The days of taking a cookie-cutter approach to employee benefits are long gone. In today’s competitive hiring and retention landscape, employees seek more than basic health and retirement plans. Their needs extend far beyond perks like free snacks too.
The best employee benefits plans take the whole person into account, provide security in case of emergencies, and make life better every day for employees, both at work and in their personal lives.
There are many reasons to make it a priority to get your employee benefits packages right, from attracting and retaining talent, to staying fully compliant with federal, state and local mandates. For HR decision-makers the stakes are high – and not just when it comes to talent in the $100k+ pay range. For employees earning up to $80k, benefits can make a dramatic impact on things like financial wellness, stress and job satisfaction – all factors that impact retention and productivity at work.
In this guide, we’ll answer:
- What Are Employee Benefits?
- Why Are Employee Benefits Important?
- What Employee Benefits are Required by Law?
- What Should Employee Benefits Packages Look Like?
- How Much Do Employee Benefits Cost Per Employee?
- What is Employee Benefits Liability Coverage?
What Are Employee Benefits?
Employee benefits include any form of compensation, tangible or intangible, provided over and above employee wages and salaries. These incentives include federally or state-mandated benefits as well as employer-defined voluntary programs and perks.
Sometimes referred to as “fringe benefits,” voluntary employee benefits commonly offer financial rewards. However, intangible benefits like flexible working hours, office snacks or learning and development opportunities are increasingly popular among employees and employers alike.
Types of Employee Benefits
There are many types of benefit, including both legally required and voluntary benefits. The most common employee benefits fall into three major categories: health benefits, financial benefits, and wellness and lifestyle benefits.
Traditionally, benefits plans have focused on providing various forms of health-related insurance, and retirement savings programs. Common examples of traditional benefits include:
- Medical insurance
- Dental Insurance
- Vision Insurance
- Retirement plans
- Life insurance
- Disability insurance
In recent years, the traditional categories of benefit have evolved, with innovative programs and non-traditional perks on the rise. It’s become common for companies to offer more extensive packages that include both tangible and intangible benefits in order to differentiate themselves as an employer of choice.
WTW’s 2021 Benefit Trends Survey found that integrating employee well-being into benefits strategies has become a top priority for global employers. In this survey, 73% of employers cited stress, burnout and mental health challenges as their top workforce challenges, while 65% reported that integrating wellbeing into their benefits package is their top strategic objective.
This demonstrates the importance of thinking beyond traditional benefits when considering how to develop your employee benefits packages.
Health benefits are consistently ranked among the most important benefits for employees. They’re also among the most costly benefits to employers. From 100% employer-paid policies to optional group plans, employers have a wide range of options to consider.
Examples of health benefits
- Health, vision and dental insurance
- Life insurance
- Health Savings Accounts
- Critical Illness Insurance
- Accident Insurance
- Cancer Insurance
- Hospital Indemnity
- Disability Insurance
Retirement plans have traditionally been the most common financial benefit offered to employees. But today many employees are seeking shorter-term solutions to support their financial goals and wellbeing.
In Sunny Day Fund’s own research, carried out at the start of 2022, we found that almost 50% of those who responded to our financial well-being survey said that emergency savings would be one of the top three benefits that would convince them to join, or stay with, a company.
Examples of financial benefits for employees
- 401K or other retirement benefits
- Stock options
- Tuition reimbursement
- Paid leave
- Defined benefit pensions
- Employer-rewarded emergency savings
- Financial planning
- Paid volunteer time
- Charitable donation matching
- Transportation reimbursement
- Emergency cash grants
- Financial coaches and resource navigators
Wellness and Lifestyle Benefits
The COVID-19 pandemic has amplified the need for support and services to promote well-being among workers, who face high levels of stress in their lives today. In a tight labor market, wellness and lifestyle benefits can be particularly valuable for attracting talent and keeping employees engaged at work.
By offering a variety of benefits that support employee wellness and provide lifestyle enhancements, employers can cater to the needs of a diverse workforce.
