As any company leader knows, the biggest cost of doing business is often the cost of human capital or labor. Labor costs, can account for as much as 70% of total business costs and include employee wages, benefits, payroll or other related taxes.
The cost of employee benefits, which can account for up to 30% of overall labor costs, are a significant expense in overall labor spend. In Paycor’s 2023 State of American Business survey, employee retention was the #1 priority in 2023 and is expected to still be a top priority in 2024. Company culture is the #1 driver of retention (with salary & benefits coming in a very close second).
Fringe Benefits
Back in the day, employee benefits were titled, “fringe benefits,” however, that adjective has been dropped because today there is nothing fringe, or extra, about them—they are a necessity.
The idea of offering fringe benefits goes back to the late 1800s. One of the first was an employee pension plan developed and offered by the American Express railroad company in 1875 and the company paid out a percentage of employee salaries for those who worked anywhere between 10 and 20 years and were over the age of 60 years. As time went on, companies explored other ways to attract new hires in the post-war era. Employers offered their workers other benefits on top of their salaries at a time when wages remained low—mainly because of inflation.
Most employers offer some variation of fringe benefits to employees to make the overall work environment pleasant to current workers and more attractive to prospective employees. Benefits are no longer something “extra,” to make a work environment more pleasant. They are an important aspect of attracting and retaining top talent.
Benefits are an investment in human capital
According to a news release by the Bureau of Labor Statistics, U.S. Department of Labor, employer costs for employee compensation for civilian workers averaged $43.26 per hour in June 2023. Wages and salaries cost employers $29.86 while benefit costs were $13.39.
The investment an employer makes in an employee is an important decision, as it affects both the financial bottom line of a company as well as the motivation an employee may have for their work and demonstrated dedication to their employer.
For some workers, employee benefits are the sole reason they show up to work each day—knowing that they could not afford these benefits on their own. In a tight labor market, benefits are oftentimes the only way a company can differentiate themselves, as workers are sophisticated and educated in comparing multiple offers beyond the annual salary amount or hourly rate.
What should be included in an employee benefit offering?
As a benefits administrator, or HR professional, bringing true value to your organization requires relevant experience, insightful thinking, and asking the right questions, to keep pace with evolving employee and corporate demands. Below are suggestions to help you identify essential components that will elevate HR’s impact and make your employee benefits matter to your organization every day.
What is your organization’s philosophy?
Establish what you want your benefit package to do and how it works with other elements of compensation you offer. This is your organization’s philosophy regarding benefits. This decision needs to be made at the owner/executive level. Do you want to offer a minimum essential coverage plan to check the required boxes, or are you offering a rich benefit package to attract top industry talent?
Meet your employees where they are
Know your workforce. Survey your team to see what benefits are valued. Demographics can offer some insight into what your workers find important. If you are in the position of many employers, with a diverse workforce, you may need to juggle diverse needs, including those of 18-year old employees on their parents’ health plan to workers with Medicare benefits. Consider offering multiple plans and a variety of ancillary benefits that meet employees at different stages of life and allow choices.
Work with an advisor
Get expert guidance. If you are a small to mid-sized employer, chances are you don’t have someone who solely focuses on your benefit plans. Smaller companies are lucky if they have one HR representative, and most likely, that person is a generalist without specific benefits training. Benefit advisors can offer insight, and current industry trend information and advice. Remember that some brokers may have financial incentives for promoting specific products over another—which may not necessarily be in your company’s best interest. Make sure you understand what you are buying and how it will impact your business and your employees.
Develop a trusting relationship
Work with vendors who are partners. Step away from transactional vendors and work with those who are interested in your business beyond the initial sale—those that are working to support you and the sustainability of your company. Find partners that understand your business, support your community, and provide workable and realistic options for your employee base.
Finance and HR must work together
Collaborate with corporate leadership, especially finance staff members throughout the evaluation process. While most executives don’t like being in the proverbial “weeds,” your CFO or corporate controller probably doesn’t mind digging into the details. Particularly with health insurance, understanding the specifics behind costs and plan design promotes transparency and the solutions selected will be the best for your organization as a whole.
