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As contractors continue to battle the labor shortage, many are using enhanced benefit offerings to lure new employees and keep existing talent. But when it comes to one of the most popular offerings, many may not realize this benefit can help employers as well.

That benefit is the 401(k) offering, and it's already the second most-offered perk, after health benefits, according to Remodeling 550 figures. In fact, 66% of contractors now offer employees 401(k) plans compared to 61% in 2017. But that number would likely be even higher if more contractors understood that the tax savings 401(k) plans provide can easily offset and even exceed the cost, experts say.

That's exactly what Rob Watson discovered when he started offering employees 401(k) benefits in an effort to combat the labor shortage. "Most companies don't offer 401(k) benefits because of the costs," said Watson, owner of Innovative Kitchen& Bath, a 2018 Big50 honoree who employs 29 workers. "It's not as expensive as most business owners think because the cost savings with taxes. You either pay the benefit to your employees or pay it to the IRS."

That's especially true for small business owners. In fact, tax savings may be 3.5 times greater than plan costs for firms with less than 10 employees, according to Capital One Advisors LLC's website,

And 401(k) plans aren't just for employees. Employers can also contribute to their own 401(k) plans—up to a tax-deferred amount of $18,500 and $24,500 for those over 50 in 2018, according to the IRS.

There are generally two types of 401(k) plans: traditional and safe harbor. Traditional 401(k) plans offer the flexibility of changing employer contributions each year, according to business conditions. Safe harbor plans allow employers to match each eligible employee's contribution, dollar-for-dollar, up to 3% of the employee's compensation, and 50 cents on the dollar for the employee's contribution that exceeds 3%, but not 5%, of the employee's compensation. Alternatively, employers can make non-elective contributions equal to 3% of compensation to each eligible employee's account, according to the information from the Department of Labor.

Low-cost plan providers mean the ongoing cost for a 401(k) plan is less than $1,200 for a company with two to 10 employees. Solo 401(k) plans cost only $300 a year, according to It’s “a great shelter that might even drop you a tax bracket,” the site said.

Those starting 401(k) plans also benefit from a tax credit of up to $500 for each of the plan’s first three years. To qualify, businesses must have at least one employee who earns less than $120,000 a year.

Tax savings grow even more for employers who offer employees a match to their 401(k) plans. Matching contributions are exempt from federal, state and payroll taxes. Not only is the match tax deductible but it also gives another perk to attract and maintain workers. Plus, matching employee contributions means employers can match their own 401(k) contributions—and receive further tax deductions.

Of course, as with all aspects of business, contractors should check with their accountants and advisors before jumping into offering 401(k) plans to their employees. But as Watson discovered, they may be surprised at just how easy it is to offer this perk—and how good it feels for both employers and employees.

“Part of my belief is that people need work and people need to be taken care of,” he said. “At my company, you’re not just an employee.”

For more Department of Labor information about 401(k) plans go to