Creating a good benefits package is like a tightrope act. As a company, you want to offer a competitive program that keeps your best employees from jumping ship. But you also need to contain an expense category that the U.S. Chamber of Commerce estimates can account for one–third of payroll costs.
What’s the solution? Design a basket of benefits that gives you the most employee satisfaction for each dollar invested. As for deciding which benefits should go in that basket, the answer can be found with the intended recipients.
“The first thing to do is find out what your employees really want,” says Julie Stich, senior information and research specialist at the International Foundation of Employee Benefit Plans, a research firm based in Brookfield, Wis. “It doesn’t do you any good to spend money implementing a benefits plan that people don’t care about.”
While informal discussions with employees can give you some idea what benefits they most want, a structured approach will be more reliable.
“Conducting a survey of your employees is important,” Stich says. “Tie in the results with what other employers in your region are offering. You want to make sure your benefits are competitive.”
One caveat: Your survey should assess the willingness of employees to contribute a portion of their pay to their coveted benefits. Enthusiasm for life insurance, for example, may cool when employees are informed that part or all of the premiums would be deducted from their paychecks.
You can get a rough idea of what your employees might say in your survey from the results of research conducted by the Principal Financial Group in Des Moines, Iowa. Earlier this year, the insurance company issued the findings of its own survey in a report titled, “The Principal Financial Well–Being Index.” The results offer insights into what employees want.
What’s the most coveted employee benefit, according to the survey? No surprise here: Health insurance. Nearly nine out of 10 employed people cite the benefit as extremely important.
Employees continue to contribute more to the cost of their health insurance, a trend that has continued during the past decade. Some 36% of respondents reported increases in co–pays and 32% said they’d seen deductibles increase over the previous year, according to the Principal Financial Group report. Roughly one out of 10 employees has experienced a reduction in medical benefit coverage options.
The second most coveted benefit is a defined contribution retirement plan, ranked as important by seven out of 10 employees. Dental insurance essentially tied for second place.
According to the Principal Financial Group survey, after that, enthusiasm for other benefits tends to trail off significantly. Roughly half of respondents rated disability, vision and life insurance as important. But only about one in three employees rate profit–sharing plans and stock options as important. Other benefits to consider asking employees about are paid holidays and vacation time, paid and unpaid leaves of absence, long–term care insurance, and financial and retirement planning services.
While surveying employees is a good idea, avoid raising unrealistic expectations by asking about benefits that you know are too costly to offer.
“The biggest mistake is to fail to set some limit on benefit costs per full–time equivalent employee and then ask employees what they want,” says Ian Jacobsen, a management consultant based in Morgan Hill, Calif. “Asking about specific benefits raises hopes they will be offered and that the employer will pay for all or part of them. When expectations are shattered, morale suffers.”
Bear in mind that costs to an employer go beyond the basic contributions to premiums. Maintaining programs can be expensive when employees pepper your support staff with questions and request assistance. Do you have the personnel required to maintain the records required for each specific benefit?
“Employers need to not only assess their budget, but also the legal, regulatory and tax impacts of proposed benefits and the company’s ability to effectively manage their programs,” says Lenny Sanicola, benefits practice leader at World at Work, a human resource research organization based in Scottsdale, Ariz.
Thinking about retirement
As noted, among employees, retirement plans are the second most popular benefit after health insurance.
Why? “When you are finished working, you want to be able to have money set aside,” Stich says. “People are looking for some retirement security.”
Challenging economic times have endangered the all–important employer contributions to these plans. According to data from Bank of America, one out of four employers have reduced or eliminated their matching funds and many are not sure when—or if—they will resume.
Though many small business owners and consumers remain jittery, the economy has recovered in terms of corporate profits and stock market performance. Now may be a good time to review your own financials to see if a rebound in your sales performance justifies expanding your retirement plan offerings, according to a Bank of America report, “Small Business Retirement Planning.”
“A post–recession environment offers small businesses the chance to review any difficult decisions made during periods of slow growth to see if updated business plans could support new, more positive changes in plan benefits or services,” according to the Bank of America report.
There’s a huge selection of retirement plans to choose from. Beware of the temptation to “buy a plan off the shelf” without carefully considering alternatives, experts say. Comparison shopping is critical because the organizations that sell these plans can vary widely in terms of administration costs.
Remember that not all demographic groups have an equal interest in retirement plans—or other benefits.
“A younger demographic will probably be less interested in retirement and possibly more interested in child care,” Jacobsen says. The demographics of your specific work force is something to keep in mind when considering which benefits to offer.
Helping workers who face a disability
Workers compensation protects your workers from financial disaster if they are injured on the job. But what if the injury takes place outside of work? That’s where long– and short–term disability comes to the rescue. It can be a valuable benefit. (Short–term disability policies also typically cover leave for pregnant women.)
