Follow these four steps to create and administer an employee benefits package your workers will love.
NOTE: This article is intended to inform our readers about business-related concerns in the United States. It is in no way intended to provide legal advice or to endorse a specific course of action. For advice on your specific situation, consult your legal counsel.
Job seekers rate a company’s benefits package as the second most important factor in their job search behind salary, and 97% of employees rate their benefits package as very or somewhat important to how they feel about their job and workplace.
Translation: The benefits package you offer matters, and there’s a high cost in terms of attracting and retaining talent if you get it wrong.
But maybe you’re a new or growing business with no idea where to begin when it comes to creating and offering a competitive employee benefits package. That’s where we come in.
Use this step-by-step guide to figure out the right benefits mix, estimate costs, and set up benefits administration so you can offer a competitive employee benefits package that job seekers and current team members alike will love.
Step #1: Figure out which benefits you need to offer
According to a little thing called “the law,” there may be benefits that you have no choice but to offer. Figuring out what these benefits are is the first step when creating any employee benefits package.
Benefits requirements based on size
Depending on how many employees you have, you may be required to offer certain benefits.
For example, according to the “employer mandate” of the Affordable Care Act (ACA), companies with 50 or more “full-time equivalent” (FTE) employees—defined as those who work at least 30 hours a week averaged over the course of a month—must offer health insurance or pay a per-employee penalty.
Your FTE calculation includes hours for part-time employees, so do the math to see if you qualify now or may qualify soon based on your growth hiring goals. HealthCare.gov offers a handy calculator for this on its website.
It’s a similar situation when it comes to the Family and Medical Leave Act (FMLA). Under the FMLA, companies with 50 or more employees for 20 or more weeks in the current or previous calendar year must offer 12 weeks of unpaid FMLA leave to eligible employees. Employees are eligible for FMLA if they:
- Have worked for your company for at least one year
- Have completed at least 1,250 hours of work for you during the 12-month period prior to their FMLA leave
- Work at a location where you employ at least 50 people within a 75-mile radius
Benefits requirements based on location
You may also be on the hook for offering certain benefits depending on your location.
Some U.S. states require businesses to offer paid sick leave, paid family leave, or both. Here’s a handy chart with a state-by-state breakdown:
Even if your state doesn’t require paid sick leave, your city or county still might. The National Partnership for Women & Families offers a great guide on these laws (just jump to page 11).
On the other end of the spectrum, every state but Texas requires most employers to provide workers’ compensation insurance. The National Federation of Independent Business (NFIB) breaks down all of the details.
Yes, there are exceptions
Is that everything? Not quite. There’re also necessary payroll deductions for things like social security and unemployment insurance. Talk to your payroll provider if you have questions about this.
Step #2: Decide which benefits you want to offer
With required benefits out of the way, it’s time to focus on the additional benefits you want to offer to entice job seekers and retain workers.
The options here are as limitless as your imagination, ranging from your usual benefits suspects like paid time off (PTO) and 401(k) retirement plans to really unique ideas like paying off student debt or a company music room.
For some context (and to give you a good starting point), here’s a comparison of the most common benefits companies offer and the benefits employees want most, based on a survey ran by Robert Half in 2018:
A breakdown of the benefits workers want vs. the ones employers offer (Source)
Don’t rely solely on data from what other companies are doing, though. Figure out which benefits to offer by:
- Surveying your own workers. Asking your own employees about which benefit offerings they want most will give you targeted insight into how to round out your employee benefits package.
- Adding benefits that align with your company’s mission or values. Did you know that employees at Jack Daniel’s get a free bottle of whiskey every month? Besides being a fun benefit, it also brings workers closer to the product they make every day. Anytime you can align benefits with what your company does or how it should act, do so.
- Paying attention to long-term savings. Helping employees manage chronic conditions may not sound super appealing as a benefit, but what if it saved you money on health insurance costs? What about letting employees work from home, which can help you conserve office space? Don’t forget how you can benefit from benefits, too.
Step #3: Create a budget and estimate costs
Now, it’s time to get down to brass tacks and figure out what you can actually afford to offer in your employee benefits package. Luckily, you don’t have to start from scratch; there are a ton of online resources to help you estimate.
For starters, the Bureau of Labor Statistics (BLS) releases their “Employer Costs for Employee Compensation” report every quarter detailing how much U.S. businesses are spending on benefits, on average. As an example, in June 2019, U.S. employers spent $11.48 per hour worked on benefits. The BLS breaks this data down further by type of benefit, industry, business size, and even geographic area to give you more relevant estimates.
The BLS also releases an annual report called “Employee Benefits in the United States” that not only provides data on the benefits employees have access to, but also the ones they actually use (find the stat called “take-up rate”). This info can help you predict participation rates with your voluntary benefits and estimate how much employees will contribute to help cover costs.
