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Budgeting for employee benefits is one of many tasks that 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?
Prepare to do some serious number-crunching as our guide digs deep into the latest industry data. We’ll introduce you to some hard figures on the average cost of benefits per employee and explain how to maximize the ROI of your offering so it’s financially tenable.
First up, a burning question: How much do benefits cost per employee?
BLS data reveals the average hourly rate business owners paid in employee benefits in June 2024. The results depend on the sector:
Based on a 35-hour work week, the average monthly cost of employee benefits is:
Plan out your annual costs using the average cost of employee benefits per year:
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:
Whether you’re budgeting monthly, quarterly, or annually, your employer costs depend on the pricing structure of your preferred provider organization. Some common options are:
Both the breadth of benefits in the average package and the cost of providing them have risen in recent years. The following factors have impacted this:
Whether impacted by the pandemic, the cost of living crisis, or political events, your workers have undergone severe stress in recent years. Many will struggle to afford their bills, are carers for children and seniors, or be suffering from mental health conditions, including depression and anxiety.
This is all relevant to employers because if your people don’t have access to support, then they can’t work. Some will struggle to be productive, others can’t afford the commute, and many working parents will leave the workforce entirely.
For these reasons, employers are adding broader benefits encompassing mental health services, childcare support, and well-being programs to bolster their packages.
If we’re looking purely at the cost of administering benefits packages, then it’s no surprise that they’ll increase each year in line with the rise of third-party benefits administration and service provider costs.
In some cases, these year-on-year price increases can be astronomical. For example, Excellus BlueCross BlueShield is expected to pass on 19.5% renewal fees to 11% of its members, based on the rising costs of hospital visits and cancer treatments.
Statista reports that the share of people working remotely worldwide stands at 28%, although this varies by industry. For example, 67% of tech workers enjoy the flexibility of working from home. This significant shift in working models directly impacts the type of benefits employees need to suit their new work setup. These may include online fitness subscriptions instead of on-site gyms, grocery deliveries instead of office snacks, and essential furniture and tech equipment as a substitute for a fully-kitted office cubicle.
Some benefits are mandatory, but voluntary plans, including lifestyle benefits, can support your employee retention and engagement goals. Consider a mix of the following:
The benefits listed above are staples your employees can’t do without. But additional fringe benefits can differentiate your offering and win hearts and minds. Some options include:
Check out our resource on the most important benefits to employees for more ideas that are top of mind for employees in 2024.
Curious about the variety of stipends you can offer to employees? We put together a guide to employee stipends to provide an overview of this popular employee benefit and offer inspiration as you design your stipend program. Download the guide to learn about the types of stipends available and how to design a successful program.
No two employee benefits programs are alike—the amount you’ll pay depends on numerous factors, including:
The most obvious driver of employee benefits cost is the size of your business. Larger companies may be able to negotiate better per-employee rates. But smaller businesses with fewer employees may access discounted plans through group policies or self-funded plans.
Trying to offer every possible benefit will come at a premium. However, if you consolidate a wide variety of benefits into a single flexible benefits account, you’ll save money and offer your employees more choices.
Build the potential for price increases into your annual budget as your benefits provider will factor inflation, rising healthcare costs, and other externalities into their fees.
The process of setting up and maintaining an employee benefits program can involve some costly errors, including:
Does your organization’s location matter? It could. Bay Alarm Medical research finds that higher average employee benefits are associated with larger cities like San Francisco and New York. Higher-rate states include Arizona, which is home to eight Fortune 500 companies.
Employee benefits aren’t a set-it-and-forget-it situation. As your organization evolves, so will the needs of your workforce—and you’ll need to adjust their individual policies accordingly.
Example: John is a 25-year-old single man when he joins your company. Five years later, he’s married with a toddler and another baby on the way. His spouse and children are now included in his health insurance program, so you should budget for the family premium costs associated with John’s new plan.
Factor in exchange rate fees if you work with a non-domestic benefits provider or a distributed team with employees from many different countries. This can be tricky to budget for with fluctuating currencies—one month, you may pay more than expected, and the next, you could gain a little back.
Benefits providers may charge a one-time fee to cover setup and onboarding costs. It’s worth asking your provider whether they offer any discounts or promotions to keep these costs down.
If an employee’s benefits membership card is lost or stolen, some providers charge a replacement fee every time, which can add up quickly. Be aware of any such costs before signing a contract.
Naturally, when pricing everything up, you’ll want to maximize the value of your total benefits spend. Whether you aim to save money on the overall cost of benefits or maximize what your employees receive, follow these eight tips to stretch those dollars further.
Pinpoint the perks, stipends, and benefits that bring the most value to your employee demographic. Understand what they will bring to your business plan and how quickly you can expect them to move the needle on initiatives like retaining employees or increasing job satisfaction. As Steven Cardwell, VP of Benefits, Well-Being, and Retirement at Premise Health, puts it:
“Cost is important; we want those dollars in the field, we need them in our growth, we need them to support those that are supporting our clients.”
Ensure you understand the charges associated with a particular insurance company or benefits provider. A good provider should be transparent about its fees before you commit to any contracts.
Example: Benepass doesn’t charge any foreign exchange, support, or replacement card fees, making budgeting a cinch.
When you measure the value of your benefits against others in your industry, you’ll determine if you’re wasting money on benefits other companies aren’t providing. For a comprehensive picture, benchmark against local and national averages or even global benefits if you’re a remote-first company.
Check out the Benepass Benefits Benchmarking Guide for a headstart with your comparisons, then follow these expert-backed tips on conducting benchmarking from HR leaders in the field.
The cost of the benefits themselves doesn’t represent the finish line of employer spending. Consider the time it takes your HR team to deploy the benefits and manage any changes throughout the cycle, for example, when employees join or leave the company.
Get around this by selecting a benefits provider like Benepass that consolidates all your programs in a single platform, eliminating the administrative burden of dealing with multiple providers.
When your employees forget about their benefits, aren’t interested in them, or don’t understand what’s available, dollars will always be left on the table. Some benefits providers will pocket the difference, but others, like Benepass, offer employee forfeiture. With Benepass, you can set expiration dates for benefit funds and recoup any unspent money.
Example: If you offer your employees a $100 food and beverage allowance but they only spend $75, the money isn’t lost. Instead, your company will receive the $25 back to put toward other benefits.
Many companies use a handful of point solutions to administer their benefits—one provider might help you administer wellness benefits while another administers a food program. The more point solutions you have, the more fees you’ll rack up as well. Consider opting for a vendor like Benepass that allows you to consolidate your programs in one platform, reducing costs and improving the employee experience along the way.
Some of the costs related to your employees’ benefits are tax-deductible. When selecting your provider, understand which products are tax-advantaged and how to capture these deductions. Benepass can support the administration by providing automated spending data from employee card transactions and receipts to validate eligible spending.
Here's the stinger: Your benefits packages will need adjusting every year in time for open enrollment. Typically, you can expect an annual premium adjustment which is an excellent opportunity to check in and review whether your current benefits offerings are still relevant and performing in line with your expectations.
Benepass supports companies in distributing meaningful employee benefits that support their workforce’s personal and professional well-being. But we’re not about breaking the bank.
Our flexible benefits accounts enable your HR teams and employees to stay in control of budgeting and allowances with real-time insights into how your workers use their benefits.
Learn more about our innovative employee benefits approach by booking a demo or contacting sales@getbenepass.com to connect with a benefits specialist.
