Employee benefits coverage is more expensive than you might think. A typical employee benefits or group benefits package includes health insurance, vacation, and pension plan contributions, and costs an employer $18,907 per employee per year1. And, that doesn’t even include salary, bonus or overtime pay.
Of course, benefit package spending varies based on industry, age, and job description. For a management professional, the cost rises to $33,966 per year1. With such an exorbitant outlay, why offer employee benefits at all?
The cost advantages of providing an employee benefits or group benefits program
Perhaps the most important reason to offer an employee benefits program is that it attracts and retains quality employees. Employees care more about their benefits than ever before and a good program can reduce turnover and maintain productivity. Here are some other reasons to provide employee benefits:
- Get the tax advantage of deducting plan contributions for health insurance, life insurance, and pension plans.
- Keep salaries manageable by offering superior benefits in lieu of higher salaries.
- Get your own benefits for less money as part of a group plan rather than as an individual.
- Decrease absenteeism and improve employee health since employees with coverage are more likely to seek preventative care and live healthier.
The cost concerns of offering employee benefits
Of course, there are some issues with providing employee benefits. For instance, group benefits cost more for small employers than for large ones, in terms of higher prices due to less buying power and relatively higher costs of administration. Here are some other factors to consider:
- The cost of health insurance has steadily risen, making it less affordable, and making annual financial planning difficult. Employers who wanted to offer group insurance plans found it more difficult each year to offer them. However, the small business provisions of the Affordable Care Act (ACA) have altered this balance by incentivizing employer-funded benefits.
- Offering benefits creates concerns regarding compliance, which may cause a company to incur legal fees. Similarly, mistakes in benefit plans can lead to costly fines and lawsuits.
- Small businesses have less choice in designing a retirement plan because of administrative constraints.