Why employee benefits matter: Key considerations for employers
Why are benefits important, and what should you consider when developing a benefit plan for your organization? Benefits constitute a significant portion of employee compensation costs, but having a competitive benefit package is vital to recruiting and retaining the best employees. The best benefit programs are those that align with an organization’s business strategy and compensation philosophy.
For example, flexible benefit/cafeteria plans provide a means for employers to offer employees a customized benefit package while saving taxes for both the employer and its employees. Of course, employers also have to account for other significant employee benefits, such as Social Security, Medicare, workers’ compensation, unemployment compensation, and mandated paid leave laws, as required by federal and applicable state law. But tailoring a package to fit your organization extends beyond the legally required minimum to the ever-expanding menu of possible benefits.
Employers should engage in strategic planning as they try to balance employees’ needs and a budget. One avenue employers can explore is taking advantage of new tools, such as electronic plan administration, bundled packages through third-party providers, and offering new benefits beyond the traditional health, disability, insurance, and retirement plans.
Certain other benefits, such as up to $50,000 in group term life insurance and dependent care assistance, can be provided tax-free to employees. Employee voluntary benefits, such as payroll deduction for group auto and/or homeowners insurance, can provide savings to employees at no cost to the employer.
Providing benefits like adoption assistance or charitable donation matches can generate much more goodwill than they actually cost. Dependent care assistance appeals to employees with children or with aging parents, while long-term care insurance has more appeal to older employees.
Employers should research what benefits would work best for their workforce. Benefit programs are most effective in attracting, motivating, and retaining employees if they are part of a complete compensation strategy targeting the employer’s workforce.
Strategic planning can provide for controlled budgets over a period of years and provide meaningful benefits that aid in recruiting and retaining key employees.
Steps to take to define and implement a plan for achieving these objectives
- Evaluate current benefit plans and programs
- Identify corporate objectives
- Spell out strategies that relate to corporate culture
- Coordinate benefit strategies with other compensation and HR programs
- Design a communication plan
- Establish budgets to accomplish these steps
Federal tax laws contain certain incentives for employers to offer a selection of before-tax benefits that allow individual employees to choose the combined benefit/compensation plans that suit them best. These “cafeteria” plans typically lay out alternatives, including higher pay and lower-value benefits, from which employees may choose. For example, an employee with children whose working spouse has a good family health plan might decide against duplicative health insurance coverage and take its equivalent value in childcare assistance.
A simple plan providing childcare and medical expense reimbursement will involve low administrative costs and no employer contributions while saving employment taxes for both the employer and the employee, as well as income taxes for the employer.
Although more complex flexible benefit plans can involve some large administrative costs, especially at start-up, the level of employee satisfaction can be high even if economic pressures force benefit reductions. Employees often appreciate the opportunity to make individual adjustments when the aggregate value of their benefit package is reduced. Effective communication is crucial for flexible benefit programs to increase participation rates and reduce per capita administrative costs.
Additional benefits provided by employers
- Accident insurance
- Achievement awards
- Adoption assistance
- Athletic facilities
- Automobiles provided by the employer
- Charitable donation matches
- Dependent care assistance
- Disability insurance
- Discount programs
- Educational assistance
- Employee assistance
- Employer-provided services
- Financial/estate planning assistance
- Holiday gifts
- Investment education
- Jury duty pay
- Leaves
- Legal service plans
- Life insurance
- Long-term care insurance
- Meals and meal allowances
- Moving expense reimbursement
- Payroll deduction plans to purchase group life, auto, or homeowners insurance
- Sabbaticals/leaves of absence
- Severance pay
- Sick pay
- Supplemental unemployment insurance
- Transportation benefits
- Vacation pay
As the competition for skilled and talented employees grows even more intense, benefits will continue to play a larger role in employee recruitment and retention. Keeping your benefits options up to date and flexible while trying to balance the bottom line will remain a tough but important task.