No matter how big or small your business is, building an effective benefits package for your employees is essential. In fact, research has found that nearly 30 percent of workers have left a job or rejected a position due to the employee benefits that were offered.
While benefits may only account for a third of the total compensation, it’s clear that your benefits plan matters. So how do you go about building a benefits strategy that works for your team and has the least impact on your business’s bottom line? Let’s take a look.
Why Is a Competitive Benefits Package So Important?
With major job losses across the world resulting from the pandemic, over 87 percent of the global workforce says they’re open to finding new positions. And when it comes to accepting a position, nearly half say that compensation is the number one priority in their decision making.
But it’s not only those who are actively job-hunting that you should be focusing on. Keeping your best employees happy with their benefit offerings should always be a priority.
When you want to retain the top talent at your company, providing them with a strong benefits program can give you the edge over your competitors.
Boosting employee engagement with flexible working hours or locations, best-in-industry family leave benefits, or unlimited PTO can rapidly improve your overall retention rate. And fewer people leaving means that you can focus more of your time and attention on growing from within, rather than constantly hiring and training new team members.
Yes, benefits costs are increasing and will cut into your profits. Benefit trends show that what you offer is key for attracting and keeping the best in your field of work.
What Are the Four Major Types of Employee Benefits?
By law, there are several benefits that you are required to offer. These include:
- Social Security
- Workers’ compensation (with the exception of Texas)
- Unemployment insurance
- Disability leave, including FMLA
- Sick leave (paid sick leave is required in some, but not all, states)
Beyond that, it’s up to you. When it comes to voluntary benefit options. The most commonly-offered ones can be broken down into four distinct categories. This isn’t an exhaustive list and you can certainly offer more unique benefits to your team. But if you’re looking for somewhere to start when you’re building a new benefits strategy, this is a good foundation to work from:
1. Medical Coverage
Ask most HR professionals and they’ll tell you that the number one area that most employees want to know about is how your company supports their healthcare. Good health insurance can mean the difference between your employees paying small medical bills or potentially facing bankruptcy.
Employee health should be a priority, and there are different approaches that employers can take when looking at how to be cost effective, while also providing workers with the right coverage from providers. Some of the most common medical coverage plans offered by employers include:
- Health Maintenance Organization (HMO): A health plan with a local network of providers and hospitals for employees to choose from. It’s generally the most cost-effective option, but also doesn’t have a ton of flexibility when it comes to seeing specialists or going to clinics when you're traveling.
- Preferred Provider Organization (PPO): A health plan with a large network of providers and facilities for employees to choose from. While you get more options and flexibility, PPOs generally have higher out of pocket costs for employees.
- Point of Service (POS): A health plan that combines elements of an HMO and a PPO. Various benefits are offered depending on whether or not someone uses an in-network or out-of-network provider.
- Exclusive Provider Organization (EPO): Much like an HMO, this health plan has a network of providers and hospitals. The network is typically larger than an HMO, which makes premiums higher than an HMO but typically lower than a PPO.
Many employers also offer various savings options and accounts for employees to cover their own out of pocket medical costs with pre-tax dollars.
Flexible Spending Accounts (FSAs) are pre-tax accounts that can be used to pay for out of pocket medical expenses, including dental and vision. Your employee will usually be provided with a debit card that's pre-loaded with their full FSA amount. This makes paying for medical visits or bills much quicker and easier, so it’s certainly a benefit to consider offering your staff. The downside is the employees need to use the funds by the end of the year, otherwise they might lose them.
A Health Savings Account (HSA) also offers workers the opportunity to contribute pre-tax dollars to a special savings account, where funds can be used to cover medical costs. Much like an FSA, these accounts are tax-free and are a great way to save for future healthcare costs as they can be rolled over year after year.
If you’d like to chip in as the employer, Health Reimbursement Accounts (HRAs) can help employees avoid significant medical bills. You’re able to limit the amount that you contribute for each employee, which also makes budgeting for your employee benefits program much easier.
In addition to medical coverage, many employers will also offer life insurance and disability insurance (in fact, short-term disability insurance is a legal requirement in California, New Jersey, New York, Rhode Island, and Hawaii).
Even if you’re not based in one of these states, adding both short-term and long-term disability insurance coverage to your current benefits is a smart move to show your employees that you’re invested in their health, wellbeing, and future financial security.
2. Paid Time Off (PTO)
As work-life balance continues to grow in importance, employers are offering more PTO.
When an employee needs to take some time away from work—whether it’s for a sick day, a vacation, or something else—the PTO policy means they'll still be compensated.
One 2016 Glassdoor survey found that PTO was the second most important benefit to employees, ranking only behind health insurance. And, as the ongoing pandemic continues to inspire workers to evaluate where work fits into their lives (paywall, NY Times) employers who want to keep their best staff members on their payroll need to ensure that employees have adequate time off the clock.
Some PTO policies distinguish between sick days, personal days, and vacation days while others offer one big bucket an employee can pull from. Some companies have even gone so far as to offer unlimited paid time off, where employees don’t have a set number of days and are instead trusted to manage their own schedules and take time off when they need it.
Regardless of which route you decide to go, your PTO policy should include:
- The amount of time off
- Procedures for requesting time off and getting approval
- Details about rollovers, accrual, payouts, etc.
Worried that this employee benefit will hurt your bottom line? Don’t be. Research shows that encouraging your workers to take time off improves productivity and morale, and reduces stress.