How can you control the rising costs of disability income insurance? Institute “early return to work” policies, the experts say. That’s because the costs of a disability go far beyond disability payments and insurance premiums. Other costs include lost productivity, overtime for employees required to accomplish the missing person’s work and retraining time. Whatever you can do to return the employee to work quickly can make a big difference.
To encourage early return, institute workplace programs that will accommodate workers who suffer from temporary disabilities. Many employers have these in place for staff members covered by workers compensation, but have not extended the programs to cover people absent under short–term or long–term disability. Now is the time to do so.
Not all benefits are costly. Indeed, some low–cost options are especially useful and appreciated by employees.
Consider flex time, for example. Your employees may value the ability to adjust their working hours to their personal needs. And letting them do so might not have much of an effect on your bottom line.
“With all of the demands we are faced with in terms of families and work, people want more flexibility in their hours today,” Stich says. “They want to work from home maybe once a week or have the flexibility to come in and leave when they can. It’s nice, for example, to be able to attend a child’s recital in the afternoon.”
Increasingly popular are so–called “voluntary benefits,” which include a range of employee–paid benefits that an employer is able to offer with minimal costs and relatively easy administration. Although the employees pay the full premium costs, they receive the benefits at discounted group rates.
The top voluntary benefits companies offer, according to the Principal Financial Group report, are dental (52%) and vision (41%) insurance. Short–term disability (36%) and long–term disability (34%) also are sometimes considered part of this class of benefits.
Given the fact that hourly workers and salaried staff all want good benefits as part of the employment agreement, your challenge as an employer is to offer the right mix—one that helps retain good personnel while containing costs.
To some extent, benefits provisions are piloted by company philosophy.
“Some employers have a paternalistic attitude,” Stich says. “They may institute traditional defined benefit plans or generous health insurance or life insurance plans. Other employers want to ‘help employees help themselves’ so maybe their retirement program consists of a 401k plan, which helps employees save. Or perhaps they offer a ‘consumer–driven’ health care plan with higher deductibles. In such cases, employees are more responsible for making their own decisions.”
Left uncontrolled, the rising costs of employee benefits can erode your profit margin and lead to staff discontent when sharp measures are needed to cap spiraling expenses. Take action now to review your entire benefits package. Survey your staff to find out what benefits they really want—they may be different than what you’ve always assumed are most important.
Finally, share information about costs with your employees. When workers know the effect that offering benefits has on the financial health of the company, they will be more willing to help by shouldering costs and responsibly using their valued benefits.
“In designing their benefits packages, employers need to take a step back and determine how their programs support their larger business goals,” Sanicola says. “The bottom line is this: What does the organization need to do from an employee benefits perspective to attract and retain the individuals it needs to help drive the company’s success? Employers need to look at all of this from a strategic perspective.”
In the face of the Great Recession and weak economic recovery, businesses have been cutting back on a wide range of benefits offered to employees, according to a survey of 600 human resource professionals conducted earlier this year by the Society of Human Resource Management in Alexandria, Va.
Here are more than 20 benefits that the survey found have been disappearing from workplaces since 2007:
- Traditional pension plans
- Retiree health care coverage
- Long–term care insurance
- Health maintenance organizations
- Paid family leave
- Adoption assistance
- Professional development
- Life insurance for dependents
- Incentive bonuses
- Contraceptive coverage
- Casual dress days
- Legal assistance
- Sports team sponsorships
- Club memberships
- Relocation benefits
- Help buying a home
- Travel perks
- Company picnics
- Rewards for tenure and job performance
- Event tickets
- “Take your child to work” day
Source: U.S. News & World Report, July 2011
- Managing benefits packages
- Employease.com This site allows employers to outsource their benefits administration. Services include maintaining a centralized database of employees, managing enrollments, issuing benefits statements and allowing employees 24–hour access to data. It’s owned by Automatic Data Processing Inc., a Roseland, N.J.–based provider of payroll and human resource services.
- Trinet This San Leandro, Calif.–based firm serves more than 5,000 small and mid–size employers nationwide. On its website, www.trinet.com, it offers an “outsourcing toolkit” with information about topics such as how to select benefits that attract and retain top talent.
- Benefitssummary.com Do your employees realize the value—in terms of dollars and sense—of the benefits your company provides? One way to make sure they do is to distribute a graphic benefits summary.
Benefitssummary.com provides this service.
- Employee Benefit Research Institute is a Washington, D.C.–based group founded “to contribute to, to encourage and to enhance the development of sound employee benefit programs and sound public policy through objective research and education.” Its website is www.ebri.org.
- HRMorning.com is a website and weekly e–newsletter with news, advice, reports and information for human resource executives. Click on the site’s “Benefits News” tab at the top of the page.
- Society for Human Resource Management is an Alexandria, Va.–based association devoted to human resource management with more than 250,000 members in 140 countries. It provides research, publications and education on human resource issues, including benefits. Its website is www.shrm.org.
- Bank of America offers advisory materials to help small business owners. Go to www.benefitplans.baml.com and then click on “Small Business.”