How to Budget for the Cost of Employee Benefits

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Let’s talk about the cost of employ­ee ben­e­fits for a minute. Accord­ing to the Bureau of Labor Sta­tis­tics, the aver­age pri­vate com­pa­ny spends around $10.79 per hour per employ­ee on ben­e­fits — around 30% of the total cost of hir­ing an employee.

The actu­al amount varies based on things like indus­try and base salaries. 

How­ev­er, there’s no deny­ing that ben­e­fits take up a sig­nif­i­cant por­tion of the company’s budget.

So, how does a com­pa­ny bud­get for the cost of employ­ee ben­e­fits? And why should they? 


The Cost of Employee Benefits

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Employ­ee ben­e­fits come in all shapes and sizes. When most peo­ple think of employ­ee ben­e­fits, the first things that come to mind might be med­ical insur­ance, life insur­ance, dis­abil­i­ty insur­ance and retire­ment ben­e­fits. How­ev­er, employ­ee ben­e­fits have changed sub­stan­tial­ly over time.

In fact, the very first rec­og­nized ben­e­fits pro­gram was cre­at­ed by the Amer­i­can Express rail­road com­pa­ny in 1875. They offered pen­sion ben­e­fits to woo farm­ers and work­ers away from agri­cul­ture and into manufacturing.

Today, com­pa­nies need a lot more than pen­sion ben­e­fits to reel in top tal­ent and keep them. The five basic types of employ­ee ben­e­fits are:

  • Insurance(s)

  • Finan­cial Benefits

  • Paid Time Off (PTO)

  • Work­place Benefits

  • Lifestyle Ben­e­fits

Many com­pa­nies have a sam­pling of these ben­e­fit types to reach that $10.79 per hour aver­age cost of ben­e­fits per employ­ee. Insur­ances, finan­cial ben­e­fits and PTO are expect­ed in today’s work­place. Lifestyle ben­e­fits, on the oth­er hand, are the type of offer­ings that cause top tal­ent to choose one employ­er over another.

So what is the range of employ­ee ben­e­fits and how much do they cost? Let’s take a deep dive into the ben­e­fit categories.

Insurance(s)

Health, dis­abil­i­ty and life insur­ance are the three most pop­u­lar insur­ance ben­e­fits offered by employ­ers. Some com­pa­nies also offer addi­tion­al insur­ances like vision and den­tal insurance.

In 2010, the ACA (Afford­able Care Act) began requir­ing com­pa­nies with fifty or more full-time employ­ees to offer med­ical insurance.

Health insur­ance ben­e­fits cost employ­ers approx­i­mate­ly $1.69 to $4.70 per hour per employ­ee based on com­pa­ny size (account­ing for rough­ly 5.9% – 9% of an employee’s total compensation).

Financial Benefits

Finan­cial ben­e­fits are anoth­er com­mon type of ben­e­fit. These include things like stock options, 401K match­ing, retire­ment and pen­sions, per­for­mance bonus­es, vehi­cle con­tri­bu­tions and more.

Accord­ing to a study from Integri­ty Data, around 69% of Amer­i­cans have less than $1,000 in sav­ings, and most employ­ees say that finan­cial stress is the biggest stres­sor in their lives. 53% of employ­ees go on to say that finan­cial stress neg­a­tive­ly impacts their work productivity.

The cost of pro­vid­ing employ­ee ben­e­fits like these varies based on what finan­cial ben­e­fits com­pa­nies offer and employ­ee behav­ior. For instance, the cost of pro­vid­ing 401K match­ing and per­for­mance bonus­es depends on employ­ees’ behav­ior. Stock options and vehi­cle com­pen­sa­tion perks can be chal­leng­ing to cal­cu­late — espe­cial­ly for IRS tax purposes. 

Paid Time Off (PTO)

Work-life bal­ance is incred­i­bly impor­tant to today’s work­force. 76% of Amer­i­can work­ers think employ­ers should pro­vide paid vaca­tion time. As a result, paid time off has become a stan­dard offer­ing for most larg­er com­pa­nies. PTO includes things like vaca­tion time, sick days and mater­ni­ty leave.

