Talent Management

Calculate Your Expected Employee Benefits Costs

Published by in Talent Management

Struggling with budgeting your employee benefits costs? Use our calculator to estimate how much different offerings will cost your business.

a computer monitor showing a budget outline overlaid by a calculator

Compared to the difficult decisions businesses have to make every day, offering employee benefits is almost a comforting no-brainer. You either have to do it because the law requires it, or you are highly encouraged to do so because 97% of workers say their benefits are important to how they feel about their job and workplace.


How to budget for employee benefits costs, however, is less of a no-brainer.

Offering employee benefits is an increasingly expensive proposition for businesses (benefits costs to employers have increased 368% over the last 14 years), and a complicated one. You can’t predict with absolute certainty who’s going to opt in and pay for voluntary benefits, or how much allotted PTO workers will actually use.

It’s a balancing act like no other to get the numbers just right, but it’s one that can be made much easier with the right knowledge and resources at your disposal.

With that in mind, let’s look at the four major categories of employee benefits costs before we turn it over to you to actually estimate your annual benefits costs using our handy calculator.

The 4 major categories of employee benefits costs

If we wanted to, we could really get into the weeds with employee benefits costs. That company-branded t-shirt you give new hires on their first day is technically a “benefit,” right?

For simplicity’s sake, let’s focus on the four most significant categories of employee benefits costs, according to the U.S. Bureau of Labor Statistics (BLS): Retirement, insurance, paid leave, and supplemental pay.

Here’s how those costs break down for the average business:

A pie chart breaking down major employee benefits costs for employers.

Let’s go through these categories one by one.

1. Retirement

We’re using the term “retirement” here to cover all of the benefits employees take advantage of after they stop working.

If—like about half of all employers—you choose to offer retirement savings plans such as 401(k)s to your workers, that will make up the bulk of this cost. But even if you don’t offer retirement savings plans, you still have to factor in required wage withholdings for Social Security and Medicare. In 2019, the tax rates for these programs are 6.2% and 1.45%, respectively.

If you’ve never done these types of withholding calculations before, the IRS offers resources on how to do them for your business. Alternatively, you could invest in a payroll system that does this kind of work with every pay run, automatically.

2. Insurance

If you guessed that health insurance would be the single most expensive benefit that employers typically offer, you’re correct. Over the past decade, employer contributions toward employee health insurance premiums have increased 51% to more than $15,000 per worker, per year.

The employer mandate of the Affordable Care Act (ACA) says that companies with 50 or more FTE (full-time equivalent) employees must offer health insurance, but about one-third of businesses smaller than this offered health insurance last year anyway to attract job seekers and retain employees. If you’re in this size bracket, it’s your call.

It’s also your call if you want to offer either life insurance or short-term (STD) and long-term (LTD) disability insurance, though many companies do (and at a comparatively lower cost to other benefits).

On the flip side, you are required to pay for both state and federal unemployment insurance, and unless you’re in Texas, you also have to provide workers’ compensation insurance.

3. Paid leave

Paid leave comprises any time you’re paying an employee to not work. That includes allotted days for vacation or if someone gets sick, but also holidays. Check out this guide to find out if you live in a state that requires paid leave.

For budgetary purposes, you have to assume workers will use all of the paid time off (PTO) allotted to them, but in practice this is rarely the case. For reference, among the 69% of employees that receive PTO from their employer, the average worker gets 10.7 days of PTO per year, but only uses about half (54%) of it.

4. Supplemental pay

Supplemental pay includes any compensation awarded to workers outside of their normal wages, and is defined as a benefit by the BLS. This includes overtime pay, shift differential pay (compensation offered to employees that work outside of normal business hours), and any bonuses.

Throwing a wrench in overtime pay budgeting is a new law passed in September of this year which raised the threshold under which salaried employees must be paid overtime for hours worked beyond 40/week from $23,660 to $35,568. If you have any salaried workers in this range, your best option might be to raise their salary or reclassify them to avoid overtime payments, depending on how many hours they work.

Use our calculator to estimate your employee benefits costs

Thanks to the BLS, we get updated data every quarter detailing how much employers spend on different benefits per hour worked. Using this data, we built a calculator to help you estimate your employee benefits costs.

Enter how many employees you have and how many hours they work per week on average to calculate your employee benefits costs for the year:

As an example, if a 25-person business with employees who averaged 40 work hours per week wanted to offer all of the benefits we’ve covered here, it would cost $596,960.

It benefits you to plan for contingencies

When you consider that record-low unemployment is putting pressure on companies to raise wages, healthcare costs are continuing to rise, and—oh yeah—a potential global recession is threatening massive downturns for everyone, it’s no wonder compensation planning is becoming a more and more stressful endeavor.

To avoid blowing budgets down the line, start contingency planning now. Identify the benefits you may be able to offer if company performance beats expectations, and the ones you can cut first if performance underwhelms. Complete a cost-benefit analysis as well to determine which benefits you can’t afford to lose.

Want more help offering an exceptional employee benefits package?

About the Author

Brian Westfall

Brian Westfall

Principal Analyst @ Capterra, covering the latest in HR and recruiting software. BS in Marketing and Economics, Trinity University. Published in Forbes, SHRM, and TechRepublic. Based in Austin. I love corgis, baking, and rooting for my hometown San Antonio Spurs (Go Spurs Go!).


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