If you want to attract and retain decent and loyal staff, you need to be offering an attractive benefits package along with the employee’s standard salary. But many employers are reluctant to do so because of the hidden costs.
It’s true that the employee benefit costs are many, but often, the advantages of providing them outweigh the negatives.
Let’s take a closer look at the employee benefits cost to the employer, so you can decide which ones you want to offer your workforce.
Employee benefits refer to non-wage compensation and perks given to employees in addition to their usual salary or hourly wage. Common types of benefits include: paid time off, retirement plans, and subsidized gym memberships.
Offering benefits is vital if you want to attract and retain talent, enhance employee satisfaction and motivation, and foster a positive work culture.
Nothing is for free, and the employee benefits cost can be quite high. There are many factors that affect the outlay of providing these benefits, but some common ones are:
Other more “hidden” costs include:
One of the most valued and common types of employee benefits costs is providing paid time off to employees.
How much do benefits cost an employer? Well, the cost of paid vacation days is calculated by multiplying the number of vacation days by the employee’s average daily pay.
For example, if an employee earns $50,000 per year and is entitled to 10 vacation days per year, the cost of paid vacation days for that employee is $50,000 / 260 (working days per year) x 10 = $1,923.
But there are other hidden costs at play too. You may have to pay overtime to other employees so the workload can be covered, and there are also costs associated with scheduling and organizing employees’ time off.
Paid sick leave allows employees to take time off from work when they are ill or injured or when they need to care for a family member. The cost of paid sick leave is calculated by multiplying the number of sick leave hours by the employee’s average hourly pay.
For example, if an employee earns $50,000 per year and uses 40 hours of sick leave per year, the cost of paid sick leave for that employee is $50,000 / 2080 (working hours per year) x 40 = $961.
Like paid vacation days, there are overtime, scheduling, and organizing costs associated with paid sick leave too. However, consider the alternative. Do you really want a sick employee coming into work and making everyone else sick too?
How much do employee benefits cost for other perks? Let’s find out.
Health insurance and dental coverage are two of the most important and valued benefits offered by employers to employees. When you provide this, you must pay for the cost of providing and administering the plans.
The cost of health insurance and dental coverage varies wildly and is based on the following factors:
Retirement plans are an attractive benefit to employees because it helps them save and invest money for their future retirement income.
The cost of retirement plans depends on these factors:
The investment performance: Generally, the better the investment performance, the lower the cost is for you but this isn’t guaranteed
Life insurance provides a lump-sum payment to the beneficiaries of employees who die while employed by the employer.
The cost of this benefit depends on:
The mortality rate: This refers to the probability or frequency of death among employees. The higher it is, the higher the cost will be
Disability coverage provides a partial or full replacement of income to employees who are unable to work due to illness or injury.
Costs associated with this coverage include:
The disability rate: This refers to the probability or frequency of disability among employees. The higher it is, the more it will cost
Employee incentives refer to things like cash bonuses, gift cards, merchandise, travel vouchers, stock options, profit-sharing, and recognition awards.
The reward’s impact: This is an interesting one. If the incentive has no impact on productivity or motivation, the cost of it is actually higher
Tuition reimbursement provides financial assistance to employees who pursue further education or training that is related to their current or future job roles. The outcome is a more productive employee. Therefore, to understand the cost of this incentive, you have to look at your return on investment (ROI).
Will the increased level of skill increase your business’ performance? If the answer is no, then the cost of the tuition will have been wasted.
Commuter assistance benefits help employees pay for the cost of traveling to and from work, such as parking, transit, vanpooling, and bicycle benefits.
Employees can pay for their commuting costs with pre-tax money, up to the IRS tax limit of $280/month. Employers save money through the reduction of payroll taxes.
There are costs associated with setting up and administering this benefit and there will need to be software in place as well as man-hours devoted to managing it.
Extra perks like snacks and gym memberships come at a direct cost to the employer. If you’re thinking of offering these to your workforce, the three key cost considerations (which we have touched on earlier in this article) are:
Behavioral costs: What kind of impact will offering these incentives have on employees? For example, will offering free snacks encourage employees to take more breaks and eat unhealthily?
So, how do you ensure you are providing attractive benefits to existing and new talent? The key is to control these expenses and perform research to understand if they will provide a benefit to your organization.
Cost-benefit analysis is essential because it allows you to understand beyond the cost of the benefit itself. In other words, what will be the benefit to the organization if you provide employee benefits?
For example, paid vacation days will result in a more productive and motivated workforce as well as reduced turnover rates. Offering additional perks may mean you attract better and more qualified talent over.
Without clear policies, employee benefits can run out of control. This includes placing firm limits on things like staff perks, PTO, and sickness leave. And it can also include clear qualifying and application criteria for certain benefits.
Train management staff on what the policies are and how to adhere to them. It also helps greatly to use dedicated benefit management software since you can define the parameters and usage for each benefit that cannot be breached.
Benefits with clear limits like PTO are easy to monitor. However, things like free snacks are a little tougher to regulate. It helps to monitor the usage of benefits to understand when and how they are being used.
Once you understand the consumption rates, you can place restrictions to control how much is spent. For example, for employee snacks, only place them out at certain times of the day and have a daily limit for how much is provided, as well as a monthly spending limit.
There are plenty of cost-effective ways to reduce the average cost for benefits per employee while ensuring your employees feel like they’re getting decent benefits from your organization.
For example, flexible working hours and the ability to work from home is a very attractive benefit that doesn’t cost a great deal to set up.
Providing discounts and vouchers are other relatively low-cost incentives, as are gym memberships, commuting assistance, and training funding.
We’ve already talked about how technology can regulate the cost of benefits for employees, as we can’t stress how important it is to get proper software in place. Without it, mistakes are easily made, and costs can quickly rise.
Finally, consult your account about the possibility of available tax credits. This saves you and the employee money, so it’s not something you should ignore.
These tax credits can vary from year to year, so make sure you add a tax credit review to your calendar each year to ensure you stay up to date with them.
The cost of providing employee benefits can look eye-watering at first. But with proper management and care, those costs will stay under control and on budget while your employees remain satisfied and loyal.
Our final piece of advice is to entrust employee benefits management to an expert. At Finvisor, we’ve been providing such a service to our clients for a long time and know exactly how to maximize employee benefits while keeping costs down.
Interested? Get in touch to find out more.
To learn more about what we do, or to request a quote, contact us at firstname.lastname@example.org or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*