Examples of wellness and lifestyle benefits
- Flexible working hours
- Work from home options
- Wellness programs
- Behavioral programs (eg. smoking cessation, weight management, life coaching)
- Gym reimbursements
- Training and education programs
- Office perks (eg. snacks, games and activities)
- Employee rewards (eg. sports tickets, happy hours and company-sponsored events)
- Lifestyle spending accounts
Why Are Benefits Important?
Employee benefits can do more than make your company stand out in a competitive hiring environment.
Tracy Avin, founder of HR community TroopHR, explains:
“You have to respect your employees. People have different needs and regardless of what their role is, they want to feel heard, they want to feel valued by their employer, and that will drive loyalty, [and] productivity.”Tracy Avin, TroopHR Founder
Arguments in favor of rich benefits programs aren’t just anecdotal. Research has shown that offering a diversified benefits package can make employees more loyal, productive and happy at work.
Mercer’s 2021 Health on Demand survey of 14,000 global employees found that employees who have access to a diverse array of benefits are more likely to stay in their job, feel like their employer cares about their health and wellbeing, feel energized at work, and feel confident in their ability to afford healthcare.
For any employer seeking to build the kind of company that people are proud to work for, employee benefits are a critical priority.
Impact of Benefits on Hiring & Retention
Benefits can have a profound impact on your hiring and retention goals, especially if we think beyond the scope of traditional benefits to address the needs and preferences of different demographics and individuals within our organizations. For example, by offering flexible parental benefits, companies may be able to make strides toward retaining more women in the workforce and creating a more equitable playing field for all parents.
As WTW highlights in their Benefits Trends Survey findings, “A focus on DEI will help employers address the different needs and preferences of today’s diverse workforce and shape a benefit portfolio that meets employees where they are.”
Wondering how to follow through on DEI initiatives? Read this post.
avinSalary and wages are important pieces of the puzzle but today’s workers are looking for more than just financial incentives. Comprehensive health care benefits may be more important to an employee with a chronic illness than salary alone. For another employee, flexible work hours and location may be a top priority.
Lauren Newton, Head of People at Medium, says we have to acknowledge the role of benefits in attracting candidates. “These days, most candidates are interested in the “entire package” when they’re considering offers of employment. For the most part, cash tends to be the most important piece of the package folks consider, but benefits are up quite high on the list as well. Especially over the last two years, job seekers want to know that beyond the transactional work-for-pay relationship, they (and their families!) are going to be well taken care of by way of benefits and perks.”
As the economy shifts, offering benefits such as work-from-home or hybrid work opportunities can boost employee happiness. A 2022 report from Condeco on Attitudes to Hybrid Working found that 63% of hybrid workers would recommend their company as an ideal work destination. Of course, remote work isn’t feasible for every role or company. Health, financial or other benefits can have similar impacts on employee satisfaction.
Simply put, companies that don’t offer compelling benefits risk losing employees. A 2022 WTW study found that more than half of employees are actively seeking new jobs or open to leaving their employer. Along with pay, bonus and job security, health benefits and flexible work ranked among the top reasons to leave or stay with an employer
Impact of Benefits on Engagement & Productivity
Employee stress is one of the key factors that can reduce productivity and engagement at work. As an employer, providing benefits like flexible work schedules, financial planning support and paid leave can all help to reduce stress, enabling employees to bring the best version of themselves to work.
As Tracy Avin points out, “healthy employees are happy employees, and that healthy is mental health, physical health, [and] financial wealth. When you’re worried about having to pay your rent every month because you’re not making a lot of money, that’s stressful, and that impacts your day.”
With global instability and inflation on the rise, employees are being impacted in significant ways. PWC’s 2022 Employee Financial Wellness Survey found that financial concerns are a top reason for employees to seek a new job, be distracted at work or experience drops in productivity. Even when struggling, employees are reluctant to ask for help with financial concerns.
By supporting employees with benefits like financial literacy programs or emergency savings accounts, employers may be able to reduce turnover and minimize the mental health challenges that come with financial insecurity.
What Benefits are Required by Law?
