Let’s talk about the cost of employee benefits for a minute. According to the Bureau of Labor Statistics, the average cost of benefits per employee in the private industry is $10.88 per hour — 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?
What are Employee Benefits?
Let’s first define what we mean by 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:
- Financial Benefits
- Paid Time Off (PTO)
- Workplace Benefits
- Fringe & Lifestyle Benefits
There are some benefits that every employer is required by law to offer, like Social Security and Medicare, worker’s compensation insurance, and unemployment insurance. Then there are voluntary benefits that help differentiate employers in the marketplace, like health insurance, paid time off, student loan repayment, wellness stipends, and childcare services, among others. These voluntary benefits are increasingly transitioning from “nice-to-haves” to necessary in the modern workplace.
Many companies have a sampling of these benefit types to reach that $10.88 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.
The Average Cost of Employee Benefits in the United States
The cost of your employee benefits program will depend mainly on two factors: the size of your organization and the expansiveness of your benefit offerings. The number of eligible employees at your company and the quality of each benefit program cause a large amount of variability in determining the total cost of benefits. In this section, we’ll break down the costs of popular benefits offerings.
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 2016, 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 $2.77 to $3.24 per hour per employee based on company size.
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 Bankrate, fewer than half of Americans have savings to cover a $1,000 surprise expense. Most employees say that financial stress is the biggest stressor in their lives. For example, 73% of Americans rank finances as their top stress in their lives, and 63% of people say their financial stress has increased since March of 2020.
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, more than one-third of private industry U.S. workers get approximately 10 to 14 paid vacation days a year (compared to 30 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 $65.5 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.
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 & Fringe Benefits
The popularity of lifestyle benefits has grown tremendously in recent years. Lifestyle benefits, also known as fringe 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 of unique benefits to meet the needs of your diverse workforce. Astonishingly, 84% of employees prefer lifestyle benefits to in-office perks.
Typically, companies utilizing these benefits are spending $50-$200/month per employee. 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.
Remote work is here to stay — which means flexible work hours, creative childcare solutions and other COVID-era changes are likely to stick around as well. Lifestyle benefits are one way employers can provide personalized and meaningful support to their employees. The utilization and employee sentiment around this fast-growing category of benefits has been unprecedented. Companies that wish to recruit and keep top talent must lean into the tide. Offering customized lifestyle benefits is a great way to improve employee retention.
Why Offering Employee Benefits Matters
While competitive salaries matter, increased wages alone isn’t enough to solve your hiring and retention challenges. Comprehensive benefits are key to attracting and motivating employees in the workplace. Traditional benefit offerings are not enough anymore to attract and keep employees. Lifestyle benefits can significantly improve your recruitment and retention efforts.
The Best Way to Manage Employee Benefits
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.
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 understanding and receiving 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.