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How to Create an Employee Benefit Plan & Which Benefits to Offer
Learn what employee benefits your company should offer and how providing benefits can strengthen your business.
Written by: Skye Schooley, Senior Lead AnalystUpdated Mar 13, 2026
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Table of Contents
While a competitive salary is certainly a priority for many employees, it’s not the only thing they care about. Job seekers also look for a great company culture, a positive work-life balance and a comprehensive benefits plan when searching for a place to work. Businesses that fall short in these areas risk losing strong candidates and struggling to retain key employees.
By offering competitive employee benefits, your company can attract top talent, keep current employees happy and build a positive reputation. Below, we’ll explain how to create a robust employee benefits plan and highlight the advantages these packages can bring to your business.
What are employee benefits?
Employee benefits are forms of nonwage compensation employees receive in addition to their salary, such as health insurance, retirement plans, paid time off (PTO) and wellness programs. Some of these benefits are legally required, while others are optional perks employers use to attract and keep great employees.
The benefits your company provides will vary, but they should make sense for your workforce, budget and company culture.
How do employee benefit plans work?
When an employer creates an employee benefits package, it can be offered as a standard set of benefits or as a plan that lets employees choose from several options. If optional benefits are available, employees typically make their selections during the annual open enrollment period.
Employee benefits plans generally work through the following steps:
Presenting the benefits package: Employers outline the benefits they offer — such as health insurance, retirement plans, paid time off and optional perks — and explain what coverage employees can choose.
Open enrollment: Employees select the benefits they want during the annual open enrollment period. Most calendar-year benefit plans (those that begin January 1) hold open enrollment in November of the previous year.
Designating dependents or beneficiaries: If benefits allow employees to cover dependents or name beneficiaries, those selections are usually made during open enrollment.
Qualifying life events: Employees who experience a qualifying life event — such as marriage, the birth of a child or adoption — can typically update their benefit elections outside the regular enrollment window.
Using benefits: Once enrolled, employees can access their benefits throughout the coverage period. For example, they might schedule an annual physical using their health insurance, get an eye exam with vision coverage or reimburse commuting costs through a commuter benefits program.
Sharing costs: Employers and employees usually share the cost of benefits. Employee contributions are typically deducted from each paycheck throughout the year.
After employees enroll, the employer is responsible for administering and managing the benefits plan throughout the year. This process — often called employee benefits management — includes maintaining plan records, coordinating with insurance providers, updating employee elections after qualifying life events and ensuring payroll deductions and employer contributions are processed correctly. Many businesses use one of the best HR software or benefits administration platforms to help manage these responsibilities and keep their plans compliant.
FYI
When an employee leaves your company or their job status changes, you may need to terminate employee benefits or adjust their coverage. Make sure you understand your plan's rules and legal requirements — including COBRA continuation coverage — before making changes.
How do you create an employee benefits program for your business?
Employers and HR leaders must consider both the company’s goals and employees’ needs when designing a benefits package. Below are seven steps you can follow to build a strong employee benefits program.
1. Set your budget.
Before selecting specific benefits, determine how much your business can realistically spend on an employee benefits program. Here’s how to conduct your benefits budget planning:
Choose the benefits you want to offer: Start by reviewing the benefits you’re legally required to provide, such as workers’ compensation insurance and employer contributions to Social Security and Medicare (more on legal requirements below). From there, decide how much additional funding you can allocate toward voluntary benefits like health insurance, retirement plans or paid time off.
Consider the factors that affect costs: Your budget will depend on several factors, including your company’s size, your workforce demographics, your industry and the states where your employees work. (Healthcare costs and insurance requirements can vary significantly by state.)
Set employer contribution levels: Many employers share benefit costs with employees through payroll deductions. Setting clear employer contribution levels early — such as covering a percentage of health insurance premiums — can help you build a sustainable benefits program while still offering meaningful coverage.
