October 11, 2024 | 8 minute read
In a tight labor market, salary isn’t always the deciding factor when it comes to choosing one job over another. Offering a wide range of employee benefits may help businesses find and keep the best talent — and maintain a competitive edge. This article explains why benefits are important, the costs involved in offering a benefits package and considerations to determine which ones current and future employees might value the most.
Benefits are an integral part of an employee’s compensation package that supplement the employee’s salary. They can range from financial incentives such as paid holidays and health insurance, to non-financial offerings such as mental health services and employee recognition programs. While companies are required by law to offer certain benefits, others are optional.
Businesses depend on the skills and knowledge of their employees to compete. When potential employees are considering multiple job offers — particularly when the salaries are comparable — the benefits a company offers could end up being the deciding factor. Benefits can also help with employee retention. When employees have benefits they value, they may be less likely to leave a company for a competitor. In fact, seven in 10 workers say the benefits their company provides have at least a moderate impact on their decision to stay at that job.1
One reason workers consider benefits to be valuable is because they often cover needs employees would otherwise have to pay for on their own. For example, employees can save money on health insurance or student loan payments if their company takes care of some of those costs as a benefit.
To attract new workers and retain existing ones, “business owners need to prioritize benefits that are most important to their employees,” says Max Pearlstein, division vice president of Small Business Services Channel Sales for ADP®. “Think about how expensive it would it be if you lost either a prospective candidate or an existing employee because one of your competitors offered a benefit that you don’t.”
While there are several types of employee benefits, here are some of the most popular.
Health insurance tops the list of most valuable employee benefits, according to the Society for Human Resource Management (SHRM).2 It helps employees pay for medical expenses, though employees may be responsible for deductibles, copayments and a portion of the premiums, depending upon the plan. There are different types of health insurance plans you can offer. For example, preferred provider organizations (PPOs) give employees access to a network of healthcare providers they can see without a referral, while health maintenance organizations (HMOs) limit coverage to providers within a network and typically require patients to have a referral from their primary care physician to see certain specialists. High-deductible health plans (HDHPs) require employees to pay more of their medical costs before coverage kicks in. In exchange, the premiums are typically lower for HDHPs.
Also, health savings accounts and medical flexible spending accounts are benefit options that can help employees save for healthcare expenses that insurance does not cover.
Other types of insurance benefits include dental insurance, which provides coverage for oral health services such as teeth cleanings, x-rays and checkups; and vision insurance, which typically covers eye exams, glasses and contact lenses.
Life insurance provides a financial benefit for an employee’s family or other designated beneficiary in the event of their death, whereas disability insurance replaces a portion of an employee’s income if health reasons prohibit them from working. Increasingly, insurance benefits also include pet insurance, which shields employees from the high cost of healthcare for their dogs, cats and other animals.
Seventy-six percent of employees have concerns about saving for retirement.3 Businesses may help allay those worries by providing benefits options to help employees subsidize future retirement costs.
There are two major retirement benefits options:
Some employers offer student loan reimbursement, which gives employees up to $5,250 per year in tax-free student loan assistance.
Other employers offer emergency savings accounts, which let employees put aside a portion of their paychecks in a fund that can be tapped for unexpected expenses.
Sixty-two percent of workers say having the ability to take paid time off (PTO) for vacations, childcare or simply a mental health day is important.4 PTO benefits can include paid sick leave, paid vacation, extended leave, family leave and parental leave. While the Family and Medical Leave Act (FMLA) guarantees employees of companies with 50 or more employees the right to take up to 12 weeks of unpaid leave for family and medical reasons, PTO ensures employees can take time off and receive a paycheck.
Research shows that a lack of work-life balance can lead to burnout.5 Mental health resources, childcare vouchers and remote/hybrid policies are among the benefits that may help employees better balance their personal and professional lives.
When it comes to mental health services, some employers offer employee assistance programs that provide employees with confidential counseling.
Recognizing that childcare is a big concern for many workers with families, some employers offer benefits that subsidize some or all of the costs associated with daycare. Others also provide family planning benefits such as reimbursement for fertility treatments and adoption services.
Additionally, a number of employers offer remote and hybrid work policies that give employees the flexibility to work from home some or all of the time.
Although the terms “benefits” and “perks” may seem similar, they aren’t the same thing. Perks are extras that go beyond traditional benefits – they provide an opportunity to differentiate a business from other companies and create an inviting corporate culture.
Even if a business can’t afford to match the lavish benefits packages of bigger players in its industry, adding a few extra perks that can improve morale, like employee discounts and free snacks, may go a long way to creating a sought-after workplace.
Some common examples of perks include flexible scheduling policies, professional development opportunities, meals and snacks, gym membership discounts and paid time off to volunteer.
When it comes to paying for benefits, there are two types of costs. If a business offers health insurance, for example, a direct cost might be the portion of employees’ health insurance premiums a business pays while an indirect cost might be the administrative fees to manage the program.
You might save money by offering multiple benefits through a single benefits provider. Also, your business may qualify for certain tax breaks that can help defray costs. Your tax advisor can provide guidance on deductions that may be available depending on how you, as an employer, decide to compensate your employees, whether you’re providing wages, bonuses, commissions or certain benefits. The company may also be able to claim a tax credit for some of the costs related to starting a retirement plan such as a SEP or SIMPLE IRA or another qualified plan.
With so many benefits to choose from, creating a plan that’s appealing to employees can be overwhelming. Here are some things to keep in mind.
Brush up on legal requirements. Some benefits, such as unemployment insurance, unpaid family and medical leave and medical coverage, are generally required by federal or state law for private-sector employers of a certain size. However, exceptions apply, so businesses should consult with tax and legal advisors to determine which benefits are mandatory for the business.
Explore different providers. There are four main types of employee benefits providers a business can tap for assistance, depending on its needs.
Consider employee input. Employees can tell a business which benefits they value most. Survey them periodically to see what offerings will make the biggest impact on employee morale.
Research voluntary benefits. These are benefits employees opt into and pay for all or some of the costs. Voluntary benefits don’t cost employers much, and employees typically come away with discounts that make them worthwhile.
Employees generally want good benefits and are actively seeking employers who can provide them. While health insurance, retirement benefits and paid time off are among the most popular benefits, smaller — and less expensive — perks such as flexible scheduling policies and wellness programs can also make a difference in raising employee morale. Some benefits are required by law but taking the time to learn what additional benefits are most valuable to employees and potential hires may help a business attract and retain talent.
|
Percentage of HR professionals who consider benefit very or extremely important |
Health |
89% |
Retirement savings and planning |
81% |
Leave |
81% |
Flexible work |
70% |
Family care |
68% |
Professional and career development |
67% |
Source: SHRM, “2023 Employee Benefits Survey.”
1 The Hartford, “2023 Future of Benefits Study,” May 2023.
2 Society for Human Resource Management, “2023 Employee Benefits Survey, Executive Summary.”
3 Buck, “Employees care almost equally about their retirement and medical benefits as economic concerns make it harder to save,” November 2023.
4 Pew Research Center, “How Americans View Their Jobs,” March 2023.
5 International Journal of Environmental Research and Public Health, “Striking a Balance between Work and Play: The Effects of Work–Life Interference and Burnout on Faculty Turnover Intentions and Career Satisfaction,” January 2022.
6 Bureau of Labor Statistics, “Employee Benefits in the United States – March 2023,” September 2023.
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