3. Retirement Plans
You’ve probably heard of 401(k)s before, and that’s still the most popular type of retirement savings plan to offer your employees. This allows employees to contribute a set amount of their pre-tax income to a third-party-managed investment account. They won’t be able to withdraw those funds until a certain age without facing penalties and income taxes.
Why should you consider offering retirement savings options for employees? Well, the short answer is that they actively look for them. A whopping eight out of 10 job seekers say they consider retirement savings programs when making employment decisions.
Employee attraction and retention aside, some states also mandate that employers of certain sizes offer retirement plans for their workers. California, Connecticut, Illinois, Massachusetts, Oregon, and Washington all have active state-sponsored retirement plans. Many other states have passed similar legislation that hasn’t been implemented yet.
As the business owner, you should also discuss with stakeholders whether or not you plan to offer a retirement savings match. Many businesses choose to do this, matching a percentage of the employee's retirement savings.
4. Family Leave
The Family Medical Leave Act (FMLA) entitles employees to up to 12 weeks of job-protected, unpaid leave to tend to family matters—whether it’s the birth of a child or a sick spouse.
However, most employees will be quick to admit that they can’t afford to be without income for up to three months, regardless of the personal and family issues they’re dealing with.
That’s why paid family leave is becoming such a point of focus for employees. They’re actively looking for workplaces that don’t just spout “family first” as a cultural value but back that up with actual benefits and leave policies.
The good news for employers? Offering paid family leave is an effective way to set yourself apart from the competition in the eyes of workers. Data shows that only 23 percent of employees had access to paid family leave in 2021.
Several states have implemented paid family leave laws. Make sure to check whether you're in one of those states.
If you're not in one of those states, it’s up to you to decide the specifics of your family leave policy—including when employees are eligible, how much time you’ll offer, and if leave is fully-paid or not. It’s also worth connecting with your employees to ask their feedback about what they’d expect out of a family leave policy so you can craft something that best suits their needs.
Top 10 Benefits for Employees
The size and demographics of your company will ultimately determine the types of benefits that you offer. As you’re working on your plan design, check with your team to find out what matters most to them.
To give you an idea of what you might expect to hear from your staff, some of the most commonly offered benefits are:
- A good health plan, disability & life insurance
- Paid time off (PTO)
- 401(k) or other retirement plans
- Family leave
- Flexible work environment
- Tuition reimbursement
- Professional development opportunities
- Wellness initiatives
- Food and beverages in the office
- Employee discounts or offers
How Do You Develop a Benefit Strategy?
With so many potential options, creating your own benefit strategy can feel overwhelming. Here are a few steps to start you on the right path.
1. Evaluate the Needs of Your Team
When you’re building a benefits strategy, first ask employees what they want to see improved or added to the current offerings. As a growing small business, these needs might change every year, so while it’s helpful to have a long-term employee benefits strategy, allow for flexibility.
As we’ve seen throughout the pandemic, changes can happen rapidly and what your employees want might shift over time. Take flexible working, for example. Many workplaces would never have offered this pre-2020, but now this is one of the most highly requested benefits.
You could anonymously survey your entire staff about their benefits, host small group discussions, or even have managers discuss benefits one-on-one.
You can also provide your staff with your direct phone number and email address if they’d prefer to discuss their needs privately.
2. Assess Your Business Goals
Like any good strategy-building exercise, knowing what your primary goals are can steer you in the right direction. There’s really no point in putting together an extensive employee benefits roadmap if you don’t know why you’re doing it to begin with.
Keeping your employees happy is always a good idea, but it’s not specific enough. Ask yourself the deeper questions about why you're offering particular benefits. Are you looking to improve the health of your team and reduce sick days? Do you want to boost morale? Do you need to save money on benefits?
Think back to other goal-setting work that you do and how you might incorporate the S.M.A.R.T. framework so that your goals are Specific, Measurable, Attainable, Relevant, and Time-Based. Once you have these in mind, it’s time to lay out the exact benchmarks that you hope to achieve.
For example, you might offer more programs to support employee wellness in 2022, and you’ll know you’re successful if you reduce sick days by 25 percent.
3. Take a Look at the Budget
Knowing how much money you can allocate toward your benefits program is an essential step. Generally speaking, the highest costs will be on your core benefits like health coverage and disability insurance. Voluntary benefits like wellbeing initiatives or additional PTO can be less pricey.
When looking for a healthcare provider, your claims data and size of your business can impact your healthcare premiums. It's important to plan ahead and keep a budget so you're not scrambling at the last minute and offering sub-standard coverage to your workers.
Benefits can also come with opportunities to save. Many benefits are pre-tax, so you can make back some of the costs come tax time. You can keep this in mind when estimating how much benefits will cost your business.
4. Give Your Staff Options
Your team is made up of different people with different needs. Some of them might have families while others might be single. Others might just be starting out their careers, while others may be nearing retirement. All of these factors and more can affect what kind of benefits they want. Aim to find a happy medium between more and less expensive options so your employees can choose what works best for them.
You also need to be proactive about communicating any changes to your staff in advance. For instance, letting employees know about adjustments to the healthcare plan before open enrollment can increase participation and make your team feel more comfortable about what's being offered.
Make Your Benefits Count
You’ve seen how important your benefits offerings are, so taking the time to get them right is certainly worth the investment. When you combine that with increased employee engagement and satisfaction, it’s really a no-brainer. So what are you waiting for? Make some calls, get some quotes, and give your employees the benefits strategy they deserve.