Report: Small Business Benefit Trends 2021

Despite financial hardship, small businesses are protecting employee benefits 

January 13, 2021

The financial health of U.S. small businesses is a tale of two economies. 

Our survey of more than 300 businesses with less than 250 employees in December 2020 reveals that as the pandemic steamrolled over the economy last year, federal pandemic relief funding offered much-needed support. Yet as small businesses prepared for 2021, some were planning to rehire workers or add new employees, while just as many were downsizing hours, planning furloughs or layoffs. 

Remarkably consistent throughout all these businesses, considering the financial strain and economic uncertainty they have been weathering, is that benefits planning has remained stable. Three-quarters of employers are keeping their benefits packages intact or adding more benefits in 2021. 

As they continue to protect the financial and physical health of their employees this year, small businesses should lean on their carrier and broker partnerships for increased efficiency and expertise.  

A tale of two small business economies

Small businesses are struggling, but as the COVID-19 pandemic revealed in so many other areas of our society in 2020, there are wildly different realities being experienced across the U.S.

According to the Small Business Association, job creation tanked in the spring of 2020, rebounded slightly over the summer, and stayed relatively flat throughout the fall for small businesses of all sizes. 

On the other hand, employment increased and even thrived in certain industries, including professional and business services, according to the Bureau of Labor Statistics

Our survey reveals this story of two economic realities in hiring plans for small businesses. Over a third of small businesses plan to hire new employees in 2021, yet this trend is driven primarily by larger companies with 100-249 employees (49%), with only 26% planning new hires in the 1-99 employee range. On the other hand, many are planning on downsizing their employee base with either furloughs (22%), permanent layoffs (10%), or reducing salaries, hours or shifts (29%).

Small business hiring plans for 2021


Planning to hire new employees


Planning reductions in salaries or hours/shifts


Planning to re-hire employees who had previously been laid off/furloughed


Planning temporary layoffs/furloughs


Looking to independent contractors to increase their workforce


Planning permanent layoffs

Question: Thinking about your organization’s business outlook for 2021, which of the following actions is your organization likely to take in response to expected changes in workforce needs? Respondents could choose more than one answer.

As precarious as this picture is, it could have been much worse without the early round of federal funding provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act last year.

Small businesses on “Main Street” had a rocky start tapping into the CARES Act federal funds, while large and well-connected firms were quickly approved. Still, about half of small employers we surveyed received federal relief funding.

  • Among those businesses that received federal relief, 85% said the funds were helpful in providing them with support in maintaining their operations in 2020.
  • Access to new or continued federal financial support for 2021 is important to three-quarters of small businesses.

The late December expansion of the CARES ACT and, in particular the Paycheck Protection Program (PPP), offered small businesses another welcome round of financial relief for 2021.

Importance of federal pandemic relief funds

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Applied and received
Did not apply
Applied but did not receive
Not sure
Helped a lot
Helped somewhat
Helped a little
Didn't help at all

Benefits planning stable despite economic turmoil

The financial health of a business will invariably affect its ability to offer benefits to its employees. Indeed, three-quarters of the small employers we surveyed said their overall financial health significantly or somewhat impacted the benefits they planned to offer this year. 

Yet despite this, three-quarters of employers will offer the same or a better benefits portfolio in 2021 compared to 2020. Only about a fifth are planning to drop a benefit without adding a new one. The majority of small businesses are continuing to provide benefits to their employees, despite tremendous financial hardship and economic uncertainty.

2021 benefits planning 

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This doesn’t mean small businesses haven’t accounted for the shaky economy in benefit planning. About a quarter plan to increase the employee portion of premiums paid, while under a fifth plan to increase the employer portion.

Break out trend: Infectious disease rider

Of the small businesses offering critical illness policies to employees this year, 39% are including an infectious disease rider. This offers a lump sum benefit for hospitalization for treatment of COVID-19 and other infectious diseases — for example, the Colonial Life rider offers more than a dozen other infectious diseases, including antibiotic-resistant bacteria, Legionnaires’ disease, meningitis, Lyme disease and sepsis.

Quote icon
You are seeing infectious disease riders talked about
more than ever before.

Olivia Jones

Territory Sales Manager for
Washington and Alaska, Colonial Life

Benefits are now more important than ever

While employers look to control benefit spending, they should be cautious so they can stay competitive, as employees still consider benefits very important.

According to the 2020 Workplace Wellness Survey, conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates:

  • Seven in ten employees agreed that they need their employer’s help ensuring they are healthy and financially secure, and just over six in ten say it is their employer’s responsibility to do so.
  • To a great and growing degree, employees feel that employer-offered benefits contribute to their feelings of financial security.

Voluntary benefits fill gaps without costs

Voluntary benefits are a viable option for small businesses that help retain talented employees without adding costs to their bottom line. Given the heightened awareness around health and security, employers can use voluntary benefits to cover gaps that most health insurance coverage doesn’t cover. 

When looking for ways to save money, small businesses also don’t need to cut voluntary benefits. Instead, they can reward employees by adding benefits. 

Quote icon
Keeping voluntary benefits available simply means more people will be protected,
because those benefits are payable directly to the worker.

Steven Vermette

Vice President, Colonial Life

Technology vs. manual processes

Technology and digital processes have gained significant traction with small businesses in both benefits enrollment (45%) and benefits administration (50%). However, many small businesses are still dependent on manual processes, such as paper and spreadsheets for enrollment (41%) and for benefits administration (34%). 