Where com­pa­nies dif­fer­en­ti­ate them­selves is in the amount of PTO offered. Accord­ing to the Bureau of Labor Sta­tis­tics, U.S. work­ers get approx­i­mate­ly ten paid vaca­tion days a year (com­pared to thir­ty in the UK, France, Ger­many and Spain). 

As a result, unlim­it­ed PTO is one of the new­er employ­ee ben­e­fits trends. Sur­pris­ing­ly though, this ben­e­fit doesn’t usu­al­ly cost employ­ers as much as they expect, because Amer­i­cans don’t use around $172 bil­lion in PTO each year. 

Workplace Benefits

Work­place ben­e­fits are intend­ed to care for employ­ees while at work. These in-office perks include break rooms, cof­fee, snacks, catered lunch­es and oth­er ameni­ties. Some orga­ni­za­tions even offer child­care, on-site gyms and med­i­ta­tion rooms.

Obvi­ous­ly, these ben­e­fits are decreas­ing in pop­u­lar­i­ty since more peo­ple are work­ing from home as a result of COVID-19 — see our recent survey. 

The cost of on-site perks varies great­ly depend­ing on what’s offered. For many orga­ni­za­tions now, though, the cost is $0 due to employ­ees work­ing pre­dom­i­nant­ly from home. 

Lifestyle Benefits

The pop­u­lar­i­ty of lifestyle ben­e­fits, how­ev­er, has grown tremen­dous­ly in 2020. Lifestyle ben­e­fits include vir­tu­al learn­ing and child­care, vir­tu­al fit­ness, men­tal health offer­ings, sub­scrip­tion box­es, stream­ing ser­vices and much more. No two employ­ees are the same, so it’s impor­tant to offer a wide vari­ety to meet the needs of your diverse workforce.

Com­pa­nies spend a great deal of time and mon­ey sur­vey­ing their employ­ees to dis­cov­er which lifestyle ben­e­fits are most appro­pri­ate. This process can be time-con­sum­ing and dif­fi­cult. Offer­ing choice to employ­ees may be a bet­ter route.

It may be more fea­si­ble than ever to find mean­ing­ful bud­get capac­i­ty for lifestyle ben­e­fits. After all, com­pa­nies are sav­ing about $4,000/year per employ­ee while they work remote­ly. Top com­pa­nies are uti­liz­ing these sav­ings to sup­port their peo­ple in new ways. 

The Rise of Lifestyle Benefits

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Aston­ish­ing­ly, 84% of employ­ees pre­fer lifestyle ben­e­fits to in-office perks. COVID-19 has made a large and last­ing impact on how employ­ers are treat­ing their employ­ees — and the key is lifestyle ben­e­fits. Com­pa­nies that wish to recruit and keep top tal­ent much lean into the tide.

Remote work is here to stay — which means flex­i­ble work hours, cre­ative child­care solu­tions and oth­er COVID-era changes are like­ly to per­sist as well. Lifestyle ben­e­fits are the way in which employ­ers pro­vide per­son­al­ized and mean­ing­ful sup­port to their employ­ees. The uti­liza­tion and employ­ee sen­ti­ment around this fast-grow­ing cat­e­go­ry of ben­e­fits has been unprecedented. 

Typ­i­cal­ly, com­pa­nies uti­liz­ing these ben­e­fits are spend­ing $50-$200/month per employ­ee. Though this is far less than the $4,000/year per employ­ee saved by remote work, it’s enough to make a sig­nif­i­cant­ly mean­ing­ful impact on employ­ees and have them rav­ing about their employer. 

The Best Way to Manage Employee Benefits

Here at Fringe, we believe your employ­ees should choose the lifestyle ben­e­fits that moti­vate them. With our plat­form, you give your employ­ees points, and they can choose the ben­e­fits they want and will actu­al­ly use.

It’s the best way to make sure your employ­ees are get­ting the ben­e­fits they deserve while simul­ta­ne­ous­ly ensur­ing that the cost of employ­ee ben­e­fits stays sta­ble for you.

If you’d like to learn more about Fringe and how we can help you with your company’s lifestyle ben­e­fits, sched­ule a free demo today.