While some employee benefits are nice-to-have, others are legally required for all employers.
Federally mandated employee benefits include:
- Social Security, Medicare and Federal Insurance Contributions Act (FICA)
- Unemployment Insurance
- Workers’ Compensation Insurance
- Family and Medical Leave Act (FMLA) Protections
Sometimes, employers are also required to provide employees time off to vote, serve on a jury and perform military service, depending on which state they’re located in.
Retirement savings and emergency savings may also soon be entering the mix with the RISE & SHINE Act of 2022. Congress is debating automatic enrolment of retirement savings and pension-linked emergency savings given the savings crisis in America.
The takeaway here is that the benefits landscape is complex and, based on the size of your organization as well as the states your employees reside in, you may be required to provide thing like health insurance benefits under the Affordable Care Act, and disability insurance, and more. HR leaders need to find trust-worthy ways to stay up to date with benefits requirements on a regular basis.
Employee Benefits Compliance
As an employer you’re responsible for accurately and appropriately delivering employee benefits. This includes legally mandated benefits, which must be reported to the relevant governing bodies, as well as voluntary benefits, which must be provided as agreed upon in your employee contracts. Beyond providing benefits, employers are responsible for providing information to employees to ensure they’re able to make informed decisions about benefits such as optional health insurance coverage.
To remain compliant, you must be up-to-date on the requirements of all plans, policies and other benefits provided to your employees, which can change year to year, and vary at the federal, state and local levels. A professional employee benefits manager or consultant can help you to ensure your company remains in good standing.
Employee Benefits Packages
There are many ways to approach your benefits strategy, but it is always useful to consider what is most important for your existing and prospective employees. To understand the total value of your offering to employees, benefits should be calculated as one component of total compensation, along with salaries and wages.
One strategy is to begin with your core benefits, including legally mandated benefits and top priority voluntary benefits such as health insurance and retirement plans. Beyond this, the options are vast, with various costs and advantages associated with different offerings. Some employees may choose to use a mental health counseling service while others may be attracted to financial planning resources.
A personalized benefits package with a range of options for employees to choose from may be an effective way to provide an inclusive and sustainable workplace for a more diverse workforce.
Employee Benefits Package Examples
As we’ve discussed, there is no one size fits all benefits package that will work for every company. Instead, it’s helpful to consider the needs of your existing workforce and the people you hope to attract.
Here’s one example of an employee benefits package designed to attract and retain employees:
- 401K plan with employer matching
- Medical, dental and vision insurance with a range of coverage/co-pay options for employees
- $100/month gym or fitness reimbursement
- 10 days paid time off annually
- Paid sick leave
- Flexible working schedules / remote working
- Employer-rewarded emergency savings plan
- Social Security, Medicare and Federal Insurance Contributions Act (FICA)
- Unemployment insurance
- Workers’ compensation insurance
- Family and Medical Leave Act (FMLA) protections
In practice, employee benefits packages can be very complex, particularly for organizations with a diverse workforce spread across multiple jurisdictions.
Employee Benefits Package Template
When constructing a benefits package, it may be useful to build a core benefits framework that takes into account physical, mental and financial wellness. While the benefits that fall within each of these three pillars of employee wellness can vary significantly, each pillar should be carefully considered.
The table below provides a helpful starting place to help you create a basic employee benefits package outline. This template is intended to help you visualize the breadth of the benefits you may choose to offer, along with the value of the benefits to employees.
How Much Do Employee Benefits Cost Per Employee?
Employee benefits contribute substantially to the total cost of employee compensation.
The Bureau of Labour Statistics reports that in 2021, on average wages and salaries cost employers $27.83 per hour worked, accounting for 69% of total compensation, while benefits cost the equivalent of $12.52 per hour, accounting for the remaining 31%.
Actual costs vary by industry, company size and other factors. In some cases, benefits may be partially employer funded and partially employee paid, such as a 401K plan with employer-matched contributions.