2. Define your employee benefit goals.
Before finalizing your benefits package, decide what you want your benefits program to accomplish. For example, your goal might be to improve employee retention, attract stronger job candidates, support employees’ health and well-being or stay competitive with benefits offered by similar companies in your industry.
Vincent DiDonna, national employee benefits operations leader for World Insurance Associates, said employers who view benefits as a way of caring for their employees — rather than simply meeting an obligation — often see higher employee engagement and greater appreciation for their benefits programs.
“While being cognizant of budget, employers can genuinely make an impact on the lives of their employees by offering a robust, well-rounded benefits package consisting of both employer-paid and employee-paid benefits,” DiDonna said. “Giving employees options helps signal that the employer took their wants and needs into account when selecting benefits. Ultimately, this approach leads to higher employee satisfaction, translating into a more loyal and productive workforce.”
3. Survey your employees.
To build a benefits program employees will actually value, gather input from your workforce. Conduct an employee benefits survey with questions designed to reveal what employees care about most, such as health coverage options, retirement plans, flexible work arrangements or wellness benefits.
When designing your survey, consider including scenario-based questions that show how employees would respond in real-life situations. For example, you might ask whether employees would prefer a plan with higher monthly premiums but lower out-of-pocket costs, or a cheaper plan with higher deductibles. These questions can often reveal what benefits people value most.
You can also work with a benefits broker or consultant who can help analyze employee feedback, identify benefits that align with your workforce’s needs and recommend potential vendors.
4. Determine which employee benefits you’ll offer.
Once you’ve established your budget and gathered employee input, decide which benefits best align with your company’s goals and workforce needs. Focus on the benefits employees value most while keeping an eye on what similar businesses in your industry offer.
Many employers start with a core set of benefits — such as health insurance, retirement plans and paid time off — and then add optional perks that reflect their company culture or workforce priorities. Flexible work arrangements, wellness programs and professional development benefits are common ways businesses expand their offerings.
At this stage, you’ll also decide how benefits will be structured, including which benefits your company will fully fund and which employees can choose as optional, employee-paid benefits.
5. Choose a benefits provider.
Once you’ve decided which benefits to offer, choose a provider that can administer your plan and support your employees. Many businesses work with benefits brokers, insurance carriers, one of the best professional employer organizations (PEOs) or an HR software platform that bundles benefits administration with payroll and HR tools.
When considering providers, compare their plan options, pricing, administrative support and how easily the system integrates with your current payroll or HR software. Some platforms also help employees enroll in benefits, update coverage after qualifying life events and manage contributions throughout the year.
Tip
Consider using HR platforms that integrate benefits, payroll and employee records in one system. As noted in our Rippling review and review of Paychex Flex, these solutions can simplify enrollment, payroll deductions and benefits management.
6. Communicate your benefits to your employees.
Even the best benefits package won’t have much impact if employees don’t understand what’s available to them. Once your benefits program is in place, clearly explain the options employees can choose and how the enrollment process works.
Many employers introduce benefits during the onboarding process and revisit them during open enrollment each year. Provide employees with clear plan summaries, outline any enrollment requirements and remind them of important deadlines so they can make informed decisions about their coverage.
7. Track employee benefits participation and utilization.
Once your benefits program is in place, keep an eye on how employees actually use the benefits you offer. Reviewing participation rates, enrollment trends and employee feedback can help you understand which benefits employees value most and which ones might need adjustment.
Low participation doesn’t always mean a benefit isn’t useful. Some voluntary benefits appeal only to certain groups of employees. However, consistently low enrollment in core benefits like medical or dental coverage could signal that the plan design doesn’t meet employees’ needs or that the costs are too high during open enrollment.
Regularly reviewing benefits participation data can help you spot gaps, adjust your offerings and make sure your benefits program continues to support your workforce as your business grows.
What types of benefits do companies typically offer?
Employers typically offer a mix of core benefits employees expect and additional perks that help round out their overall benefits package.
