resources are there, get this in place.

If this is something your company has considered implementing and could use some more guidance feel free to reach out with a call or an e-mail. I’ll be happy to act as a resource.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014 x700
[email protected]
www.bibsma.com 

What is cyber liability insurance and what does it cover?

Primarily Cyber coverage covers a business against risks associated with damages resulting from a breach of its computer systems. Hacking attacks can result in different types of damages such as data theft or bringing down a companies website. Cyber insurance would mitigate the cost associated with the damage that these types of computer hacks can do.

Regardless of the type of business it is, if a company has custody sensitive data that they are responsible to protect then that business should have Cyber Liability coverage. This is simply a matter of the world we live in these days where businesses are responsible for damages related to a cyber incident or privacy breach in which such information is compromised. Most smaller business may not feel that it is worth the expense or trouble but the costs associated with litigation and damages from such risks can can be the end of them.

There are multiple factors that go into determining the price for such coverage. Three particular points underwriters look at that are specific to Cyber Insurance are internal company controls, the type of data in custody (financial, HIPAA…) and the number of records a company has. Other more common underwriting points include company revenues, number of employees and the nature of business.

Types of Damages Covered By Cyber Insurance Policies

To begin with, Cyber Insurance policies will cover 1st party and 3rd party damages, so what does that mean? 1st party damages are costs incurred directly by the insured as a result of a cyber incident. If you have direct costs associated with a cyber incident, 1st party coverages within a Cyber Insurance policy are there to make you whole.

3rd party damages are damages incurred by an 3rd party such your customers. In this instance you as the insured  are the 1st party and the insurance company is the 2nd party. If your customers, a 3rd party, were financially harmed as a result of a Cyber incident your company were to suffer, your insurance would cover the associated 3rd party damages. So the next question is what are some examples of these costs the insurance would cover?

3rd Party Coverage

Since 3rd party damages would be what most people are familiar with I will begin there. Damages like this are the ones you most hear about because they are most commonly associated with big hacks and data breaches where highly sensitive data is compromised. This as you can imagine leads to lawsuits. Your customers, vendors, even your employees who’s data is compromised or is injured as a result of a data breach are within their right to take legal action against you. These are 3rd parties and all of them can file suit.

In such an event, the insurance will cover the legal cost of your defense and as well as damages a court finds you responsible for. In this instance, a parallel would be General Liability insurance for a company if someone got injured on your premises or Errors and Omissions if a client were to suffer damages as a result of your professional negligence. Cyber Liability simply covers a different set of risks.

1st Party Coverage

1st party coverages don’t get as much attention as 3rd party but are still very important to have in place. There are many direct costs a company can incur as a result of a cyber incident, some examples are as follows:

• Public Relations Costs
• Credit Monitoring
• Cost to Restore/Recreate data
• Coverage for Fines and penalties
• Business Interruption Expenses
• Notification Costs
• Forensic Investigation Costs
• Cyber Extortion

Without 1st party coverage, these costs would come out of the insureds pocket.

So here comes the shameless plug. If this is something your company is considering and you’d like to talk about in a little more detail, free free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com

Key-Person Insurance is a life or disability insurance policy taken out by a company on a key-person within the company. The Key-Person insurance policy itself is nothing exotic, it’s a standard life or disability insurance contract. For life coverage, typically it will be a term insurance policy, perhaps a 10 or 15 year policy. The differences in procedure revolves around the documentation since a company will own the policy as well as be the beneficiary.

Who is a Key-Person?

A key-person is a person within an organization that without which, that company would be in trouble. Examples of a key-person could be an executive such as a CEO or COO, an employee that has exceptional technical knowledge essential to the company like a CTO or key engineer or a key salesperson without which significant revenue would be lost.

The shared attribute of the examples is that if the executive, techie or sales chief was gone tomorrow there would significant damage done to the organization as a whole.

What is Key-Person Insurance for?

The insurance would secure the company against potential losses that derive from the death or disability of such a key person.

For starters, it would insure the company against the expense of replacing a key person. An executive search to replace a key officer can be time consuming and expensive. The insurance coverage would mitigate the company’s financial risk.

