While a competitive salary is certainly a priority for many employees, it’s not the only thing they care about. People look for a great company culture, a positive work-life balance and a comprehensive benefits plan when searching for an employer. Businesses lacking in these areas risk losing out on great candidates and not retaining critical employees. But by offering competitive employee benefits, your company can attract top talent, keep current employees happy and build a positive reputation. When creating an employee benefits plan, business owners need to know which benefits they are legally required to offer and which give your business the competitive edge it needs.
Employee benefits are the nonwage compensation employees receive in addition to their salary. Some employee benefits are required by law but businesses should consider offering additional nonmandatory benefits their employees will appreciate. Your specific benefits can vary but they should be compatible with your business.
When an employer creates an employee benefits package, it can be provided either as a standard offering or as a plan with multiple employee benefits options. If you offer optional benefits to your workers, employees accept or decline specific benefits during the annual open enrollment period. Most calendar-year benefit plans (starting on January 1) hold open enrollment periods in November of the prior year.
Plans that allow for benefits-eligible employees to cover dependents or beneficiaries require those designations to be specified during the open enrollment period. Employees who experience a qualifying life event, such as marriage, the birth of a child or the adoption of a child, anytime during their plan year can often change their benefit elections at that time.
Employees have access to their benefits during the entire period of their coverage. For example, they might use their health insurance for an annual physical, to get an eye exam with vision insurance and to reimburse themselves through their commuter benefits plan.
Employers and employees are responsible for making the predetermined payments and contributions toward the elected benefits. For employees, payments typically are deducted from each paycheck throughout the year.
If an individual’s employment status changes, it impacts their benefits eligibility.
Employees place high importance on benefits when evaluating job offers, so your business must be ― at the very least ― offering the most common types of employee benefits.
Vin DiDonna, national practice leader of benefits consulting for Namely, said medical, dental, vision, life and disability insurance as well as the opportunity to access tax-advantaged health spending accounts, such as a flexible spending account (FSA) and health savings account (HSA), are a few of the benefits employees expect.
“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 told business.com. “It is typically here where employees compare and contrast benefits packages when evaluating multiple job offers.”
These are a few of the employee benefits employers are legally required to offer:
Some states and municipalities may have laws that require employers to offer additional benefits, such as paid sick leave, paid family leave and disability insurance. Employers should consult with their state and local labor departments to determine which benefits must offer.
These are some standard benefits that companies offer to their employees:
You may have seen or heard the term “fringe benefits.” This term refers to the additional compensation an employee receives outside their standard salary or wages.
“Fringe benefits can include other incentives, like employee discounts, subsidy programs and reimbursements,” said Jennifer Soloway, office manager and former recruitment coordinator at staffing software company Bullhorn. “For example, we [Bullhorn] offer subsidy programs with Verizon and reimbursement for exercise and wellness memberships.”
Selecting which fringe benefits to offer is when you can get creative. Think about the benefits your team will find most valuable, such as if many of your employees are parents to young children or you might want to offer on-site day care as well as what benefits align with your products or services like a gym could offer free membership to its employees.
These are some possible fringe benefits:
Employee benefits are (obviously) great for employees, but they provide advantages to employers too. Here are four advantages for small businesses that offer employee benefits:
Before accepting a new job, people consider not only the salary or wage offered but the benefits as well. Your benefits package should reflect the type of employees you are looking for.
Alyssa Setting, global human resources (HR) operations manager at Bullhorn, said that employee benefits reflect on a business. “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.”
Certain benefits provide employees with a better work-life balance. For example, unlimited PTO off and flexible work hours can give employees a sense of control over their work schedules. Integrating a positive work-life balance into your overall company culture may reduce employee burnout and increase productivity.
Less traditional benefits like gym memberships and free nutritious meals can encourage active and healthy lifestyles. Additionally, offering competitive healthcare options and supplemental healthcare accounts, such as an FSA, HRA or HSA, can reduce employee stress about getting (and paying for) healthcare for themselves and their families and it may encourage employees to take an active role in maintaining their health.
When you implement employee benefits that are designed to promote a healthy workforce, employees aren’t burdened with the stress of securing benefits and coverage on their own. This can allow them to focus more on the jobs you hired them to do.
Employee benefits show employees that they matter to you. Although employee shout-outs and awards demonstrate your appreciation to team members, employee benefits take it one step further, offering tangible evidence that you care.
“It is not every day that an employer can illustrate concretely how much they care about their employees,” DiDonna said. “However, through employee benefits, an employer can achieve this goal by showing employees just how much they care about them and their families.”
Employees who feel appreciated tend to have higher morale and positive morale can do wonders for your reputation and your bottom line. [Related article: Massages and Pets and Beer, Oh My! Creative Perks for Improved Morale]
The cost of employee benefits varies greatly, depending on things like how big your company is, what cities and states you operate in and the type of benefits you offer. Both employers and employees will incur costs associated with employee benefits.
