Common Types of Employee Benefits
Understanding the Cost of Employee Benefits
Strategies for Managing Employee Benefits Costs
Elevate Your Small Business Benefits With Justworks
One of the most significant decisions you'll make is how to structure your employee benefits package. Offering employee benefits can help you attract and retain the talent you need to build and sustain a successful small business, but benefits can be a substantial expense.
As a small business owner, it’s essential for you to understand the cost of employee benefits, as this information will help you make informed decisions that support both your employees and your bottom line. Keep reading to learn about the different types of employee benefits, their costs, and strategies to help you manage benefits-related expenses effectively.
Employee benefits encompass a wide range of offerings that add value to an employee’s compensation package beyond their salary. Examples of the types of benefits that small businesses often offer include:
Health insurance is usually the most significant component of a small business’s employee benefits package, both in terms of expense to the employer and importance to employees. Most employers that offer health coverage allow employees to choose among several plans with varying premiums and coverage options, so they can select a policy that best meets their needs and budget.
Retirement plans, such as 401(k) plans, help employees save for their future. Employers offering retirement plans often match employee contributions up to a certain amount or percentage. This can significantly impact the overall cost of offering this type of benefit.
Paid time off (PTO) includes the compensated time companies allow employees to take off from work. Some companies designate specific amounts of paid time off for vacation or sick leave, while others simply grant a bank of time that employees can use for any purpose.
Employers often include life insurance and disability insurance in their benefits packages. Policies like these provide financial protection for employees and their families in case the employee dies or becomes disabled and unable to work. Including life and disability coverage in your benefits package can help enhance your company's reputation as a caring employer.
There are many other types of employee benefits offerings, including programs like tuition reimbursement, wellness programs, and flexible working arrangements.
Tuition reimbursement can be an excellent investment in developing your employees.
Wellness programs promote healthy lifestyles, which can positively impact productivity and help to reduce healthcare costs over the long term.
Flexible working arrangements can improve work-life balance, making your company more appealing to prospective employees.
Each type of Understanding the cost of employee benefits is crucial for small business owners. Here's a breakdown of typical expenses:
Health insurance premiums are often the most substantial expense in an employee benefits package. According to the Kaiser Family Foundation, in 2023 the average annual premium for employer-sponsored health insurance was $8,435 for single coverage and $23,968 for family coverage in 2023. Employers typically cover a significant portion of these costs, with employees contributing the remainder.
Health insurance costs can vary widely based on factors like company size, the type of plan, the level of coverage provided, and where the company is located. Employers must decide how much of the premium they will cover for employers and whether to offer additional health-related benefits like dental or vision insurance. It's also essential to consider the impact of rising healthcare costs on your business.
Retirement plans can vary in cost depending on whether the employer matches employee contributions. For example, a common employer match is 50% of employee contributions up to 6% of their salary, though employers can opt for a lower (or higher) match, or none at all. Administrative fees for managing the plan can also add to the overall cost.
The cost of providing a retirement plan can be a worthwhile investment in employee retention and satisfaction, though it’s important to make sure that your company can afford to sustain the benefit over the long term. Small business owners should carefully assess the financial implications of matching contributions before implementing this benefit.
The cost of PTO is more challenging to quantify, as it depends on the wages paid during the time off, the cost of any lost productivity, and whether the employer is paying overtime or engaging temporary employees when team members use their PTO. Even so, PTO is an important benefit to provide. Offering a generous PTO plan can help you recruit top talent, improve employee morale, and reduce turnover, which can potentially help offset some of the costs.
Small businesses must develop strategies to manage workloads during employee absences. Offering a flexible PTO policy can help a small business meet its staffing and productivity needs while also meeting employees' work-life balance needs.
Life and disability insurance are relatively low-cost benefits, so they can enhance your benefits package without adding substantial costs. Disability insurance costs vary but generally range from 1% to 3% of an employee's salary.
These benefits are cost-effective ways to provide significant value to employees. As an employer, you can opt to cover the cost or pass the cost on to employees. Even if employees pay for their own coverage, group rates are significantly lower than individual policies they might consider purchasing independently.
The cost of additional benefits like tuition reimbursement or wellness programs can vary widely. Employers should evaluate the potential return on investment for these benefits to determine if they are worthwhile.
Investing in additional benefits can differentiate your business from competitors. These benefits can lead to improved employee satisfaction and retention. However, it's essential to carefully assess the costs and benefits, ensuring that they align with your overall business strategy.
When determining what options to offer, small business owners and managers should consider the potential impact on employee satisfaction and the overall attractiveness of their benefits package. While the costs of employee benefits can be substantial, there are strategies that small business owners can employ to manage these expenses effectively.
Health insurance costs can vary significantly between providers. It's essential to shop around and compare plans to find the best coverage at the most affordable price. You may find it helpful to work with a benefits broker to help you navigate the complexities of health insurance or become a Justworks customer to gain access to robust benefits plans for your small business's employees at fair and competitive rates.
High-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs) can reduce premium costs while providing essential coverage. These plans can be a cost-effective alternative to traditional health insurance plans. HDHPs can lower your monthly premium expenses, making healthcare more affordable for your business and its employees.
A tiered benefits system allows employees to choose from different levels of coverage based on their needs and budget. Building the right health insurance offerings for your team can help you control costs, provide employees with choices, and still offer valuable employee benefits.
Offering tiered benefits can provide flexibility and choice to your employees. This system can cater to diverse needs, from single employees to those with families. By allowing employees to select their preferred level of coverage, you can manage costs more effectively while maintaining employee satisfaction.
Automating benefits administration can reduce administrative costs and improve efficiency. Many software solutions help small businesses manage benefits enrollment, tracking, and compliance.
Automation can streamline the benefits administration process, reducing the burden on HR staff. Software solutions like the Justworks platform can give employees easy access to their benefits information. Relying on an automated system can also simplify the process of complying with regulatory requirements.
Investing in employee benefits is not just an expense; it's an investment in your business's success, now and in the future. If you’re ready to start offering benefits or to elevate your current benefits options, Justworks can help. Contact us today to find out how you can get started. By providing comprehensive benefits, you can create a productive work environment that fosters employee satisfaction, loyalty, and growth.
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