Creating a compelling and competitive benefits package is an important part of attracting and retaining employees, explains Frank Mengert
Following the Great Resignation – or the Great Reckoning as it is sometimes called – employees are expecting more from their employers. According to an employee retention study by Mercer from 2021, nearly half of the US participants said insufficient pay and benefits are the top reason they would leave their current employer.
There’s no question that creating a compelling and competitive benefits package is an important part of attracting and retaining employees, but offering and managing the most attractive benefits – and their associated costs – can be challenging for employers. Here’s everything you need to know about your benefits package.
Common Benefit Offerings Most Companies Provide
Though the specific benefits can vary, most companies offer:
Medical, dental, and vision insurance
Medical insurance, or health insurance, is an employee benefit that pays for medical expenses. While some countries have National Health Insurance (NHI) or National Health Service (NHS) with universal healthcare coverage, US workers rely on employers to provide health insurance coverage at a discounted rate. In some countries with universal healthcare coverage, some employers offer private medical coverage to their employees as a benefit.
In the US, plans vary significantly in their coverage services, deductibles, copayments, and premiums. The most common plans are Preferred Provider Organization (PPO), Health Maintenance Organization (HMO), and High Deductible Health Plan (HDHP), which are usually part of a group health plan that’s sponsored by an employer.
PPOs allow employees to see any physician without a referral, while HMOs require coordinated care from an in-network primary care physician. HDHPs are similar to traditional plans but they have a higher deductible and lower premiums.
Dental and vision insurance may be offered as well, though they’re separate from health insurance. Typically, these insurance plans pay for preventative care, such as teeth cleanings and vision checkups. Some plans may offer coverage for major procedures as well.
Life insurance
Life insurance is a common benefit for many employers and provides financial assistance to the beneficiaries of an employee who dies to cover final expenses. Typically, life insurance is offered at the employee’s salary at no charge to the employee. However, employees must be enrolled in the employer’s life insurance plan to receive these benefits.
Retirement savings plans
Retirement savings plans help employees save for retirement. Retirement plans are divided into defined benefit and defined contribution plans. Defined benefit plans offer a source of income for retirees that’s based on their salary and years of service, paid out in regular monthly payments. Defined contribution plans allow employees to contribute a specific amount to their retirement each month, and the employer may make contributions on the employee’s behalf.
There are several types of retirement plans in the US, including 401(k) plans, 403(b) plans, 457 plans, and pension plans, each with their own rules and regulations for employee and employer contributions and eligibility.
- 401(k): These plans are the most common type. Employees contribute a percentage of their pay to their retirement account and employers may match or offer discretionary contributions.
- 403(b): These plans are available to some nonprofit employees or employees of public schools. They allow employees to contribute a percentage of their salary to their retirement account and employers may match or offer discretionary contributions.
- 457: These plans are available to government employees and some employees of charitable organizations. They allow employees to contribute a percentage of their salary to their retirement account and employers may match or offer discretionary contributions.
- Pension: These plans are defined benefit plans that provide a monthly income to retirees based on their years of service and salary history.
While other countries may not have these retirement options, they often have similar retirement savings benefits. For example, the UK offers:
- Workplace pensions: Similar to 401(k)s, UK citizens have the right to a workplace pension plan that is jointly funded by their employer and themselves. Employers are required to automatically enroll employees in a qualified pension plan.
- Self-invested personal pension (SIPP): Similar to 401(k)s, SIPPs are tax-advantaged retirement plans that allow participants to defer a portion of their pre-tax income to invest in stocks, bonds, and other assets. SIPPs were created as an alternative to company-sponsored defined-benefit pensions.
- Defined contribution scheme: Similar to 401(k)s, this tax-deferred retirement plan allows employees to contribute and may be partially matched by their employer.
Non-Traditional Benefit Options
Here are some common non-traditional benefits that employers are adding to their compensation packages:
Financial wellness programs
Financial wellness programs are a newer employee benefit that aims to help with financial stress. This process is designed to develop healthy financial habits, particularly for younger employees, and includes resources for employees to have better control of their finances.
