Small businesses are using a classic benefit to stay competitive in attracting and keeping workers

Sara Marye wanted to get more serious about the benefits she offered.

Several months after promoting a part-time employee to full-time status at her school-curriculum small business in 2024, she wanted to ensure it remains an attractive place to work.

"If I want to keep her, I need to give her reasons to stay," said Marye, an educator turned entrepreneur in 2015 when she started The Stellar Teacher Company. The employee had been working there since 2021.

Marye thought about what she could afford that she could add on top of the existing flexible perks. Offering a 401(k) plan was the answer, a perk that would also benefit Marye herself and help with retention beyond the full-time worker.

Most of her four part-time workers are former teachers who still want to be involved in education while staying home as parents.

"The fact that they are able to have a part-time job with a 401(k), I think, gives them just a lot more comfort in the fact that they aren't having to sacrifice their future financial security for the time that they want to spend raising their family now," said Marye, who has been offering the 401(k) plan since 2025.

When small businesses are starting out, they have to figure out how to get off the ground, market their work, and manage their expenses. As businesses make a name for themselves, grow their profits, and staff up, they need to figure out how to attract and retain employees. Having a 401(k) plan — the kind of benefit that's typically more often offered by larger employers — can help, especially if they can't yet afford more costly benefits, like healthcare. It can also be a financial perk for business owners on payroll.

Maintaining staff

A Gusto analysis of its internal small-business data shows that offering a 401(k) to workers translates to roughly 8% fewer quits in the first year of employment compared to those that don't offer one.

Nich Tremper, a senior economist at Gusto, said these employers don't have to face a gap in work coverage until they can backfill a position, which can affect productivity, or waste time and money looking for and training a new hire. Tremper said employers face the greatest risk of an employee quitting in their first year, so they can try to reduce that risk by offering retirement plans, even if employees can't enroll right away.

"We see 401(k)s having the highest ROI on retention," Tremper said, adding, "because it's a benefit that tells your employees that you are invested in their long-term financial future."

Howard Telson has been running the remote accounting firm Scale CPA since 2022. He started offering a 401(k) plan about a year and a half ago.

He likes it as a recruiting tool, since his firm hires pretty consistently, and to keep his current staff, many of whom come from larger companies where they're accustomed to this perk.

"We're often competing against bigger companies or bigger firms that do offer these types of benefits," he said. "It's been important to be competitive in the marketplace."

Telson works with small businesses at his firm, where he discusses tax-optimization strategies, such as retirement plans.

"It's kind of a multi-tier benefit that we'll recommend, a 401(k) plan or another type of retirement plan to clients, one, to allow them to basically have some tax deferral and save on their personal taxes, two, to attract talent, and three, it also offers some tax credits as well for the first three years when you set up the program," he said.

Affording retirement plans

Marye worried about whether she would be able to afford having a retirement plan as a small-business owner, and setting it up seemed daunting. However, she said it wasn't complicated and wasn't as big an expense as she thought it would be.

Payroll platforms like Gusto and ADP offer 401(k) plan management services at relatively low costs for small businesses, charging a modest base fee and then single-digit monthly fees per participant. Retirement offerings also tend to be less expensive for small business owners than healthcare benefits; Bureau of Labor Statistics data showed the average employer contribution for family medical care coverage at businesses with fewer than 50 workers has surpassed $1,000 per employee since 2021.

Ashley Kent also offers 401(k) benefits to her workers and herself. Kent, who has been in business since 2018, said she can't justify offering healthcare just yet since the cost is too much for the business's size.

"It allowed me to then offer this to employees and was something that was very attractive to new employees coming in here," said Kent, founder and CEO of Clearstart, a marketing brand and growth consultancy for healthcare organizations.

Kent has 10 full-time workers, and they were eligible to enroll after a year of employment, so she thinks it helps with retention. "Agencies are known for very high turnover, and so that was something that was important to me to try and retain individuals," Kent said.

As she hires more senior workers, she would consider adding healthcare benefits, since they could be important for job seekers weighing the trade-offs of different job opportunities.

Looking beyond small business

Small businesses aren't the only organizations offering 401(k)s to boost recruitment and retention.

Indeed's data covering all sizes of employers showed that job postings mentioning 401(k)s have increased since 2020. Laura Ullrich, the director of economic research in North America at the Indeed Hiring Lab, thinks employers could be doing so to improve their recruiting. Some reasons for the uptick in advertised plans, she said, include employers publishing more thorough job descriptions, job seekers wanting to know the full compensation package, and companies dealing with the mismatch between available jobs and people's skills.

"If you look at the immediate post-COVID period, you might have seen companies start advertising it more because it was a really hard time to find workers, and then I'm guessing over time, it's just more and more companies have realized that it's a good way to show more total compensation versus just value," Ullrich said.

Mentions in education and instruction were 15% in spring 2026, the lowest share among the occupations, and up from 7%. Ullrich said pensions, rather than defined contribution plans like 401(k)s, are more common in that type of work, so that could explain why the share is relatively low.

Employers are also advertising better 401(k) matches, which Ullrich said could help make employees more hesitant to switch jobs.

"When indexed to January 2020, the three-month-moving-average share of postings advertising a 401(k) match of 5% or higher has risen more than fivefold, outpacing the growth in any other category of retirement benefit," a report by Indeed Hiring Lab economist An Nguyen said, adding that postings just saying "retirement plan" didn't change much from the baseline.