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
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:
Paid Time Off (PTO)
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.
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 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 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.
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
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.