It’s important to note that not all employee benefits have to be expensive – some may not require any financial expense at all. The value of the intangible or low-cost benefits can be significant, from organizing volunteering opportunities to providing recognition for a job well done, to creating a company book club. In some cases, the most desired employee benefits, like flexible or remote working opportunities, may actually save your company money.
How Do Total Employee Benefits & Total Employee Rewards Differ?
Total employee rewards includes direct pay (salary and wages) along with all of the indirect benefits that are provided to employees. So total benefits forms part of total rewards:
Total rewards is not to be confused with total compensation, which refers to salary, benefits and any bonuses.
How to Calculate the Value of Your Benefits Pack
To understand the value of the benefits you choose to offer, it’s helpful to consider how benefits impact salaries.
All else being equal, an excellent benefits package may tip the scales for employees considering multiple job offers. Many people will consider accepting a lower salary if a compensation package offers high-value benefits such as comprehensive health insurance or paid parental leave.
Consider providing a total compensation statement to employees to help them understand the value of the benefits you offer. This may include salary plus the total dollar value of the tangible benefits, as well as a list of intangible benefits such as flexible work hours or company-sponsored social events.
How to Calculate Employee Benefits Percentage
You can calculate the employee benefits percentage for an employee by dividing the dollar value of all non-salary benefits by total employee compensation.
Here’s an example:
- Employee benefits value = $20,000
- Salary = $75,000
- Total compensation = $95,000
- $20,000 / $95,000 = .21
- Employee benefits percentage = 21%
How Many Hours Can a Part-time Employee Work Without Benefits?
As we’ve discussed, some benefits are legally required by federal, state or local laws. In order to remain compliant, you must understand how to identify whether your employees qualify as full-time or part-time. The IRS website explains, “For purposes of the employer shared responsibility provisions, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.”
If your employees work less than 130 hours per month or 30 hours per week, you are not required to provide benefits, but keep in mind, that legal compliance is only one factor.
Voluntary employee benefits come with a wide range of costs – and advantages – for your entire organization. Offering at least some perks and benefits to part-time employees can give you a competitive edge in hiring and retention, particularly for dynamic workforces that require flexible labour, such as the senior living or hospitality industries.
A 2021 survey from the Bipartisan Policy Center found that employees earning less than $50K per year were significantly less likely to have access to workplace savings vehicles than higher-income employees. For lower-income employees who are more likely to face financial challenges, benefits can have life-changing implications.
As an employer, it is valuable to think beyond legally required benefits, taking into consideration how benefits can make a tangible impact on part-time workers. Often those who are least likely to have access to benefits are the ones who need them the most.
What is Employee Benefits Liability Coverage?
Providing employee benefits is complex. In case of administrative errors or omissions, you could be liable if an employee decides to sue. Employee benefits liability coverage protects your company in situations where a simple mistake causes undue hardship to an employee.
For example, if your company provides health insurance coverage on behalf of your employees, a clerical error could mean that an employee is not enrolled in your health plan. If an uninsured employee has an accident and finds that they must pay for healthcare expenses out of pocket, they may be able to sue your company. In this case, employee benefits liability insurance could protect your company.
While employee benefits liability insurance is optional and does not cover your company in all situations, it’s worth considering, particularly if you offer substantial employee benefits.
Get Started With Employee Benefits
A well-designed employee benefits program is an imperative for every company in today’s competitive hiring environment. Benefits are so more than just a requirement though; they’re an opportunity to give your company and your employees a meaningful boost. As Lauren Newton of Medium puts it:
“At the end of the day, benefits and perks are meant to take care of the employee in a holistic way. As an employee, if you have benefits or perks that support you in other areas of your life–let’s say, covered therapy sessions–you’d hopefully see the positive benefits of that therapy show up in other areas of your life, including at work. And, if you use something like an education stipend to further your knowledge in your field, that could also benefit your work in a very tangible way.”Lauren Newton, Head of People at Medium
No matter where you’re at in the process of building your employee benefits packages, right now is the perfect time to think beyond the basics. By offering benefits that address the needs of employees across all roles and levels of your organization, you can set your company apart and make a meaningful difference in the lives of your workforce.