Statutory benefits are employee benefits, protections or employer-funded programs that the law requires employers to provide, fund or administer. They are also called legally required benefits or mandatory employee benefits.
The requirements depend on the country, state, employee classification, employer size and industry. In the United States, statutory benefits can come from federal, state and local law.
Statutory Benefits in the United States: At a Glance
| Statutory benefit or protection | What it provides | Who controls the rules? |
|---|---|---|
| Social Security and Medicare | Retirement, disability, survivor and healthcare-related coverage funded through payroll taxes | Federal government |
| Unemployment insurance | Temporary income for eligible workers who lose work through no fault of their own | Federal and state governments |
| Workers' compensation | Medical care and financial benefits for qualifying work-related injuries or illnesses | Usually state governments |
| Family and Medical Leave Act leave | Unpaid, job-protected leave for qualifying family and medical reasons | Federal government, with state supplements |
| COBRA continuation coverage | Temporary continuation of employer-sponsored health coverage after certain qualifying events | Federal government, with state alternatives |
| Paid sick, family or medical leave | Paid time away from work in qualifying circumstances | Certain states and local governments |
| Employer health coverage requirements | Health coverage offers and reporting requirements for certain large employers | Federal government |
What Are Common Examples of Statutory Benefits?
Social Security and Medicare
U.S. employers generally withhold Social Security and Medicare taxes from employee wages and pay an employer share of those taxes. These payroll contributions help fund Social Security and Medicare programs.
Social Security supports retirement, survivor and disability programs. Medicare payroll taxes primarily fund hospital insurance.
These programs are statutory because federal law requires covered employers and employees to participate. They usually do not appear as separate benefit options in an employee benefits package.
Unemployment Insurance
Unemployment insurance provides temporary financial assistance to eligible workers who become unemployed through no fault of their own. Each state administers its own program within federal requirements.
In most states, employers fund unemployment insurance through state payroll taxes. Employers may also owe federal unemployment tax under the Federal Unemployment Tax Act, commonly called FUTA.
An employee does not automatically qualify for unemployment benefits because an employer pays unemployment taxes. Eligibility, benefit amounts and benefit duration depend on state law and the facts of the job separation.
Workers' Compensation
Workers' compensation provides benefits when an employee suffers a qualifying injury or illness connected to work. Benefits may include medical treatment, wage replacement and disability-related payments.
Workers' compensation is generally regulated at the state level, so coverage requirements differ. The U.S. Department of Labor maintains links to workers' compensation authorities for each state and territory.
Workers' compensation is different from ordinary health insurance. Health insurance generally covers healthcare needs, while workers' compensation addresses qualifying workplace injuries and illnesses.
Family and Medical Leave Act Leave
The Family and Medical Leave Act, or FMLA, gives eligible employees of covered employers up to 12 weeks of unpaid, job-protected leave per year for certain family and medical reasons. Employers must generally maintain group health benefits during qualifying FMLA leave.
FMLA coverage generally applies to:
- Public agencies
- Public and private elementary and secondary schools
- Private employers with at least 50 employees within the relevant coverage area
Employees must also meet eligibility requirements, including service and hours-worked rules. State family and medical leave laws may provide broader or paid benefits.
FMLA is often described as a statutory benefit even though it is usually unpaid. It provides a legal leave entitlement and job protection rather than a direct wage payment.
COBRA Continuation Coverage
COBRA is a federal law that generally requires covered group health plans to offer temporary continuation coverage after certain events, such as job loss or reduced working hours.
COBRA generally applies to private-sector group health plans maintained by employers with at least 20 employees on more than half of their typical business days during the previous calendar year. State mini-COBRA laws may cover smaller employers.
COBRA does not usually require the employer to continue paying the employee's health insurance premium. The former employee generally pays the full cost of coverage, plus an allowed administrative charge.
State-Mandated Paid Leave
Some states and cities require employers to provide benefits that federal law does not universally require, such as:
- Paid sick leave
- Paid family leave
- Paid medical leave
- Paid pregnancy or parental leave
- Short-term disability benefits
- Paid safe leave
These benefits are not uniform across the United States. The employee's work location, employer size, hours worked and industry can affect eligibility.
Is Health Insurance a Statutory Benefit?
Health insurance is not universally required for every U.S. employer. The Affordable Care Act generally requires an applicable large employer, meaning an employer with at least 50 full-time employees and full-time equivalent employees on average during the prior year, to offer qualifying health coverage to eligible full-time employees and their dependents or potentially make an employer shared responsibility payment.
This means:
- A small employer is generally not required by federal law to offer health insurance.
- A large employer may have to offer qualifying coverage to eligible full-time employees.
- State laws, contracts and industry rules may create additional obligations.
- Employers that voluntarily offer group health coverage may have further legal duties under laws such as COBRA and the Employee Retirement Income Security Act.
Statutory Benefits Versus Voluntary Benefits
The main difference is whether the law requires the benefit.
| Statutory benefits | Voluntary benefits |
|---|---|
| Required by federal, state or local law | Offered at the employer's discretion |
| Often funded through payroll taxes, insurance premiums or employer payments | Usually designed as part of the company's compensation package |
| Eligibility is determined by law | Eligibility is determined by the employer's plan rules |
| Examples include unemployment insurance and workers' compensation | Examples include dental insurance, life insurance and gym memberships |
Common voluntary benefits include:
- Employer-sponsored dental insurance
- Vision insurance
- Life insurance
- Retirement plan contributions
- Paid vacation
- Bonuses
- Wellness programs
- Tuition assistance
- Commuter benefits
A benefit can begin as voluntary but become legally required if an employer promises it in a contract, publishes it in a binding plan document or operates in a location with a mandate covering that benefit.
Who Pays for Statutory Benefits?
The funding method depends on the benefit.
- Shared payroll taxes: Social Security and Medicare generally involve both employee withholding and an employer contribution.
- Employer payroll taxes: FUTA is paid by the employer and is not withheld from employee wages.
- Employer insurance or premiums: Workers' compensation is commonly funded through employer-purchased insurance or an approved self-insurance system.
- Employee-paid continuation coverage: COBRA coverage is usually paid by the former employee, although an employer may subsidize it.
- Unpaid protected leave: FMLA generally provides job protection and continued group health coverage, but not wages.
- Employer-paid or shared-cost leave: State paid-leave programs may be funded by employers, employees or both, depending on the jurisdiction.
Why Do Statutory Benefits Matter?
Statutory benefits provide financial, medical and employment protections when employees retire, become disabled, lose a job, suffer a workplace injury or need qualifying leave.
For employers, compliance involves more than adding benefits to a handbook. Employers may need to:
- Register with federal and state agencies.
- Withhold and pay required payroll taxes.
- Purchase workers' compensation coverage.
- Maintain accurate employee and wage records.
- Provide legally required notices.
- Track employee eligibility and leave usage.
- Follow state and local rules where employees work.
The employer's obligations can change when an employee works in another state or locality. A benefits review should therefore account for where employees work, not only where the company is headquartered.
Key Takeaway
Statutory benefits are governed by law, while voluntary benefits are part of an employer's compensation and benefits choices. In the United States, the rules can come from federal, state and local authorities, and eligibility can depend on the employee, employer and work location.
Employers should review federal requirements alongside the laws of every state and city where their employees work.