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Build an employee benefits program that won’t break the bank: 5 steps


The benefits you offer potential employees can make or break their decision to work for you. Also, employee benefits are typically one of your heftiest expenses as a business owner.

With so much on the line, it’s important to be strategic when you’re deciding what you’ll offer your workers, regardless of your budget or the number of people you employ. To do that, your benefits program should:

  • Be centered on clear goals
  • Be financially realistic
  • Be as competitive as possible
  • Differentiate between required and optional employee benefits
  • Articulate additional perks
  • Fit into the total compensation picture

Take these steps to start building an employee benefits program that won’t break the bank.

1. Review your goals and budget

Before you start building your benefits program, you have to know why you’re offering employee benefits and how much you can spend. Having goals and a budget will keep you focused and realistic as you choose which benefits to offer.

For example, your objective may be to sponsor employee benefits that allow you to:

When setting your budget, remember that you have to pay what you can afford to pay, which often means you won’t be competing head-to-head with bigger companies. That’s OK. As a smaller player, you can give employees a few perks that the big companies can’t (see step four). Still, it’s important for you to know what benefits your competitors are offering their employees and to understand exactly why some candidates may choose to go to work for them.

2. Know the required employee benefits

Chances are, you’re already offering a few employee benefits – those required by federal, state and local laws.

These required benefits may include:

  • Social Security
  • Unemployment insurance
  • Workers’ compensation
  • Disability insurance (required in California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island)
  • Leaves of absence

Know how much it costs you to offer these required benefits so you can include them in your budget and communicate them as part of an employee’s total compensation package (see step five).

3. Pick optional benefits

The rest of your employee benefits program is made up of discretionary, or optional, benefits that you choose for your employees.

To attract talent and compete effectively, many businesses first elect to offer:

  • Health insurance – Due to the rising costs of health care, this is a must in the eyes of many employees. Choosing a high-deductible plan may help you pay less in premiums, but requires your employees to cover more of their costs out of pocket. However, some businesses offset this cost to their employees by contributing money to health savings accounts. Another cost-conscious option for small businesses is to join a professional employer organization (PEO), which can provide employees with health coverage under a PEO-sponsored health plan, relieving you of the administrative costs of offering your own health plan.
  • Life insurance – Providing life insurance protects employees’ families by paying a specified amount to employees’ beneficiaries in the event of death. A good policy pays out at least the cost of funeral expenses, around $20,000. Life insurance premiums are typically affordable for most businesses.
  • Disability insurance – This replaces income for employees who become unable to work because of sickness or accidents. Aim for a plan that covers at least 60 percent of employees’ salaries.
  • Retirement savings plans – Offering a defined contribution retirement plan, such as a 401(k), can help you stay competitive. These plans encourage employees to contribute their own money toward retirement every pay period. And if you want to make your company really well-liked, you can set up an employer matching program – you invest a “matching” contribution, a designated percentage of the employee’s contribution, into your employee’s retirement plan. But do your research on every feature and shop your options to get the best rates on these plans. It’s also a good idea to confer with your tax professional on what makes the most sense for your company and its employees.
  • Paid time-off (PTO) – Most employees will expect you to offer paid time off for national holidays, as well as vacations and sick leave (the standard is at least three weeks per year). If you really want to set your business apart, you may want to provide additional PTO for things like volunteer work as an added employee benefit.

4. Highlight special perks

There are benefits to working at your company that you can’t necessarily list in a job ad, but that a candidate can see and hear about when interviewing. These intangible benefits are often referred to as “perks”. Make sure you know your company’s perks and highlight them whenever possible.

For example, you may be able to offer a lot of work schedule flexibility to your employees, such as flex hours, telecommuting, etc. You may also give your employees exposure to parts of the business they would never get access to at a big company, such as collaboration with the executive team. These kinds of benefits can make your company a more satisfying place to work.

5. Draw the total compensation picture

To help your employees fully appreciate any optional benefits you provide, give each employee an annual statement of total compensation. This statement should show all of their wages plus any other benefits translated into a dollar amount (e.g., employer contributions to insurance benefit premiums). The dollar value of their benefits is essentially a “hidden paycheck.” Written as a report, your total compensation statement should show:

  • Health insurance amount – how much you pay each month for their health insurance and what percentage of the cost of their family’s coverage
  • Leave amount – the total dollar amount of the employee’s paid leave for the calendar year (based on their current salary/wages)
  • Disability insurance amount – how much pay is your employee eligible to continue receiving should they experience a disability? How much does the company pay each month in disability premiums to provide this coverage?
  • Life insurance amount – how much you pay per month for the employee’s life insurance
  • Retirement contribution amount – the amount of matching gifts you’ve contributed to the employee’s retirement account

Wrap up the report with a reminder that the employee’s total compensation is significantly higher than their annual salary or wages, and provide the total cost for providing the benefits you’ve outlined.

A PEO can help you optimize every part of your employee benefits strategy. Find out more about what a PEO can do for you in our free e-book, HR Outsourcing: A Step-by-Step Guide to Professional Employer Organizations (PEOs).