Employee benefits are one of an SMB’s biggest expenses, but they also impact employee satisfaction and retention. Here’s a guide on balancing cost with value.
Key takeaways:
- Employee benefits make up about 1/3 of employer compensation costs.
- Costs include health plans, retirement, PTO and HR admin costs.
- The long-term value of employee benefits investments is seen in retention, productivity and reputation.
- Try strategies like prioritizing the essentials, relying on pooled benefits and working with a PEO.
Prioritizing the employee benefits you offer is a must to retain top talent, keep morale high and stay competitive in your industry, but benefits can be a double-edged sword: they impact both employee satisfaction and the financial health of your business.
Benefits are the second-highest cost for employers behind wages and salaries, making up 33.9% of total employer compensation costs.
This represents a large portion of the budget, so it’s necessary to keep these costs in proper proportion with the value employees receive.
This quick guide walks through the financial impact of employee benefits and strategies to strike the right balance.
The Costs Behind Employee Benefits
First, it’s important to understand exactly what expenses are included in employee benefits costs. Here is a breakdown:
Direct Costs
- Healthcare plans, including medical, dental and vision insurance
- Retirement plans and employer contributions
- Vacation time and sick leave pay
- Wellness programs, including mental health support or financial wellness
Indirect Costs
- HR administration, including legal compliance
Other indirect costs come from the fact that small and medium-sized businesses (SMBs) have less bargaining power than large companies and rely on insurance pooling. It can be harder for an SMB to get the benefits its employees want at a price the business can afford.
These financial impacts are no small considerations for SMBs, which already must consider many different factors when managing a tight budget.
The Long-Term Value of Employee Benefits Investments
Even with the high cost of employee benefits, the investment is worth it in the long run. Consider these key value points:
Employee Retention
Turnover is costly for any organization. When employees come and go, you have to contend with the costs of hiring and training new people. Better benefits mean increased employee loyalty and engagement, which improves retention. SHRM reports that 60% of employees say benefits are a top contributor to job satisfaction.
Increased Productivity
Employees who are adequately supported with benefits are more likely to be productive. This contributes to a better company culture and creates more potential for business growth. For example, one study found that for every dollar invested in more robust depression and anxiety treatment, which can be part of insurance coverage, there is a return of $4 in improved employee health and productivity.
Improved Business Reputation
Modern employees want to work for companies with better benefits offerings. They want to improve their work-life balance, and they expect their employer to play a part. SMBs can thus attract better talent and strengthen their brand perception in the industry with more attractive benefits.
Six Ways to Balance Cost and Value with Employee Benefits
The right employee benefits investments are those that carefully balance cost with value. These six strategies can help SMBs minimize impact while improving workplace satisfaction:
1. Prioritize the Essentials
A recent Forbes study showed the top three benefits employees want from employers are healthcare, life insurance and pension or retirement plans. Focus on these essential benefits first when creating your budget. Also, survey your employees so you better understand their unique preferences and needs. Every workforce is different.
2. Offering Flexible Employee Benefits
Flexibility is key for today’s employees to obtain value from their benefits. Consider options like flexible spending accounts (FSAs), which help people save for healthcare expenses in tax-advantageous accounts. Options like these give employees more control over their benefits so they can invest in what’s most important to them.
3. Rely on Group or Pooled Benefits
A great way for SMBs to maximize benefits value is to enter partnerships that give them access to more affordable – yet more competitive – employee benefits packages.
PEOs, for example, leverage their group negotiating power by pooling employees from multiple client companies, allowing them to secure better pricing and terms for benefits like health insurance and workers’ compensation. This gives SMBs access to comprehensive employee benefits typically reserved for larger corporations, helping them attract and retain top talent while reducing costs.
4. Use Technology to Improve Benefits Administration
Incorporate a digital platform, such as benefits software, into your HR processes; this can help you reduce administrative costs, avoid time-consuming errors and improve the bottom line.
5. Outsource Employee Benefits Management
Because HR and employee benefits management can be very burdensome to SMBs, consider outsourcing these tasks. One way is by working with a PEO, which can also offer bundled employee benefits solutions and much more.
6. Take Advantage of Tax Incentives
The government offers many types of tax breaks for SMBs and employee benefits. For example, you can take tax deductions for employer-sponsored retirement plans. Tax incentives can help your SMB save money each year.
Working with a PEO to Lower Employee Benefits Costs
PEOs help SMBs with everyday HR tasks, but they also help them access and afford better employee benefits. And when SMBs invest more into benefits, they see trends like higher retention and satisfaction.
For example: Jamie Castagna, business manager at Morey Creative in Syosset, NY, reports the business saw a 30% decrease in health insurance rates when working with PrestigePEO for employee benefits assistance.
A PEO increases buying power, so businesses can obtain premium benefits at lower costs.
How PrestigePEO Can Help
Employee benefits, while coming at a significant cost, are a valuable investment in long-term business growth. When you work with PrestigePEO, our experts help your SMB access premium employee benefits packages at affordable and low rates. Our team also works alongside yours for additional HR assistance and support you may need, including payroll, risk management and integrating HR technology.
Find out more about the advantages of working with a PEO. Contact PrestigePEO to get started.
