Should You Give Your Employees 401K Matching? 10 Guiding Tips for Small Business Owners


The current state of the economy and the business world has many companies questioning whether they’re offering enough to their own employees. Brands often wonder whether they should provide benefits, which ones are worthwhile, and whether there’s anything else they should factor in. 

And then there’s the Internet—this wealth of information is inundated with opinions and falsehoods sold as truths, trying to convince you one way or another that you have to do this or that, or that you can’t offer some benefit or another. To help, we’ve cut through the junk and collected 10 of the best tips to help SMBs better understand the 401(k) match and whether it’s the right move for their brand. 

Here are some highlights:

  • 401(k) matching is a process where employers match a certain amount of an employee’s contribution to their retirement fund. 
  • Matching is not mandatory, but it is a practice of the best companies that have high employee morale and retention. 
  • When offering a matching program, employers need to consider contribution limits and IRS guidelines. 
  • Sometimes, this process is best left to a professional, such as an accountant or an investment expert. 

So, if you’re considering the 401(k) match, you’ve got a lot to consider. Let's go over exactly what a 401(k) match is, and then we’ll dig right into the tips. 

What is 401(k) matching?

Put simply, this is the process by which the employer matches the employees’ contributions to their retirement accounts. Companies will be able to choose a percentage match or a dollar-for-dollar match, depending on their preferences. Employers will also have multiple ways to set this up by using a percentage of the salary. 

For example, employers may match up to 50% of a salary, but only at a rate of up to 6% contribution. In this case, when the employee contributes 6% of their salary, the company will match 3%. Some employers offer 100% matching. Others have more restrictions. You'll have to decide what’s best for you. That's where the tips below come in. 

The tips

Tip #1: Understand the 401(k) matching process and what it entails. 

The best way that you can start getting your own matching plan or decide whether it’s right is to educate yourself on this retirement vehicle and all that it involves. You should read up on the rules of 401(k) matching, figure out what the IRS says about these accounts and how they can be funded, and even what the limits or restrictions are when it comes to setting up and funding these accounts. 

Education can go a long way in helping you better understand 401(k) matching and whether it’s the right choice for your business. If you don’t know what you’re doing, after all, it can be hard to do it correctly. Make sure that you know how to set up these accounts, how you can determine the match amount or contribution, and more. 

Bonus: If you want to see what your employees expect, check out this personal finance article from Investopedia on what constitutes a “good” 401(k) match

Tip #2: Offering a 401(k) match can offer many benefits for your company. 

Employees like benefits and perks. When you give them something as valuable as a 401(k) match, they’re going to notice. These days, especially, it seems like fewer and fewer companies are even offering benefits and retirement perks like this, so the more you have, the better. You will be able to enjoy stronger retention and better recruiting, better employee morale and company culture, and several different tax benefits. 

Recruiting is expensive. Having low employee morale is even more expensive. It costs much more to hire new people than it does to give benefits to the ones that you have. Plus, when you offer better benefits, you’ll attract better talent and see your business improve in several different ways. Tax benefits are found, too, including that these contributions are tax-deductible within the IRS contribution limits. 

Tip #3: It’s not mandatory, but retirement matching can be a game-changer. 

Brands and organizations that have found themselves struggling over the years have re-evaluated their benefits and started considering how they can offer more. If you ask employees what kind of benefits they most prefer, they will tell you that retirement accounts are a big one. Even an account without matching can be rather impressive to potential hires, so if you also offer matching, that will seal the deal even more. 

The problem is that too many companies stop at the “not mandatory” part and figure they’ll save the money for something else since they don’t have to provide this benefit. However, if you want to build the best company and have strong employee retention and morale, you absolutely need to offer matching on retirement accounts. 

Tip #4: You could also choose a discretionary contribution instead of standard matching. 

Typically, 401(k) matching is set up to be done as discussed earlier—either a dollar or percentage amount of the periodic pay is set as the matching amount and done on a fractional basis during each pay period. The other option that many employers don’t think about may actually work better for the SMB than it does for some organizations. 

Discretionary contributions allow employers to add a fixed amount to a retirement fund per calendar year or based on an employee vesting schedule. For example, long-term employees who have worked at least 500 hours can be part of these plans. In this case, the employer might offer a flat rate, such as a $7,500 match per year, for all employees. 

While this streamlines everything, it doesn’t match dollar-for-dollar. However, it does level the matching playing field and make it much easier for your accounting. 

Tip #5:  The actual cost of offering a 401(k) match is nominal. 

Although the exact cost will depend on the program that your company puts in place, the cost isn’t as much as people think. Even if you’re matching 50% or more, you’ll find that it won’t cost as much as you anticipate. Companies often balk at matching and other benefits because they think it will be too cost-prohibitive, but that couldn’t be further from the truth. 