These programs may include:
- Financial education or literacy training with a financial advisor or online courses
- Retirement and student loan contributions (in the US)
- Tools and resources to learn personal finance and budgeting
- Savings and retirement goal tracking
- Debt reduction resources
Flexible working arrangements
Flexible work schedules are growing in popularity as employees seek out less traditional employment opportunities. Generally, it’s cost-effective for employers to offer flexible working arrangements that allow employees to work at their most productive time, at home or in the office, or on flexible days.
Childcare assistance
With childcare becoming increasingly cost-prohibitive for parents, employers are adding childcare benefits to compensation packages to attract top talent. This may be part of a group health plan or offered as a separate benefit to cover daycare and other childcare expenses.
Physical and mental wellness programs
Employers are increasingly offering physical and mental wellness programs to employees to promote positive behaviors and nurture a supportive work environment. Some examples of wellness programs include fitness classes and gym memberships to improve health and fitness levels and access to mental health resources or counseling for emotional wellbeing. In the UK, Employee Assistance Programmes (EAPs) may be offered for mental health support through online tools and counseling.
Cost Considerations and Budgeting
Just as benefits can be tailored to each company, there are also different cost structures.
Employer-paid benefits are entirely funded by the employer without any contribution from the employee, such as employer-sponsored medical insurance and retirement plans.
Employee-paid benefits are entirely funded by the employee without any contribution from the employer, such as supplemental insurance, dependent coverage on health insurance plans, and voluntary retirement contributions.
Shared benefits, which are the most common cost structure, involve a cost-sharing arrangement between the employee and employer. They may be a fixed percentage, such as 50/50, or a tiered structure that requires the employer to cover the larger portion of the cost. One example of shared benefits is health insurance premiums that require the employer to cover a portion and the employee pays the remainder through payroll deductions.
As expected, the costs for employee benefits can be considerable. In fact, benefits typically represent a large portion of the total compensation package, but they’re necessary to attract and retain top talent.
However, it’s crucial to budget appropriately to manage the costs of employee benefits and allocate resources effectively. You don’t want to overspend on benefits – especially ones that aren’t beneficial to employees – but you need competitive benefits to attract talent.
Here are some strategies for cost control:
- Negotiate with benefits providers to secure competitive rates.
- Bundle services to save money on different benefits, such as a group health plan.
- Offer voluntary benefits that allow employees to control what they’re paying for, such as supplemental insurance or wellness programs.
- Make sure you educate employees about the cost of benefits and how their choices impact their expenses and benefits.
- Offer resources for benefits counseling and education to help employees make the most of their benefits while minimizing costs.
Legal and Compliance Considerations
However you structure your employee benefits, you have to ensure that your plans satisfy any applicable federal, state, and local laws and regulations. Non-compliance can result in legal penalties, reputational damage, and other consequences.
Some of the required benefits in the US include:
- Overtime: Overtime pay is compensation paid for employees who work more than 40 hours in a workweek. The federal overtime pay rate is time and a half, or one and a half times the hourly rate for each overtime hour. Some states have additional overtime pay laws.
- Unemployment insurance: Unemployment insurance is a government assistance program that helps employees who have lost their job through no fault of their own. It’s intended to cover basic expenses during their job search.
- FMLA: FMLA is a federal law that provides employees with job-protected unpaid leave for eligible family and medical reasons. They’re allotted 12 weeks within a 12-month period in total, either consecutive or intermittent, but they must have worked for an employer for at least 12 months and a minimum of 1,250 hours in the previous year. This applies to employers with 50 or more employees.
- Workers’ compensation: This is a state-mandated benefit that offers financial assistance to employees who are injured on the job. It may cover medical expenses, lost wages, or death benefits, depending on the nature of the injury.
- COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows employees to continue their group health insurance coverage for up to 18 months if they lose their health coverage or leave their job. COBRA applies to employers with 20 or more employees.
Navigating the required employee benefits can be challenging. It’s best to consult with a benefits advisor or HR professional to ensure that your company is compliant and design benefits packages that meet regulatory requirements and your company’s needs. They can also help with plan design, administration, and optimization to get the most value out of your package for both the employer and the employees.
Key Takeaways
Employee compensation is more than just salary. Benefits are a key part of the total package to attract and retain employees, but the costs can rise quickly. Consulting with a benefits advisor can ensure you maximize the value of your benefits, structure your packages properly, and stay compliant with regulations.