These resources can aid your benefits budgeting efforts, too:
- The International Foundation for Employee Benefit Plans (IFEBP) has a ton of resources and research results, such as data that presents benefits costs as a percentage of total payroll costs.
- The Kaiser Family Foundation (KFF) runs an annual survey that breaks down key costs related to employer-sponsored health coverage.
- In the benefits section of their website, the Society for Human Resource Management (SHRM) offers benefits beginners guides, up-to-date information on important benefits laws, and interesting benefits trends data (including cost-related trends).
If a benefit appears to be too expensive, you may have options to lower the cost. Newly created Association Retirement Plans (ARPs), for example, allow small businesses to partner up to gain the ability to offer employee retirement plans.
Step #4: Evaluate and select benefits providers
Congrats, you have an employee benefits package! Unfortunately, there’s still one more step. To turn your employee benefits package into a reality for your workers, you need help from a benefits provider: a company that takes on the responsibility of providing and administering employee benefits.
When it comes to benefits providers, you (generally) have the five following options.
1. Benefits administration software
Sold standalone or as part of a more comprehensive HR software suite, benefits administration software allows companies to manage and administer employee benefits themselves. The software can walk employees through enrollment, track participation rates and costs, and generate reports for compliance purposes.
The types of benefits such software vendors can administer vary, as does how they actually offer benefits. Some vendors (like BerniePortal) partner with licensed benefits brokers, while others (like Gusto) are actually licensed benefits brokers themselves. It’s a subtle difference, but one that can impact your options and costs.
Want to learn more about the top benefits-administration software options?
2. Professional employer organizations (PEOs)
Imagine an HR department as an entire company, and you’ll start to understand the concept behind PEOs. With PEOs, companies can outsource all of their HR needs—including benefits administration—for a fee.
Typically used by small businesses that lack dedicated HR personnel, a major benefit of PEOs is what is called “co-employment.” In a co-employment relationship, your PEO becomes the employer of record. That means if something goes wrong, your PEO is liable. The government can go after the PEO, and your employees can sue the PEO, too.
3. Insurance agencies or brokerages
Instead of going through a third party such as the first two options above, you can choose to work directly with insurance companies through their partnered agencies and brokerages.
It’s important to understand the difference between an agent and a broker though:
- An agent works on behalf of the insurance company, while a broker works on your behalf.
- Within the agency network, you also have independent agents that work on behalf of multiple insurance companies and captive agents that only work for one.
Ensure you understand your broker or agent’s relationship with insurance companies first to avoid getting a bad deal or funneled into limited benefits options.
4. Small Business Health Options Program (SHOP)
Set up through the ACA, SHOP is the government-backed program that allows small businesses with 50 or fewer FTE employees to offer health and dental insurance. For many companies of this size, SHOP is the only affordable way to offer these benefits.
5. Niche providers
“Niche providers” is a catch-all here for alternative organizations that may offer benefits administration services, such as banks and credit unions, and/or companies that can help you with atypical benefits, like tuition reimbursement or commuter benefits.
Did you catch all of that?
Here’s a summary of what we just covered about the different types of benefits providers. Weigh your options carefully to select the best mix of providers that will offer the benefits you want at the lowest cost, with minimal administration headaches.
|Type of provider||Benefits offered||Pros||Cons|
|Benefits administration software||Varies||+ Control
+ Integration with payroll
|– Might not be available in your state yet
– Requires in-house personnel
|Professional employer organizations (PEOs)||Varies||+ Easy to administer
+ Reduces liability
|– Too expensive for 100+ employee companies
– Employees have to work with outside org
|Insurance companies, agencies, or brokers||Varies||+ Can negotiate better rates
+ Most options
|– Managing relationships with multiple vendors
– Proprietary software that’s hard to learn and use
|Small Business Health Options Program (SHOP)||Health and dental insurance||+ Affordable
+ Potential tax credits
|– Only for small businesses
– Doesn’t cover a ton of benefits
|Niche providers||Varies||+ Only means to offer certain benefits||– Inefficient and costly|
Your employee benefits package has never been more important
Organizations across the country are dealing with a myriad of talent management issues, from hiring shortages and worker skills gaps, to job hoppers and employee burnout.
It’s tough sledding out there. But a great employee benefits package has the potential to solve these problems by attracting the best job seekers and giving workers the help they need to stay, and thrive.
What are your benefits administration tips? And what unique benefits does your company offer that your workers love? Let me know in the comments or on Twitter @GDMBrian, and check out our talent management blog for more helpful HR resources.
Looking for Benefits Administration software? Check out Capterra's list of the best Benefits Administration software solutions.