How Much Do Employee Benefits Cost?
Employee benefits are essential to attracting and retaining top talent in the current competitive job market. Offering employee benefits can be a costly investment for employers once all factors are considered. Understanding the nuances that influence the cost of employee benefits will help you make an informed decision that can enhance your employees’ experience while adhering to your financial capabilities.
Understanding Employee Benefits
Employees are one of your company’s most valuable assets, so creating a healthy work environment should be priority. Providing employee benefits trickles down into creating a positive work culture. When health and wellness are being properly managed, productivity can soar.
Consider the cost of benefits for employees, as well as what those benefits could include:
- Health insurance
- Retirement plans
- Paid time off
- Life insurance
- Disability benefit
Factors Affecting the Cost of Employee Benefits
Several factors influence employee benefits costs, including company size, benefits offered, and more. Let’s explore these factors in more detail.
Company Size
A company’s size affects the cost of employee benefits for an employer.
Often, larger businesses have more resources to put toward the average benefits cost per employee. For small businesses, obtaining these employee benefits can often be overwhelming. GBS Benefits has a team ready to support small businesses and help them provide these benefits to their employees.
Types of Benefits Offered
The cost of benefits for employees varies between different types of benefits. Selecting the unique benefits can be exciting but will also complicate the process. It is important to understand your company’s limits to balance what is worth the cost of the employee benefits and what may be too costly.
For example, providing an employer match on a 401(k) account may not cost the employer much depending on the employee’s input. However, a life insurance policy or comprehensive health insurance policy may cost you tens of thousands annually.
Geographical Location
Cost of living will impact the average benefits cost per employee. Employers located in larger markets with higher cost of living will be forced to spend more according to their location. Staying current with the costs of insurance premiums based on your location is important as it may vary depending on the state.
Employee Demographics
The cost of employee benefits will be contingent on the employee’s demographic category that they fall into. Demographics can indicate the health problems your employees may be at risk of encountering dependent on their age, health, and familial status.
Employees with a history of medical issues will increase the cost of benefits for employees that fall under that umbrella.
Average Cost of Employee Benefits
The average cost of employee benefits is constantly changing. Staying on top of current costs can keep your company ahead of the curve in providing affordable yet substantial coverage. So, how much do employee benefits cost?
Cost varies depending on the type of benefits provided. Let’s break down the cost of employee benefits by different categories to best compare the cost of benefits for employees.
Health Insurance
Health insurance is among the most common and costly of the employee benefits. Investing in your workforce is wise, however, the goal is to find a plan that favors both your employees and your company.
The average costs of employer sponsored health insurance in 2023:
Individual coverage: $8,435 per year
Family coverage: $23,968 per year
In the past year, the average cost of employee benefits in health insurance has increased at an accelerated pace. Compared to the previous year, the percentage jumped from a 2% increase to a 7% for individual coverage and a 1% increase to a 7% for family plans.
Over the past five years, health insurance costs per employee have roughly followed the rising rates of inflation (22% increase compared to 21% inflation).
Retirement Plans
Many firms offer retirement plans as an employee benefit. 401(k) plans with an employer match are commonly provided for full-time employees. In a typical 401(k), employers match employee contributions to the plan up to a certain percentage. The most common employer matches typically cap off between 3% and 6%.
Pension funds (also known as defined benefit plans) are diminishing in popularity nationwide as employee retirement plans. According to the Bureau of Labor Statistics, less than 15% of private companies provide pensions for their employees.
Paid Time Off (PTO)
Paid time off (PTO) includes vacation time, sick days, and maternity/paternity leave, as well as other days off. Reports indicate employers lose about $3 per hour as a cost of employee benefits for time used as PTO instead of time spent in the office.
Many Americans receive about 14 vacation days per year, though more PTO is becoming increasingly popular among employers, with some going as far as to offer unlimited PTO.
Surprisingly, most employees leave much of their available PTO unused every year, which saves these companies a lot of money annually
Work-Life Balance Benefits
Many companies prioritize work-life balance to improve their employees’ lives. These benefits often don’t include as great of a cost of employee benefits to the employer. These benefits can include gym memberships, cafeterias, employee awards, excursions, and more.
Cost of Benefits to Employers
To accurately assess the financial impact of employee benefits, employers must consider both direct and indirect costs.
Direct Costs
Direct costs include actual costs of employee benefits, such as health insurance, retirement plan contribution matches, and more that will cost your business directly out of pocket. For these costs, your company can plan to lose a specific total every month, year, etc.
Indirect Costs
Indirect costs can be compared to implied costs. These include costs of labor lost from PTO, where an employee is still receiving their salary for time spent out of the office. Though calculating the exact impact of indirect costs on your business, be mindful of how much employee benefits cost your business.
Strategies for Managing Employee Benefit Costs
While offering competitive employee benefits is essential, businesses must also manage costs effectively. Strategies to consider:
Wellness Programs
Health and wellness can be a cost-effective way to reduce health-related expenses for your employees.
By incentivizing your employees to live healthy lives, they’ll live happier lives and incur fewer health expenses on average. GBS Benefits provides monthly health and wellness resources to help inspire ideas for your company to improve the health of your employees.
Flexible Benefits Packages
Every company’s workforce has unique needs, so you shouldn’t have to absorb the cost of unnecessary employee benefits when putting together an employee benefits package. A flexible benefits package lets employees select the benefits they want and opt out of benefits they don’t need, saving themselves and their employer unnecessary costs.
Cost-Sharing with Employees
Sharing costs is a common practice for softening the blow from the costs of benefits for employees. A cost-sharing plan can be used for certain benefits, like health insurance, where the company pays most of the premium, with the employee contributing the remainder.
In this instance, the employee is happy to have a health insurance plan at a reduced price, and the company is happy to have their total premium reduced.
Find the Right Balance with GBS Benefits
Offering a benefits package is a great way to make your employees feel valued. It’s easy to feel overwhelmed about the process of setting up your employee benefits as well as considering the cost of employee benefits to the employer. GBS Benefits is here to provide you with all the tools and support you need to tailor a financially responsible benefits package for your business.
