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  • Writer's pictureMark Roberts

Benefits Busters - Breaking the Upward Cost Spiral for Employers

Business owners have the opportunity to hire quality employees. One key element to attracting and keeping good staff is to provide better benefits than the guy next door. If your company is just starting out, then the priority is making sure that you as the owner, who also serves as the "chief cook and bottlewasher", is taken care of before you begin the arduous task of sourcing products for people you employ.

It pays to invest in your employees. Employee compensation, healthcare costs, and employee benefits programs can add up. Every year, the cost to provide options continues to escalate. For any business owner or business leader, it might seem intuitive to look for places where you can cut costs in your benefits programs.

Obtaining insurance can be a daunting process, and health insurance can be expensive even for sole proprietors, let alone the requirements set into law by the government including all the regulations from both state and federal mandates. Budgeting for employee benefits is one of many tasks that small companies and employer HR teams have to grapple with, and it can be quite a head-scratcher. How can you provide an enticing mix of benefits at a reasonable cost?

According to benefits plan administrator Benepass, the ratio of benefits to salary is approximately 1:2, or a third. As an example, for every $10 you spend on employee benefits, you’ll spend $20 on salary, for a total of $30. But the averages differ slightly from this example, depending on your sector:

  • The average civilian worker costs an employer $42.48 per hour in total compensation — 31% on benefits and 69% on wages.

  • The average private industry worker costs an employer $40.23 per hour in total compensation — 29.5% on benefits and 70.5% on wages.

  • The average state and local government worker costs an employer $57.60 per hour in total compensation — 38% on benefits, and 62% on wages.

The US Bureau of Labor Statistics recent survey shows the average hourly rate business owners paid in employee benefits in December 2022. The results depend on the sector:

  • $13.17 per hour for civilian workers

  • $11.86 per hour for private industry workers

  • $21.91 per hour for state and local government workers

Based on a 35-hour work week, the average monthly cost of employee benefits is:

  • $1,997.36 for civilian workers

  • $1,798.69 for private industry workers

  • $3,322.87 for state and local government workers

Benepass discloses a deep dive into the costs of benefits and what affects those ratios. More detailed material about what it means to offer employees various voluntary and non-voluntary products can be found on their website:

The real question comes down to how you as an employer are able to manage the ever upward spiral of costs when it comes to providing a solid benefits package to your team. So, what does all this mean? The cost of benefits is rising. And for many organizations, budgets are shrinking. As a result, human resources and finance teams are weighing their options. Management is forced to make some tough choices.

Yet, many categories of workers are still in the driver’s seat. Companies are concerned about retention despite the economic crosswinds. Many organizations are also looking for ways to improve the health, resilience, and mental fitness of employees. Why? To better manage change and avoid steeper costs down the line. Which benefits for employees are must-haves for an organization? How do you calculate your organization’s cost of benefits? And when push comes to shove, what decisions are you making that will have the greatest impact on your people?

According to BetterUp, an employee virtual coaching and mental health provider for companies, taking care of your people is a financial investment. It also feels great to give hardworking employees what they need and what they want. But benefits come at a cost, and it isn’t always clear which benefits are delivering value and satisfaction to employees. With the needs of employees continuing to quickly evolve, many organizations are also reexamining their benefits strategies.

At the same time, many organizations are doing what they can to curb the impact of macroeconomic uncertainty. Companies are tightening their purse strings and looking for ways to save on costs. Other companies are choosing to lay off or terminate employees, making difficult decisions to downsize while also trying to maximize the productivity and engagement of existing talent.

Your employees need to have the physical and psychological safety of knowing they are taken care of by their company. That if they get sick, their healthcare is not an added stressor. If their kids come down with a cold, they’re able to take them to the doctor. That if an emergency pops up, healthcare coverage isn't a worry. Especially after living through a global pandemic and public health crisis, healthcare is a must-have for every person. BetterUp has more detailed information about the cost of benefits and tips on how to help better manage benefits costs on their website:

Here are Ten Tips on how to better manage your costs of providing quality benefits to your employees:

1. Analyze Employee Use of Programs

The first step in lowering your benefits spending should be a careful analysis of how the programs you currently offer are actually being used. If you’re like many organizations, it’s been a while since you’ve done such an assessment.

2. Don’t Over-Insure

To determine how much your company will pay for health benefits from one year to the next, insurers rely on something called trend. Trend uses your past claims history, known as the experience period, to project your future costs, known as the projection period.

3. Promote the Right Healthcare Plans

Many employers expend a great deal of effort putting together benefits packages for their employees, only to drop the ball when it comes to educating employees on said benefits. Organizations can learn a lot by working with good brokers who know the difference in coverage and costs.

4. Improve Employee Education About Healthcare

Employees can be given the opportunities to reduce their healthcare costs, and, in turn, their employer's healthcare costs, but they need to be informed consumers to act on those opportunities. It's up to you, the employer, to provide accessible, helpful information that educates and empowers employees to take full advantage of their benefits.

5. Offer Pre-Tax Savings Accounts such as FSAs, HSAs, and HRAs.

Encourage employees to set aside money specifically for their healthcare expenses. Any money saved through these accounts and subsequently used on medical expenses means your employees will get more mileage out of every dollar when paying for healthcare such as doctor appointments, prescriptions, dental, vision and other qualified medical expenses.

6. Cut Down on Administrative Costs

The sticker price of benefits isn’t the sole factor in what makes them such a substantial cost for employers. Benefits administration is also incredibly costly. To cut down on these fees, take advantage of automation wherever possible.

7. Investigate Alternative Coverage Options

Businesses have more options available today than ever before. Two very popular ones are Professional Employer Organizations (PEO) and Self Funded Insurance Plans. Though completely different concepts, both the PEO and the Self Funded option can be great for some businesses while disastrous for others. Do your homework on them.

8. Add Alternative Offerings

Employers offer benefits in order to attract and retain top talent for the role they are trying to fill and keep filled. All top talent, though, is not created equal and value is in the eye of the beholder, and cookie cutter plans turn everyone off.

9. Implement Wellness Programs

Wellness programs can heighten employees' awareness of their health, which encourages better choices and behaviors. Such efforts may lead to a lower number of claims and higher levels of productivity along with employees who feel physically and mentally healthier and thus more engaged with their work. Smoking cessation programs, fitness class discounts, diabetes management, biometric screenings, stress reduction, and even organized activities sponsored by the business can encourage healthier behaviors.

10. Strongly Encourage Using Telehealth

Going to the doctor can be time-consuming, costly and difficult. With the advancements in video conferencing through a computer, smartphone, or tablet, telehealth has become an acceptable, alternative healthcare delivery method. Not only is telehealth convenient, but it's one way to help mitigate healthcare costs for you and your employees. Its efficiency makes it less expensive and a more affordable option than an office visit. Find one that has a great physician network, is easy to implement and has an additional healthcare advocacy component to help your employees better manage costs.

Open enrollment season is about to begin for many companies. Hopefully, you and your benefits manager have been researching your current offerings and evaluating the need to either change, retain the status quo, or add new benefits that attract and keep a quality workforce. It costs too much to replace employees simply because they feel you don't have their best interests at heart when it comes to benefits.

As a licensed health and life agent, it would be my pleasure to work with you to evaluate and build a benefits program. There are many products available for your consideration that can be found on this website. Contact me to learn more of how to manage costs and find great products for your team. Let's talk soon.

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