The coverage would also insure against potential lost revenue due to the loss of the Key-Person. As a for instance, if a key salesperson were gone tomorrow, what would that mean in terms of sales revenue lost. If a key executive with a litany of strategic contacts and relationships were gone tomorrow, what would that be worth in dollar terms?

The amounts of coverage needed comes down to the potential revenue lost and the cost to find and train a suitable replacement.

When should a company have Key-Person Insurance

Probably the most common trigger for procuring this kind of coverage stems from VC funding as quite often it will be a prerequisite to closing out a deal. Outside investment will be apt to want to mitigate the risk of the death of a key-person in a company they may be investing in.

In the absence of an outside trigger, companies need to take stock of their own employee’s value. As a company grows and scales, there will be those certain employees upon which a company relies heavily. It is up to leadership to identify such employees and protect against the loss of those employees.

If this is an issue your company faces, here comes the shameless plug. I work on these issues quite a bit with companies facing this need. If it is something your company faces and warrants some guidance, feel free to reach out. I will be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com

At a very early stage it won’t be a necessity but that doesn’t make it a bad idea to have sooner rather than later. A buy/sell agreement will go a long way toward getting ahead of issues down the road. If a founder wants to leave a startup, sell a stake, becomes disabled and can’t work…. or dies, the buy/sell agreement will map out how the shares of the company are to be valued and to whom they can/will be sold.

Why is a Buy/Sell Agreement Important?

This becomes more important as a company grows, is generating revenue and has a significant value attached to it. At this point there can be real money at stake and as the money gets bigger, the potential ramifications to all parties involved increases.

A buy/sell can become one of those forgotten tasks, one of those things everyone says they need to do but growing the company, hitting deadlines, moving things forward get in the way. Often something happens unexpectedly and all the sudden you have a dumpster fire of a situation on your hands.

Amending a Buy/Sell Agreement

Getting an agreement mapped out early on sets parameters right from the start. The agreement can be flexible and amendments can be made. Maybe another founder or outside money enters the mix. Maybe a founder wants to buyout another founder. If the valuation of a company gets to the point to where one founder can’t buy out another, funding an agreement with insurance is going to become a key factor. You can change an existing agreement, in fact it’s something that should be reviewed regularly and amended to suit.

You can’t amend something that never existed though, and you can’t turn back the clock if a situation occurs and such an agreement has never been placed. If you do it early on when you are establishing associated items such as the Founding/Operating Agreement, a lot of the details will fall into place logically toward a buy/sell. Just grind it out and take care of it, save yourself an inevitable problem down the road.

Contact Us

If you’ve read this far and feel this is something you could use more guidance on, here comes the shameless plug. I work with my clients in the startup space quite often on getting buy/sell agreements together and getting them funded. If it is something you could use some help with feel free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]

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I typically start talking to my clients about EPLI when they cross the 10 employee threshold. Once a startup gets to that point it is typically beyond the founding team and first couple of hires that the founders probably knew well or had targeted. When you get past 10 you are starting to bring in people outside of that tight circle. You are also going to begin to have some churn as it relates to employees coming and going.

As a startup, if you have this many employees it usually means you are going up from there as well. Most of the time the founding team and build out staff is going to be small. Once some funding comes in this triggers expansion. If you are expanding fast you are going to need to protect yourself against claims that EPLI protects you from.

If you have D&O already (most funded startups will), EPLI is a fairly inexpensive add on. Usually it’s less than $2k/annual at 10 odd employees. It’s going to come down to when management feels it is important enough to pull the trigger on. Given the rise in EPLI claims in recent years, it’s becoming more and more important. The earlier you get it the better.

A funding round that will trigger expansion is a pretty good trigger if you wanted to look to a particular event. I would think series A versus a seed round but that will depend on the size.

This is an issue I talk to clients about quite a bit so here comes the shameless plug. If this is something you feel warrants some discussion feel free to reach out with a call or an e-mail. I will be happy to act as a resource for you.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
[email protected]
https://bibsma.com