For employers, an employee benefit plan should be more than just a cost; it’s an investment in talent. But balancing being an “employer of choice” with cost containment is still a significant challenge.
Key Drivers For Employee Benefit Plans
From the employer’s perspective, the key drivers for employee benefit plans can be boiled down to a few main objectives, all aimed at organizational success. Here’s a breakdown:
1. Attracting and Retaining Talent:
- This is the biggest driver. In a competitive market, a good employee benefit plan package is a huge differentiator.
- Employers use benefits to:
- Attract top talent.
- Reduce turnover.
- Build a loyal and engaged workforce.
- In high demand industries, benefits can be the tie-breaker when a candidate is choosing between offers.
2. Enhancing Employee Productivity and Well-being:
- Healthy and happy employees are more productive.
- Benefits like health and dental insurance, mental health support and wellness programs contribute to:
- Less absenteeism.
- Better morale.
- More focus and efficiency.
- By investing in employee well-being employers create a positive work environment.
3. Staying Competitive:
- Offering a competitive employee benefit plan keeps employers ahead of the competition.
- This is especially important in industries where talent is scarce.
- A good benefits package makes the company an “employer of choice.”
4. Managing Healthcare Costs:
- While employee benefit plans are an expense, strategic benefit planning can help manage healthcare costs.
- Wellness programs and preventative care can reduce long-term healthcare expenses.
- Group plans can also get better rates than individuals can.
5. Compliance and Legislation:
- Employers must comply with federal and provincial labour laws and regulations around benefits.
- This includes mandatory benefits like EI and workers compensation.
- Staying compliant is key to avoiding penalties and maintaining a good reputation.
6. Company Culture:
When employees feel valued they are more engaged and committed. When employers view an employee benefit plan as an investment they can see that it contributes to their overall success. While cost is a factor, the long-term benefits of attracting and retaining talent, productivity and competitive edge outweigh the expenses.
A good benefits package shows the employer values its employees.
This creates a positive company culture and sense of belonging.
The Cost of an Employee Benefit Plan
Understanding the financial landscape of employee benefits is key. Key metrics to track are:
- Benefits Cost Per Employee: Total benefits cost divided by the number of employees. Typical employer-sponsored benefits packages in Canada cost around $5,000-$7,000 per year or $420-$580 per month. In Ontario the 2024 average WSIB premium rate was $1.30 per $100 of insurable payroll.
- Employee Benefits as a Percent of Payroll: Total benefits cost divided by total payroll cost. Sources indicate Canadian employers can expect to spend 15-30% of annual payroll on employee benefits. For small businesses this can be 5-15% of payroll, for larger companies 30%.
- Healthcare Costs Per Employee: Total healthcare cost divided by the number of employees. Healthcare costs are rising. Employers are implementing health risk assessments, biometric screenings and wellness programs to manage these costs and improve employee health.
For example, one particular employer within a particular industry shared these results. These may not be at all relevant for you, however, understanding the cost of employee benefits and how it is related to other employers in your industry, is a must.
Example:
- Incidental Absenteeism: 16.39% of benefit costs — 1.5% of payroll
- Worker’s Compensation: 20.77% of benefit costs — 1.9% of payroll
- Weekly Indemnity: 19.13% of benefit costs — 1.75% of payroll
- Short-Term Disability: 18.03% of benefit costs — 1.65% of payroll
- Long-Term Disability: 9.29% of benefit costs — 0.85% of payroll
- Drug Plans: 6.56% of benefit costs — 0.6% of payroll
- Extended Health Care: 8.2% of benefit costs — 0.75% of payroll
- Employee Assistance Program: 1.64% of benefit costs — 0.15% of payroll
Mental Health and Wellness
The focus on mental health benefits has shifted significantly. There’s been a destigmatization of mental health issues, accelerated by the pandemic. In-demand employee benefit plan benefits are:
- Expanded Employee Assistance Programs (EAPs)
- Digital mental health platforms (teletherapy, apps)
- Mental health days and flexible PTO
- Mindfulness and wellness programs
- Manager training on mental health awareness
Employers are realizing that mental health is a key component of a comprehensive benefits package.
Using Technology for Efficient Employee Benefit Plan Delivery
Technology has transformed benefit delivery and management. Key innovations are:
- Benefit administration platforms (e.g. Group Enroll) that automate enrollment and communication.
- Mobile apps for easy access to benefit information and claims submission.
- AI-powered chatbots and virtual assistants for instant support.
- AI for personalized benefit recommendations and claims processing.
- AI for preventative care and return to work dates.
These technologies make employee benefit plans more accessible, personalized and efficient for the employee.
Flexible and Personalized Benefits: Meeting Diverse Needs
Employees are demanding more flexible and personalized benefits. Popular options include:
- Health Spending Accounts (HSAs/HCSAs): Employer-funded accounts for eligible medical expenses not covered by provincial plans.
- Flexible Benefit Plans (Flex Plans): Choose from a menu of benefits.
- Lifestyle Spending Accounts (LSAs): Funds for wellness expenses.
- Voluntary Benefits: Increase life insurance, disability insurance, etc.
Companies are adapting to their diverse workforce by offering an employee benefit plan that caters to intergenerational needs, remote work considerations and inclusion and equity.
Adjusting to the New Work Environment
With remote and hybrid work on the rise, employee expectations have shifted. New remote work benefits are:
- Home office allowances
- Internet and phone subsidies
- Virtual wellness programs
- Flexible work arrangements
Competitive benefits are key to talent acquisition and retention. Employers are increasing PTO and sick leave allowances and focusing on mental health days.
Finding the Balance: Affordability, Attraction and Retention
Finding the right balance between cost containment and a competitive employee benefit plan package is essential. While reducing benefit costs may be tough and adding new benefits may strain the budget, employers can enhance their offerings with creative and accessible solutions.
Consider these:
- Immediate Access: Allow employees to access their benefits from day one, no probationary period. This shows trust and immediate value.
- Personalized Flexibility: Offer more flexibility in benefits, like Health Spending Accounts (HSAs), so employees can tailor their coverage to their needs. Consider options within categories, like vision care vs. dental or increased paramedical coverage.
- Sick Day Accumulation: Allow employees to accumulate sick days to bridge disability coverage gaps and provide financial security.
Affordability and competitiveness are key. Sustaining valuable benefits long term requires planning for cost escalation and development of strategies that prioritize employee attraction and retention. The challenge is to reduce cost increases while maintaining a employee benefit plan that resonate with employees.
Ultimately it’s all about understanding your employees and programming for them. Communication is key. Help your employees understand and use their benefits properly. This will impact your company culture and your reputation as an employer of choice.
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Additional Reading:
Building A Well Workplace – Four Reasons Why Health Promotion Makes Good Business Sense
Corporate Wellness Programs – A Business Case
Workplace Wellness: Critical Questions In Putting Wellness Programs Together
Workplace Wellness: Measuring Wellness Outcomes
Workplace Wellness: 5 Reasons Why Excellent Programs Fail
Workplace Wellness: Moving From Health Promotion To A Healthy Organization
Boosting Your Wellness Programs To The Next Level