According to the Bureau of Labor Statistics, the average employer pays their workers roughly $41.03 per hour in employee compensation. Nearly 30 percent of that ― or $12.06 per hour ― is spent on employee benefits. Health insurance is typically the most expensive benefit to offer, although Social Security and Medicare, PTO and retirement benefits can be somewhat costly as well.
Employers can reduce the cost of employee benefits by offering a variety of plan options and by choosing high-deductible plans and copays. Additionally, employers can offer wellness programs to encourage employees to stay healthy, which can lead to lower healthcare costs.
The amount an employee pays for their benefits depends on what type of benefits they select, how the employer’s plan is designed and what their individual circumstances are. However, in general, employees can expect to pay a portion of the cost of their benefits through premiums, deductibles, copays and coinsurance. The most common benefits employees pay for are health, dental and vision insurance. Employees commonly contribute to retirement benefits as well, paying an average of 6.5 percent of their salary, according to SmartAsset.
Employees should carefully consider the cost of employee benefits when choosing a job and deciding which benefits to enroll in. They should also review their benefits statements regularly to ensure they understand their costs and coverage.
Creating a carefully thought-out employee benefits plan is crucial. Each employer (or HR professional) needs to consider the company’s and its employees’ needs when determining a benefits plan.
Below are seven steps you can take to create an optimal benefits package.
As with every business decision, you first need to determine a realistic budget that you can afford to spend on your employee benefits. Determine what you are legally obligated to spend on required benefits and then factor in what additional funds you can reasonably afford to contribute on top of that. You must consider things like how many employees you have, what state(s) you’re in and the industry you’re a part of.
DiDonna said employers who view benefits as a way of caring for their employees, rather than something they are obligated to do, tend to have higher employee engagement and greater employee appreciation of benefits.
“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.”
The next step is to find benefits that employees will be enthused about and to do that, you want to consult your staff. Send out an employee benefits survey with questions that will yield actionable results.
DiDonna said Namely created an employee benefit survey asking employees what they would do or what they would have done in a given situation. “That gives us insight into what employees find important based on their actions. From there, we can make pointed recommendations based on the specific answers of any given employee population.”
Another option is to hire a benefits broker who can help you pinpoint the benefits you want to offer employees and select potential vendors.
After conducting your research, surveying your employees and possibly hiring a benefits broker, determine which employee benefits you want to offer. Create a list of non-negotiable and optional benefits you might offer.
Once you know which benefits you need, select a benefits provider that can fulfill your needs. However, depending on your HR situation, you may be limited in which benefits provider you can partner with. If you are looking for an HR software provider that can help with benefits administration, check out our Rippling review or our Paychex Flex review.
A great employee benefits plan is useless if your employees are unaware of it. Once you have a benefits package to offer your employees, be sure to communicate with them about what their options are. Have an open dialogue that allows them to ask any questions they may have. Remind them of any enrollment requirements or deadlines that may apply.
As Setting noted, your employees’ needs change over time and so should your benefits. It is important to track what portion of your workforce is utilizing the benefits you offer. (Benefits can be tracked and managed through top HR software.) If a specific benefit has low participation, it could signal that it does not meet the needs of your employees and you may need to pivot.
“Low participation is OK for voluntary benefits since most are niche in nature and only pertain to a subset of the population,” DiDonna said. “That’s why employers typically add multiple voluntary benefits that target different needs. However, for plans like medical and dental, low participation could signal plan designs that do not meet the needs of employees or contributions deemed unaffordable by employees going through open enrollment.”
Employers can evaluate key metrics throughout the year to determine the optimal mix of benefits they should offer their employees.
Review and update your benefits package regularly, at least once a year, to ensure it remains competitive and meets the needs of your workforce. If you track your benefits participation metrics throughout the year and notice low participation rates, you may want to review your benefits offering more frequently.
No. You can have a separate benefit offering for part-time and full-time employees, as long as there is equal employment opportunity within your company. Keep in mind that some states have specific laws regarding part-time employee benefits that you need to comply with.
The continuation of benefits after an employee’s departure can vary. The Consolidated Omnibus Budget Reconciliation Act (COBRA) may allow them to continue health coverage for a limited time. Other benefits that are employee-owned, such as HSA accounts, stay with the employee in perpetuity.
Tracking HR metrics, such as plan participation and employee retention rates, gives you an idea of how successful your benefits offering is. You can also conduct employee surveys to gain more insight into how your staff feels about your benefits.
The tax treatment of employee benefits can vary. Some benefits are tax-free, while others are taxable. For specifics on how taxes relate to your employee benefits, consult a tax professional or accountant for guidance.
Some source interviews were conducted for a previous version of this article.