3 reasons your small business clients should offer a 401(k) plan

There was a time when 401(k) plans were a luxury that only big companies could afford to offer. But those days are over.

Now, the playing field has leveled, and retirement plans are accessible to businesses of all sizes. The options available to smaller entrepreneurs are customizable, attractive — and most importantly — affordable.

As an ISV, you can help your small business clients invest in their future by fitting them with the right plan.

If your clients aren’t on board with the idea of a 401(k) yet, keep reading. Whether they’re a startup with seven employees or a mid-size business with 100 or more, we’ll explore the top three reasons why merchants should consider offering a 401(k).

The 411 on 401(k)s

Before jumping into all the reasons to love 401(k)s, you’ll want to make sure your clients are familiar with what a 401(k) is and how it works. If they’re a little fuzzy on the details, here are some explanations to help clear things up.

What is a 401(k)? It’s a qualified retirement savings plan sponsored by an employer to help employees save for retirement. It’s also known as a defined contribution plan, which means both employees and employers can voluntarily make self-directed contributions — unlike defined benefit plans, such as pensions, where only the employer contributes.

How does it work? Employees select a percentage of their earnings to contribute to their 401(k) in the form of payroll deductions. For traditional 401(k) plans, contributions are made with pre-tax dollars, while Roth contributions are after-tax. Employers also have the opportunity to make additional contributions or offer matching options. From there, the money in the 401(k) has the potential to grow via the employee’s investment portfolio. When they hit retirement or reach 59½ years old, they’re free to withdraw their funds.

One more important thing to note: If your clients set up a new 401(k) plan after December 29, 2022, most of them will be required to automatically enroll their eligible employees into the plan beginning in 2025. This rule won’t apply to small businesses that have 10 employees or under, or businesses that have been established less than three years. Automatic enrollment is meant to increase retirement savings for more workers, but employees will still have the option to opt out.

Now, onto why your clients should care.

Benefits of offering a 401(k) plan

1. Recruit and retain the best employees


First off, with the ongoing labor shortage, your clients have a competitive hiring market to contend with. If they’re struggling to attract the numbers and caliber of talent they desire, a full suite of benefits could be the edge they need to land the most qualified employees.

But if your clients aren’t convinced investing in a 401(k) is worth it, give them this scenario: Let’s say a top-notch candidate is deciding between two positions, and one business offers a 401(k) plan while the other doesn’t. Which one do you think they’ll choose?

The 401(k) will likely be the factor that tips the scales. According to a survey, 88% of employees said a 401(k) was a must-have benefit when looking for a job. Another survey revealed that retirement plans ranked as the most-wanted benefit after health insurance.

While cutting corners on offering perks like this one might initially seem like a good way to save money up front, the talent your clients will ultimately lose out on will hurt much worse.


Beyond bolstering recruitment efforts, offering a 401(k) plan also has the potential to help with reducing employee turnover, resulting in less time and money spent on hiring and training.

It’s no secret that great employees drive the success of a business. So if your clients are looking to retain the best and brightest, their benefits should be inclusive and attractive. In fact, a survey showed that 75% of new hires reported a 401(k) plan as a compelling reason to stay at a job.

Ask your clients if they have all-star employees on their team who they could see becoming an integral part of their business’ future. Do they assume it’s only a matter of time until those employees automatically leave for bigger-name companies? Encourage them to rethink that mindset.

Offering benefits like a 401(k) can make a big difference in turning small business jobs from a stopover into a career. If your clients’ employees have a way to save for retirement, they’ll be more likely to envision a realistic future where they’re at. Plus, offering a 401(k) plan lets employees know their employer is investing in them. And when that happens, they’ll be more likely to invest right back into the business.

2. Increase tax savings

Tax credits

Here’s something your clients might not know: There are some serious tax incentives for business owners who offer a 401(k) plan.

Thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 that passed in 2022, eligible small businesses with 50 employees or less implementing a first-time 401(k) plan get a startup credit equal to 100% of the plan’s administrative startup costs or up to $5,000 per year for the first three years they offer the plan. That’s up to $15,000 total to help your clients get their 401(k) on its feet — quite the discount.