Benefits are only useful, if they are used
Educate yourself and your employees about benefits. Your vendor partners should offer to help you with this. Benefits are complicated and sending employees vague, or non-specific emails about deadlines and when forms should be turned in, won’t result in a more informed workforce. It probably won’t result in timely form submissions either! Consider holding in-person or virtual benefit meetings and opening them up for spouses to attend. Experience tells us the employee is not always the decision-maker when it comes to selecting benefits, it may be a spouse or other family member. In addition, with dual income households, comparing and selecting which employer plan is the most beneficial for the family may require extra consideration.
Don’t get complacent with renewals
Evaluate your benefits on a scheduled, regular basis. Health insurance is typically renewed annually. Don’t simply accept the renewal as proposed by your vendor or broker. If the price tag is more than expected or if a CEO requests that benefits be “trimmed,” take time to really evaluate what you are offering employees. Believe it or not, insurance plans are products that are being improved and revised constantly. Explore your options and don’t be afraid to ask questions. This doesn’t necessarily mean you must change carriers or annually change your plan—simply evaluate options. Keeping a current plan and providing employees consistency leads to better understanding of available benefits and practical utilization.
Stay open to new opportunities
Shed old rules of thumb such as you shouldn’t self-fund if you have less than 100 employees. Explore alternatives such as level funding, Health Reimbursement Arrangements, or High Deductible Health Plans. After evaluating these options, even though they may not fit, you will have learned something and will feel more confident about the benefit choices you make.
Push boundaries to protect employees and your bottom line
Ask tough questions but make sure they are legal. Questions should be on the plan level, not regarding specific individuals. Ask about service standards and what you as an administrator can expect from their service experience and what your employees can expect. Ask for references if this is the first time you have worked with a vendor. If your broker has placed other clients with a specific vendor, they should be able to provide you with references and testimonials.
Ultimately, healthy employees help lower benefit costs
Wellness matters. Most carriers have some type of wellness program attached to their plans. Some even have resources to help you implement a wellness program for your company. What a wellness program looks like for your organization may be very different from another organization. Wellness programs relate to your philosophy for your benefit program. What do you want your wellness program to accomplish? If you want a wellness program to drastically slash benefit costs, you may want to rethink that expectation. However, designing your benefit plans to align with wellness objectives will promote healthier employee behaviors.
Consider additional benefits—and the benefit of access to customer service
Consider offering some employee-paid benefits such as additional life insurance, illness or accident coverage. While there is a bit of administration for the company, it is a way to make your benefit package more comprehensive without adding cost. Most employees don’t know where to go for these types of coverage and outside of the group market, individual coverage can be expensive or exclusionary. A good broker can connect you with options. And, don’t downplay that access to information and convenient customer service are also benefits.
Keep your employee data up-to-date for ease of benefit administration
Data management processes are the foundation of your technology, and are critical in determining benefits administration success. Without correct and accurate data, your benefits solution will become unreliable and prone to failure—regardless of how well-designed the front-end experience may seem. Work with your IT team and/or a vendor that can keep an eye on your data and the information it provides. Implement a software program that works for your company.
Good communication is key
Beyond developing an attractive yet cost-effective benefits package, HR and benefit teams are also tasked with building excitement and communications around their offerings, managing enrollment, navigating ever-evolving regulatory requirements, and ensuring employees’ benefit experiences are in line with their company culture.
With these responsibilities, few employers can afford the financial and compliance risks that come as the result of a poor benefits partnership. If you find your company struggling against your current vendor’s administrative processes, compromising your benefits goals, or settling for less, consider switching to a vendor that will take your corporate and administrative needs into consideration.
If you do decide to switch benefits carriers, or you are offering benefits for the first time, make sure to collaborate inside and outside of your organization. The more you take into consideration, the more you will get out of the dollars you spend when it comes to selecting and managing your employee benefit plan.
If you are considering making the switch, contact your benefits advisor and ask about getting a quote from PHP. If you are not working with a broker, contact PHP at sales@phpni.com or at 260-432-6690.