DiDonna noted that medical, dental, vision, life and disability insurance — along with tax-advantaged health spending accounts such as flexible spending accounts (FSAs) and health savings accounts (HSAs) — are among the benefits many employees expect to see.
“From there, employers can offer a variety of benefits on both an employer-paid or employee-paid basis to help round out their overall benefits offering,” DiDonna explained. “It is typically here where employees compare and contrast benefits packages when evaluating multiple job offers.”
In general, employee benefits fall into three categories: legally required benefits, commonly offered benefits and additional fringe benefits that can help employers stand out.
Legally required benefits
Employers must provide certain benefits to comply with federal and state labor laws. These requirements vary based on factors such as company size and location, but some of the most common legally required benefits include the following:
Some states and municipalities require additional benefits, such as paid leave (e.g., paid sick leave and family leave) or disability insurance. Employers should check with their state and local labor departments to determine which benefits apply to their business.
Popular employee benefits
These are some of the most common benefits employers offer their employees:
Medical, dental and vision insurance
Tax-advantaged health spending accounts, such as FSAs, HSAs and health reimbursement arrangements (HRAs)
Retirement plans with employer contributions or matching, such as 401(k) retirement plans, 403(b) or 457(b) plans
Transit or commuter benefits
Tuition reimbursement or student loan repayment assistance
Wellness programs
Fringe benefits
Fringe benefits are additional perks employees receive beyond their standard salary or core benefits. These offerings can help employers make their workplace more attractive and support employees’ personal and professional needs.
When deciding which fringe benefits to offer, consider what would be most valuable to your workforce and what aligns with your business. For example, companies with many working parents might offer child care assistance, while a fitness-focused business could provide free or discounted gym memberships.
On-site services (such as a salon or wellness services)
Grocery delivery services
Mental health and meditation services
Moving assistance
Stock options
Did You Know?
According to the 2025 Selerix Employee Benefits Survey, 73 percent of employees say benefits matter as much as — or more than — pay, and 38 percent say they've declined a job because the benefits package didn't measure up.
What are the advantages of offering employee benefits?
Employee benefits don’t just help workers — they can also give employers a competitive advantage. Here are four ways offering strong benefits can help your business.
Attract top talent: A strong benefits package can signal that your company values employees and supports their well-being. Alyssa Sharkey, director of global HR operations at Bullhorn, said offering strong benefits can help businesses stand out to job candidates. “Providing comprehensive, quality benefits signals that your business cares about your employees and that your organization is financially stable enough to support their well-being, thus improving both acquisition and retention of top talent,” Sharkey said.
Reduce burnout and improve productivity: Benefits like flexible schedules, generous paid time off and remote work options can help employees maintain a healthier work-life balance. When workers feel they have control over their schedules and time off, they’re less likely to experience employee burnout and more likely to stay engaged and productive.
Support a healthier workforce: Wellness benefits — such as gym reimbursements, healthy meal programs and comprehensive healthcare options — can encourage employees to take better care of their physical and mental health. Benefits like FSAs, HRAs and HSAs can also reduce financial stress around medical expenses.
Strengthen employee morale and loyalty: Offering meaningful benefits demonstrates that you value your team and want to support their long-term well-being. And employees who feel appreciated often have higher morale, which can strengthen your company culture, reputation and retention.
FYI
Research from the McKinsey Health Institute and the World Economic Forum found that improving employee health and well-being could generate up to $11.7 trillion in global economic value by reducing workplace absenteeism and turnover and increasing productivity.
What is the cost of employee benefits?
The cost of employee benefits varies widely depending on factors such as company size, location and the types of benefits offered. Both employers and employees typically share the cost of benefits through employer contributions and payroll deductions.
Costs for employers
According to the Bureau of Labor Statistics, private industry employers spent an average of $46.05 per hour on total compensation in the third quarter of 2025, including $13.68 per hour on employee benefits — about 30 percent of overall compensation.
