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Many employers think about the downside of offering employee benefits packages. These packages add to the company’s overhead and require a significant monetary investment. However, competitive benefits can help attract top talent, reduce employee attrition, and increase the company’s bottom line. This guide covers everything you need to know about successful employee benefits packages.
The 5 Best Administration Software to Create Employee Benefits Packages
You don’t have to spend hours and endless paperwork creating and managing employee benefits packages. We’ve reviewed the best employee benefit plans for your convenience. Here, we feature the best software to automate benefits administration, including benefits eligibility, elections, and enrollment.
- Gusto – Best for Companies with a Limited Workforce
- ADP – Best for Companies with More Than 50 Employees
- BambooHR – Best for Tracking Benefits
- Zenefits – Best for On-the-Go Access
- GoCo – Best for Automatic Benefits Enrollment
What Are Employee Benefits Packages and Why Do They Matter?
An employee benefits package refers to a collection of non-monetary compensation that an employee receives in addition to their base wage or salary. Typically, these benefits cover essential expenses that an employee would otherwise have to pay out of pocket. For example, most employee benefits packages include medical insurance and retirement savings.
Although often used interchangeably, there is a nuanced difference between employee benefits and perks. Benefits are considered essential, while perks are considered nice to have. For example, medical insurance is critical for the employee’s health and well-being, but free food or a standing desk at the office are often considered extras.
An attractive employee benefits package is important for several reasons. First, offering an employee benefits package ensures compliance with relevant federal and state mandates. There are more than 180-labor related laws, many of which mandate certain employee benefits.
Regardless, offering attractive employee benefits packages is consistent with most companies’ interests. According to a recent study, 80% of employees preferred to take a job with 30% less pay but with benefits compared to an identical position with no benefits. Therefore, attractive benefits can help you recruit top talent.
In the same vein, attractive employee benefits can help retain top talent. The employees feel more secure and less likely to search for new jobs. Replacing an employee costs six to nine months of their salary. Reducing employee attrition is critical and attractive benefits can help accomplish this goal.
Furthermore, a good benefits package can help boost employee productivity. Employees are more likely to focus on their work when they have fewer financial strains and concerns. Finally, other reasons to offer employee benefits include better morale, a healthier workforce, and more loyal employees.
Types of Employee Benefits (Mandatory vs. Voluntary)
There are two types of employee benefits, mandatory and voluntary. Mandatory employee benefits are consistent across all states and industries and are enforced by the U.S. Department of Labor. So you’ll need to include these benefits to comply with relevant laws and regulations.
However, some laws are state mandated. So it’s worth consulting with a legal expert when formulating your employee benefits packages. According to the U.S. Bureau of Labor Statistics, these legally-mandated benefits are aimed at:
- Providing workers and their dependents with medical care and a retirement income
- Cushioning workers from economic hardships resulting from disability and loss of work
- Covering liabilities resulting from workplace-related illnesses and injuries
Therefore, a legally compliant employee benefits package must include the following benefits:
Medicare and Social Security Contributions – The federal government mandates social security and medicare benefit program contributions. Both the employee and employer contribute to these funds under the Federal Insurance Contributions Act (FICA).
Unemployment Insurance – Employees are also required to carry unemployment insurance. While there are minimal federal requirements, each state has its regulations. In addition, former employees can file a wrongful termination case and receive funds from the Unemployment Tax Fund. The money is meant to temporarily replace the income while they look for another job.
Health Insurance – The Affordable Care Act (ACA) mandates that businesses with 50 or more full-time employees provide healthcare coverage. Businesses covered under the act are known as applicable large employers (ALEs). The business must also report the cost and type of insurance they provide to the IRS.
Family and Medical Leave – Similarly, the Family Medical Leave Act (FMLA) requires ALEs to provide staff with up to 12 weeks of unpaid leave. Along with health insurance, family and medical leave are among the most sought-after employee benefits. So it is worth implementing an attractive package to remain competitive in the job market.
Disability Benefits – Some states like California, New Jersey, New York, and Rhode Island require employers to carry disability insurance. This insurance covers employees who miss work because of a non-work-related injury or illness. Although not mandatory in most states, it is an incentive worth considering if you hope to attract top talent.
You shouldn’t stop with the mandated benefits. If you hope to reap the advantages of employee benefits, it’s worth adding extra perks. Some of the most common voluntary employee benefits include:
Health Insurance – You don’t have to stick with government-mandated health insurance policies. Many job hunters consider the health insurance package when comparing job offers. So a comprehensive health insurance package can help attract and retain top talent. There are also many other types of insurance you can offer, including dental, health, vision, and life insurance.
Flexible work hours – Many of today’s employees value autonomy and work-life balance. Flexible work hours are in demand, even more than remote working programs. Examples of flexible work hours include compressed work weeks, customized work hours, and alternative schedules.
Fitness and wellness initiatives – Most employers understand the importance of a physically and mentally healthy workforce. As a result, the organization enjoys higher productivity, reduced absenteeism, fewer health risks, and higher employee morale. A wellness program may include yoga classes, on-site fitness centers, healthy snacks, financial counseling, smoking cessation programs, and volunteering activities.
Paid maternity and paternity leave – Employers aren’t mandated to provide paid maternity leave, but it is an attractive perk. Employees are more likely to be loyal given the opportunity to bond with their newborns without forgoing their pay. Paid maternity and paternity leave also ensures new parents are less anxious about finances when they return to work.