There’s one important exception — the original SECURE Act, which passed in 2019, offered businesses a tax credit equal to 50% of qualified startup costs, with the same $5,000 cap. If you have clients with 51-100 employees, they’re still subject to this original amount.

On top of the startup credit, SECURE 2.0 also offers an additional tax credit of $500 per year, for the first three years, if the small business owner includes automatic enrollment as part of their new 401(k) plan — totalling an extra $1,500.

Put it all together, and that’s up to $5,500 per year in tax credits or $16,500 for all three years.

Tax deductions

But that’s not all. When an employer contributes to an employee’s traditional 401(k) plan, those contributions are classified as voluntary payroll deductions and are tax-deductible on the employer’s federal income tax return, driving down their business’ tax liability.

However there are limits: For 2023, employee contributions are limited to $22,500, and the total contribution from both the employer and the employee to a 401(k) plan can’t exceed the lesser of 100% of an employee’s salary or $66,000. It’s also worth noting that the 2023 catch-up contribution limit is $7,500 for participants over the age of 50. (So with catch-up, the total limit is $73,500.)

While not required, employers can make 401(k) contributions in two main ways:

  • Matching: This is when the business matches what an employee contributes to their 401(k) up to a certain amount. Employers can do a dollar-for-dollar match, a partial match or even require a vesting period before the employee can own the matches.
  • Profit sharing: This is an additional contribution an employer can give to an employee’s 401(k) account. With this kind of contribution, the employee doesn’t have to make their own deferrals into the plan in order to receive the employer’s funds.

The moral of the story? While your clients help their employees save for retirement, they can also save money on their next tax return.

3. Plan for personal retirement

Owning a small business doesn’t mean your clients are exempt from the need to save for their personal retirement. According to research, in 2019, 34% of small business owners reported they didn’t have retirement savings plans for themselves, and 40% said they weren’t confident they could retire before 65.

While your clients might believe that selling their business is the only source of retirement income they’ll need, or that their IRA has them covered, encourage them to think twice.

First, there’s no guarantee their business will sell. And if it does, there’s no guarantee it’ll sell at the price they’re hoping for. Second, 401(k) plans have higher contribution limits than other retirement plans like an IRA. So essentially, with a 401(k) your clients can grow their retirement savings bigger and faster.

The takeaway here is that your clients shouldn’t leave their retirement to chance. Taking advantage of the 401(k) plan they offer could be their most efficient path to strong savings — and maybe even knock them down to a lower tax bracket while they’re at it.

Take the complexity out of 401(k) plans with a full-service payroll solution

The last hurdle you’ll likely have to climb when convincing your clients of the merits of offering a 401(k) plan, is that it’s not as complicated as its reputation will have you believe.

While piles of paperwork and complex fine print might spring to mind at first, a 401(k) can actually be quite simple to set up and manage — and the payroll provider you choose to work with has everything to do with it.

When selecting a provider, it’s a must-have for any modern tech stack to go with a solution that gives your clients the ability to seamlessly integrate their 401(k) system with their payroll platform.

That’s why Global Payments Integrated has partnered with Heartland, another Global Payments company, to provide you with a powerful payroll solution that integrates all the hire-to-retire workforce management tools your clients need, including 401(k).

Our payroll solution eliminates friction with integrations that enable merchants to smoothly exchange information with an extensive list of partners they can trust to manage their 401(k). Best of all, a team of payroll experts is just a call or email away whenever they need a helping hand.

Contact us today to find out how working with the right payroll provider can make you indispensable to your clients — and win them a better retirement at the same time.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed.

Erin Donnelly


Erin is part of the marketing copywriting team at Heartland, a Global Payments company. With a background in writing, editing and strategic communications, Erin works to tell meaningful stories for the small business community. In her spare time, she enjoys baking, reading and drinking copious amounts of coffee.

Erin Donnelly