Nearly one in five businesses rely on their agent/broker to handle their benefits enrollment and benefits administration, which frequently means a manual process in getting the information to them. Smaller businesses (1-99) were more likely than the larger segment (100-249) to rely on agents/brokers for enrollment and benefits administration. 

For businesses using manual processes for benefits enrollment, paper is the leading method (25%) followed by spreadsheets (16%). For benefits administration, spreadsheets is the more prevalent manual process (18%) with paper-based (16%) just behind.

Breakdown of benefit processes

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Question: What is the primary approach your organization uses to manage each of the following HR functions?

Despite this reliance on manual processes, two-thirds of employers do not plan to add any new technology/digital capabilities in 2021 for handling any of their HR functions (67%). This is especially evident with the smaller segment, with 71% in the 1-99 range compared to 60% with 100-249 employees.

“When you think about the amount of change that we've all experienced in 2020, we’re all probably at a place where the idea of more change can be incredibly intimidating,” said Katie Johnson, Territory Sales Manager, Colonial Life.

The few who are planning new capabilities most frequently mentioned:

  • More digital/automated processes in general
  • Electronic/digital time tracking/timesheets
  • More/upgraded computers

Work-from-home gaining ground

When the pandemic hit last year, small businesses (that were able to) pivoted their employees to working at home. But even after the pandemic recedes, these businesses expect a significant number of their employees to continue to work remotely.
According to our survey, nearly half (44%) of small-business employees continue to work from home, and employers expect that more than twice as many employees will keep doing so after the pandemic as before (28% versus 12%). 
Organizations are aware that remote workers will need digital and online tools to support them, particularly during benefits enrollment. “We are planning to work more from home,” said one survey respondent, “but we will require more resources for technology to accomplish this.” 

“Staying on top of life event changes create incredible challenges in an environment where you're not at your desk and neither is anyone else in your organization,” said Johnson. 

“It’s critical that small businesses find a benefits provider or agency that can help them solve that challenge. There are effective solutions out there that don’t have to cost employers anything at all. And those digital solutions can deliver a great benefit experience and manage the administration component without it being so cumbersome for the HR person.”

What employers can do now to make benefits easier to offer

This is where high-tech, high-touch benefits providers can provide great value to small businesses. Benefits don’t have to be complicated, particularly during a global health pandemic. 

Lean into your provider for the technology, tools, educational services and employee-paid benefits that can simplify HR tasks, so you have more time to focus on your employees. 

Simplify benefits administration to take pressure off HR

Many leading benefit providers offer online benefits management capabilities that dramatically cut down HR administration time, with end-to-end digital benefits from onboarding to claims.

Quote icon
You can absolutely leverage both high touch and high tech. There are options out
there that can provide both one-on-one true counseling for employees as they
are making important decisions about benefits for their families, while also using technology solutions for both education and the enrollment process.”

Katie Johnson

Territory Sales Manager, Colonial Life

Implement easy enrollment and digital online tools

Virtual enrollment technology is another tool that is proving to be effective in today’s world. According to the 2020 Workplace Wellness Study, employees are interested in a more online enrollment experience. The most popular online services include a portal for selecting benefits, decision-making tools and online brochures. 

Brokers can connect employers with benefit providers who can provide such enrollment services, and the educational materials that help employees make appropriate benefit decisions. 

Employees’ wish list for open enrollment

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Source: Source: Employee Benefit Research Institute and Greenwald & Associates, Workplace Wellness Surveys, 2020.

For open enrollment, employees said they most wanted to have an online portal for selecting benefits, online tools to help them make decisions and online brochures. 

Employee-paid benefits can step in when funds are tight

Finally, brokers and benefit providers can help small businesses by offering affordable benefit options that provide real value for employees, while limiting the costs on employers. 

Voluntary benefits such as supplemental health, disability, life insurance and Employee Assistance Programs help provide financial protection when employer-paid group coverage isn’t an option. Employees can still get the coverage they need at affordable rates they wouldn’t be able to find on the individual market. And small businesses can keep a tight rein on additional benefits spending while times are tough. 

As Katie Johnson explained: “If your current carrier or broker isn't giving you options that can help you to still give employees access to benefits at little to no cost, then find a new one. Because there are great options out there that can keep your employees protected without any extra cost to your business.” 

We’re still in the tunnel, but we can see the light

As we write this for publication, the CARES Act has just been expanded to offer additional financial relief to small businesses in early 2021. COVID-19 vaccines are rolling out across the country, helping front-line health care workers and others, such as nursing home residents, weather the winter surge. Experts are predicting that widespread vaccine distribution could occur as early as spring or summer. 
In the meantime, it is certainly encouraging to see small businesses doing everything they can to keep themselves and their employees ready to rebound. We encourage you to lean in to your benefits provider or broker relationship this coming year for the help you’ll need to emerge on the other side of this pandemic as safe and sound as possible.

About the survey

We surveyed 321 employers from November 30 to December 11, 2020, this time focusing on small businesses. We received 189 responses from businesses with 1 to 99 employees, and 132 from businesses with 100 to 249 employees. Respondents were limited to persons involved in employee benefits decision-making or administration at U.S.-based organizations representing a wide variety of industries. 
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