In fact, according to research, the average cost of providing a 401(k) ranges from about $1,900 to $3,800 per employee, per year. If you’ve got 10 employees in your small business, that’s a fraction of your operating costs. If you’ve only got five, it’s even less. And when you consider it costs about one-third of an employee’s salary to replace them if they leave, matching is the far better choice. 

Tip #6: Hire someone who can do the math (and the compliance) for you. 

Retirement contributions and investments are tricky business. Unless you’re a seasoned investing pro, it can be hard to understand and keep up with all the rules and regulations. That’s why you want to consider hiring an accountant or investment professional who can help with the matching program. They will be able to determine how and what you should match, advise you on the current tax laws and matching guidelines, and set up a program that works for your company. 

Investment professionals can help your business handle all kinds of financial decisions. You can also choose to work with an HR partner or outsource your HR services so that someone else is handling the work. This way, you’ll know that the calculations are done correctly and that everyone is getting the maximum benefit. 

Tip #7: Increase employee benefits by reducing expenses. 

When it comes to things like 401(k) matching and other benefits, many small businesses cite their inability to fund such benefits as the reason that they’re not offered. However, if the SMB knows how to reduce operating expenses and cut costs in other places, it can pay those savings forward to employees in the form of matched contributions and other benefits. There are several options here. 

Consider how you can outsource your business operations, such as things like data entry, customer service, and other mundane admin tasks that eat up a lot of your valuable time and cost you a lot in labor and operating costs. You can then turn around and offer those cost savings to your employees in the form of benefits. 

Tip #8: Compare what others are doing with their investment and retirement accounts. 

The best way to learn is by example. When it comes to benefits, that’s no different. As a small business, you owe it to yourself to see what other companies are doing. Check out the companies that are ranked highest by employees for satisfaction and benefits. See what kind of investment opportunities they provide and whether they offer a matching program for their 401(k) accounts. 

Not only will this help you get a better idea of how to set up your own matching contributions schedule, but it will help you see exactly what today’s employees expect. Check out big brands, small brands, and everyone in between to get a feel for what’s good and how to successfully implement a matching program that works for your organization. 

Tip #9: Remember your company culture and values. 

When it comes to setting up these programs, a lot of small business owners get caught up in the numbers. It’s easy to get stuck on what you can and can’t “afford” to do for your employees. However, what you can’t afford is for anyone to think that you don’t really stand behind your values and culture. People today are pickier than ever and they’re not going to work somewhere that they don’t feel valued. And they shouldn’t have to. 

Even the smallest business can afford to offer benefits to employees. If you want to have a strong culture and promote supporting your own, this is one way to do it. Often, people who don’t get retirement benefits assume the company isn’t looking at long-term staying power and they will see the position as temporary. This can crank up turnover in your business if you’re not careful. 

Tip #10: If it’s just not feasible, don’t sweat it. 

Finally, we’ll give you the one piece of advice that many have been waiting for. Now that you’ve seen all the potential of a 401(k) match, you can decide whether it’s right for you. There are some cases where you may not be able to offer this type of matching benefit to your employees, and that’s fine. After all, while you want to take care of people, you can’t do it at the expense of your business. If there’s no business, there’s no employees. 

So, what can you do if you can’t offer this perk? You could consider other benefits. Maybe look into matching after people get to a certain point in their career with your company, such as the 5-year mark. You might even bring the discussion to the table and let employees help you find ways to cut costs or save so that they can get more benefits as a reward. 

At the very least, consider looking down the road and thinking about when you might be able to offer this benefit. That way, you can give your employees something to look forward to. They might even be willing to pitch in and help get there sooner. And remember, if it’s just not in your wheelhouse yet, that’s okay too. You'll get there. 

The bottom line: yours will benefit in many ways

As you can see, there’s a lot to consider here. However, there are also a lot of benefits to be had and you can change the way that your employees see your company just by giving them this little perk. What would cost you a nominal amount each month could mean the world to employees looking for benefits like retirement matching.

Before you assume you can’t, find ways that you can. Consider things like outsourcing certain parts of your operation to save money so that you can give it back to the people who matter most. Enlist our help for customer service and 24/7 virtual receptionist support and give the savings back to your best assets—your employees. 

Schedule a consultation today to learn how the virtual receptionists at can streamline your communications and admin while saving you money. You can also reach us at or (650) 727-6484. 

Small Business
Written by Sean Lund-Brown
Sean Lund-Brown is a current Marketing Assistant for A graduate from Metropolitan State University of Denver, Sean graduated with a BA in Music and an individualized degree in Teaching Vocal Pedagogy.

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