How to Design a Benefits Package that Works for Employees and the Budget

Employee benefits are an ever-increasing portion of an employer’s compensation costs, and they can involve a host of compliance issues with both state and federal law. They are also an important recruitment and retention tool.

Benefits costs are rising and account for as much as one-third of payroll costs, but there are still opportunities for employers to provide current benefits more efficiently and to provide attractive benefit packages that appeal to employees without greatly increasing payroll costs.

Most employers find during benefit planning that they must make tradeoffs between an ideal package and one that will maximize the desired impact at a price that can be afforded. The three most important factors that must be weighed are:

  • What benefits can the employer afford?
  • What benefits will best attract and retain the employees needed to execute the organization's business strategy?
  • What benefit vendors provide a quality and consistent product now, and will continue to do so in the future?

Employers should engage in strategic planning as they try to balance employees' needs and a budget. One avenue employers can explore is taking advantage of new tools, such as electronic plan administration, and offering new benefits beyond the traditional health, disability, and life insurance, and retirement plans. These additional benefits can include:

  • Financial planning assistance,
  • Health club memberships, and
  • Long-term care insurance.

Employers should research what benefits would work best for their workforce. Benefits programs are most effective in attracting, motivating, and retaining employees if they are part of a complete compensation strategy targeted for the employer's workforce.

Strategic planning can provide for controlled budgets over a period of years and provide meaningful benefits that aid in recruiting and retaining key employees. Steps to take to define and implement a plan for achieving these objectives include:

  • Evaluating current benefit plans and programs
  • Identifying corporate objectives
  • Spelling out strategies that relate to corporate culture
  • Coordinating benefit strategies with other compensation and human resource programs
  • Designing a communication plan
  • Establishing budgets to accomplish these steps

Federal tax laws contain certain incentives for employers to offer a selection of before-tax benefits that allows individual employees to choose the combined benefit/compensation plans that suit them best. These "cafeteria" plans typically lay out alternatives—including higher pay and lower-value benefits—from which employees may choose. For example, an employee with children whose working spouse has a good family health plan might decide against duplicative health insurance coverage and take its equivalent value in childcare assistance.

A simple plan providing childcare and medical expense reimbursement will involve low administrative costs and no employer contributions while saving employment taxes for both the employer and employee, and income taxes for the employer. Although more complex flexible benefits plans can involve some large administrative costs, especially at start-up, the level of employee satisfaction can be high even if economic pressures force benefit reductions. Employees often appreciate the opportunity to make individual adjustments when the aggregate value of their benefits package is reduced. Effective communication is crucial for flexible benefit programs to increase participation rates and reduce per capita administrative costs.

Benefits Resource for You

BLR has myriad benefits resources you can use to plan and deliver a robust benefits package that will help you recruit and retain employees.

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