In today's business environment, employee benefits constitute a significant -- and possibly essential -- portion of total employee compensation. Benefits, both required and optional, can be very costly. Yet the cost of not offering a competitive employee benefits package can be utterly destructive to your business.
Common Employee Benefits
According to Entrepreneur.com, employers are required by law to:
- Give employees time off to perform their civic duties (voting, serving on a jury, performing military service)
- Comply with all workers' compensation requirements
Withhold FICA taxes from employees' paychecks and pay their own portion of FICA taxes
Pay state and federal unemployment taxes
Contribute to short-term disability programs in states where such programs exist
Comply with the Federal Family and Medical Leave act
There are many other optional benefits that employers often provide in order to attract the most talented employees. According to the Bureau of Labor Statistics, the average private sector employee is compensated a total of $30.80 per hour worked when all expenses are taken into account. Employee benefits make up 30% of this total. Below is a breakdown of what these benefits entail and how much you can expect each of them to cost.
Medical insurance sits atop of the employee benefit totem pole. Unfortunately for employers, health insurance is quite costly, accounting for 7.8% of total employee compensation. This would mean that for an employee making a salary of $50,000 a year, an employer can expect to pay around $3,900 in health insurance premiums.
Another cost to consider is the amount of time required to:
- Choose an insurer
- Fill out the requisite forms
- Act as the intermediary between the insurer and your employees on an ongoing basis
Moreover, under health care reform, the government may impose fines on businesses that choose not to offer it.
On the other hand, there are benefits to offering medical insurance outside of attracting the most talented employees and complying with health care reform. For example, you may deduct the amount of your premium contributions from the company's income taxes. If you are self-employed, you may deduct 100% of your own health insurance premiums as a business expense.
Also, by offering a health care plan that includes preventative care, you are ensuring the wellness of your employees. This will assuredly boost worker productivity and lead to a better working environment for everyone.
Life and Disability Insurance
Offering group life and disability insurance plans is an easy, and relatively inexpensive, way to provide your employees with peace of mind.
According to LifeBenefits.com, buying in large groups makes these insurance premiums more affordable for everyone. Furthermore, insurance plans offered through work are more convenient to sign up for and provide an easier method for paying premiums, such as payroll deduction.
The report from the Bureau of Labor Statistics cited above points out that life and disability insurance make up about 0.5% of average total employee compensation in the private sector. For an employee making a salary of $50,000, that would mean you can expect to pay around $250 a year.
The Bureau of Labor Statistics reports that private industry employers can expect the cost of offering their employees a retirement plan to amount to around 3.7% of total employee compensation. To once again use the example of an employee making a $50,000 salary, the employer contribution would be $1,850.
With less than half of employees at the typical small company enrolling in retirement plans, offering this benefit is sure to pay off.
Paid Time Off
The cost of offering employees paid time off is reportedly around 6.9% of total employee compensation ($3,450 for a $50,000 salaried employee) or around $2.05 per hour worked. The exact cost can be difficult to determine, but some factors that influence it include:
- How much the employee is paid
- How long you can afford to be without the employee
- How much it would cost to temporarily replace the employee
- How much productivity would suffer
From another perspective, if you consider your payroll to be a fixed expense from month to month, then offering paid time off is a benefit that won't cost you too much as long as your productivity doesn't suffer.
Factors That Influence Benefit Costs
Many factors influence how much you can expect to pay for various employee benefits. As mentioned above, the cost of offering retirement plans is greatly dependent upon how many employees enroll in it. Employers will only have to contribute to plans for the employees that choose to participate.
For benefits related to insurance, factors that influence the cost include:
- The number of employees in a group
- The levels of coverage and reimbursement in a plan (For example, a medical insurance plan with a relatively low deductible will require a relatively high premium.)
The demographic statistics of your group
The geographic area
Another factor to consider is how much the employee will contribute to a benefits package. A good practice is to begin by determining how much you, as the employer, are willing to contribute per employee per month. You can then be a much better benefit plan shopper.
The Benefits of Benefits
Investing in employee benefits is a way for employers to invest in the long-term profitability of their business. While most benefits will cost money to implement, others increase profitability without costing the company a dime. According to Chron.com, these can include:
- Flexible work schedules
- The option to dress casually in the workplace
- Recognition of an employee's work/life balance
Give Them What They Want
The costs of offering employee benefits can seem overwhelming. In a highly competitive business environment, these costs could also be seen as unnecessary.
The key to success in this arena is to strike the right balance, and the most important way to accomplish this is to accurately determine which benefits your employees really desire. The costs of these benefits will be constructive, and will no doubt lead to your bottom line creeping further and further into the black.