Health insurance is typically the most expensive benefit employers offer. However, payroll taxes for Social Security and Medicare, paid time off and retirement contributions can also represent significant benefit costs.
Employers can manage benefits expenses in several ways. For example, they may offer multiple plan options, including high-deductible health plans with lower premiums. Some businesses also provide wellness programs or preventive care incentives that can help reduce long-term healthcare costs.
Costs for employees
The amount employees pay for benefits depends on the type of coverage they select, how their employer’s plan is structured and their individual circumstances. In most cases, employees share the cost of benefits through premiums, deductibles, copays and coinsurance. Health, dental and vision insurance — along with retirement plans — are among the benefits employees most commonly contribute toward.
According to the 2025 KFF Employer Health Benefits Survey, the average annual premium for employer-sponsored health coverage is $9,325 for single coverage and $26,993 for family coverage. On average, workers contribute $1,440 per year toward single coverage and $6,850 toward family coverage.
Employees should carefully consider the cost of benefits when evaluating job offers and selecting coverage during open enrollment. Reviewing benefits statements and plan details regularly can also help employees better understand their costs, coverage and out-of-pocket responsibilities.
Tip
If retirement savings are part of your benefits package, review the best employee retirement plans to understand options such as 401(k)s, SIMPLE IRAs and SEP IRAs. Choosing the right plan can help both employers and employees maximize tax advantages and long-term savings.
Employee benefits FAQs
Employers should review and update their benefits package regularly — ideally once a year — to ensure it remains competitive and aligned with employees' needs. Tracking benefits participation throughout the year can also help identify gaps in your offerings. For example, if certain benefits have consistently low enrollment, it may be time to reevaluate whether those options still make sense for your workforce.
No. Employers can offer different benefits packages for part-time and full-time employees. However, businesses must ensure their policies comply with federal and state employment laws and apply benefits policies consistently across similar employee classifications. Some states and municipalities also have laws that require certain benefits — such as paid sick leave — to be available to part-time workers, so employers should review local requirements before finalizing their benefits policies.
What happens to an employee's benefits after leaving a company depends on the type of benefit. In many cases, health insurance coverage can continue temporarily under the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows eligible employees of companies with 20 or more workers to maintain their employer-sponsored health plan for a limited period, typically at their own expense.
Other benefits may stay with the employee. For example, employee-owned accounts such as HSAs remain with the individual even after they leave the company. However, employer-provided benefits like life insurance, wellness perks or employer-paid coverage typically end when employment ends unless the plan allows conversion or continuation.
Tracking HR metrics — such as benefits participation rates, employee retention and turnover — can help you gauge how effective your benefits package is. Employers can also gather feedback through employee surveys or benefits reviews to understand which offerings employees value most and where improvements may be needed.
It depends on the type of benefit. Some employee benefits — such as employer-sponsored health insurance, retirement plan contributions and HSA contributions — are generally tax-advantaged or tax-free under federal law. Other benefits, including certain employee bonuses, stipends or non-cash perks, may be considered taxable income.
Because tax treatment can vary based on the benefit and how it's structured, employers and employees should review IRS guidance or consult a tax professional or accountant for specific advice.
Kimberlee Leonard contributed to this article. Source interviews were conducted for a previous version of this article.
Skye Schooley is a dedicated business professional who is especially passionate about human resources and digital marketing. For more than a decade, she has helped clients navigate the employee recruitment and customer acquisition processes, ensuring small business owners have the knowledge they need to succeed and grow their companies.
At business.com, Schooley covers the ins and outs of hiring and onboarding, employee monitoring, PEOs and HROs, employee benefits and more.
In recent years, Schooley has enjoyed evaluating and comparing HR software and other human resources solutions to help businesses find the tools and services that best suit their needs. With a degree in business communications, she excels at simplifying complicated subjects and interviewing business vendors and entrepreneurs to gain new insights. Her guidance spans various formats, including newsletters, long-form videos and YouTube Shorts, reflecting her commitment to providing valuable expertise in accessible ways.