Student loan benefits – Student loan assistance is desirable for millennials. For example, PwC offers employees up to $100 monthly towards student loan payments. Many millennials struggle with student loan repayments eating into their paychecks. Such a benefit can help attract highly qualified talent.
Other types of voluntary employee benefits to consider include:
- Career development
- Stock options
- Paid vacation and time off
- Pet insurance
- Pet-friendly workspaces
- Employee appreciation programs
- Casual dress code
- New hire welcome packages
Voluntary benefits provide opportunities for customization. So you can create a package that makes sense for your industry, type of business, and budget. Besides, an attractive benefits package will repay itself in high-quality talent acquisition, increased productivity, and low employee attrition.
Who Qualifies for an Employee Benefits Package?
You’ll need to check with your local and state laws for employee benefits eligibility requirements. For example, many states mandate paid sick leave, short-term disability, and health insurance benefits for part-time employees. Again, it’s helpful to consult a legal expert to learn about the requirements for your state.
You can also refer to the relevant federal laws to determine employee eligibility for benefits packages. For example, the Affordable Healthcare Act (ACA) requires businesses to offer health insurance to full-time employees. However, the Employee Retirement Income Security Act (ERISA) determines that part-time employees are eligible to participate in the company’s retirement plan.
It’s worth noting that the IRS considers employees working more than 30 hours a week or an average of 130 hours a month to be full-time employees. This distinction is important for businesses whose employee hours fluctuate.
An employer can offer voluntary benefits at their discretion. However, policies must be applied fairly and consistently. It’s equally important to define part-time and full-time employees clearly, including the benefits they are eligible for.
How to Design a Competitive Employee Benefits Package
What constitutes a competitive employee benefits package is relative. For example, while older workers may value maternity leave and paid vacations, millennials may prefer remote working, student loan assistance, and state-of-the-art technology. Similarly, a large company may be able to afford childcare benefits for its employees. However, a startup may need to focus more on alternative benefits like free food, unlimited paid time off (PTO), and flexible working hours.
Any good employee benefits program starts with objectives. Clear objectives are critical for choosing specific benefits that resonate with your employees. You can refer to the organization’s HR strategy can help formulate benefits objects.
For example, you may want an employee benefits package that will:
- Attract and retain the best talent
- Compete with similar organizations
- Maintain good relationships with unions and other industrial relations
- Improve employee standard of living
- Boost the company’s image in the public eye
- Offer supplemental income that allows employees to participate in social and cultural events
The main thing is that employee benefits should be focused on employee welfare rather than as donations or charity. This way, the benefits package is more likely to resonate positively with your workforce and prospective hires. Finally, the benefits package should be fundamental to human resource management.
Next, create a budget for your employee benefits packages. As a rule of thumb, employee benefits cost 20-50% of the worker’s salary. Fortunately, not all benefits have to increase the company’s expenses.
For example, a work-from-home program will not add to the HR budget. However, this benefit shows employees that you value work-life balance and trust them to work independently. Similarly, a profit-share program doesn’t cost anything upfront but incentivizes employees to be more productive.
It’s also helpful to conduct a needs assessment to determine the benefits your employees want. Questionnaires and surveys help identify the benefits that have the highest impact. It’s also helpful to conduct a utilization review of current benefits and replace underutilized benefits with in-demand options.
Finally, formulate and document the benefits program. Again, software like Gusto can assist with this step. You can also speak to a professional to help you develop a comprehensive program. Lastly, communicate the benefits packages with your employees and explain the offered benefits.
Pitfalls to Avoid When Creating Employee Benefits Packages
Even the best-meaning employee benefits program can become problematic if you don’t watch out for common pitfalls. Unfortunately, these are typical blind spots many employers miss when formulating benefits packages. Identifying potential issues beforehand helps avoid potential problems down the road.
Employers need to remember the non-monetary cost of administering a benefits program. For example, the HR department may have additional paperwork and workload. Fortunately, software like Gusto automates most administration tasks so HR can focus on other important work.
Healthcare costs also continue to rise every year. The increase results from factors like changing government policy, disease prevalence, and population growth. Therefore, it’s important to account for the rising cost when budgeting for health-related benefits.
Additionally, many employers need to consider changing employee benefits status. For example, single employees may marry and have children. This change means an increase in their benefits package. So the benefits program should be flexible enough to account for changing employee status.
Other crucial employee benefits mistakes to avoid include:
- Late enrollment of qualified employees
- Making late deposits for matching and profit-sharing
- Purchasing inadequate insurance plans
- Ignoring compliance issues
Again, you can leverage employee benefits software like Gusto to help with benefits administration. You can also consult a licensed advisor to help formulate an iron-clad benefits program that works for your organization.
Final Thoughts About Employee Benefits Packages
A comprehensive employee benefits package solves one of the most critical but often overlooked problems. You’ll be able to attract top talent and retain high-performers for the long haul. The organization also benefits from a healthy, energetic, motivated, and productive workforce.
It is possible to create an attractive employee benefits package regardless of the company’s size or budget. And, with software tools like Gusto, administering benefits doesn’t have to be a headache for HR. You can automate most administration tasks and even get professional guidance when crafting your packages.
Below are two more QuickSprout posts to help you learn more about employee benefits:
Source: quicksprout
Employee Benefits Packages Starter Guide: Learn the Basics