How to Design Employee Benefits Packages as a Small Business
Offering a competitive benefits package is critical for small businesses looking to attract and retain top talent. Research shows that benefits are one of the top considerations for employees when evaluating job offers. With unemployment low, competition for skilled workers is high, and small businesses need great benefits to stand out.
Studies have found the most valued benefits employees look for are health insurance, retirement plans, paid time off, flexible work arrangements, professional development opportunities, and life and disability insurance. While larger companies often have the resources to offer robust benefits, small businesses can still design attractive packages to meet employee needs and stay within their budgets.
This article will explore the most coveted benefits small businesses should consider, strategies to balance costs, and how the right benefits package impacts recruitment, retention and employee satisfaction.
Most Valued Benefits
Research shows that the most valued benefits employees want fall into a few key categories: health insurance, retirement savings, insurance protections, paid time off, and work flexibility. Offering a strong package in these areas can give small businesses a competitive edge in attracting and retaining top talent.
Health Insurance: Comprehensive health insurance covering medical, prescription drugs, dental and vision is highly prized by employees. This gives them essential coverage for major healthcare costs and peace of mind.
Retirement Savings: The ability to save for retirement through employer-sponsored plans like a 401(k) is a major perk. Matching contributions from the employer make these even more attractive. Retirement plans help employees financially prepare for the future.
Insurance Protections: Life insurance, disability insurance, accident insurance and other policies provide employees with a safety net. Having coverage for lost income in case of death, illness or injury is key for financial security.
Paid Time Off: Employees value generous vacation time, sick days, personal days and holidays to recharge and attend to personal needs. Unlimited time off is an emerging trend.
Work Flexibility: With remote and hybrid work options, flexible scheduling, and options like job sharing, employees appreciate flexibility to better balance work and life.
Costs of Basic vs. Enhanced Packages
According to the Bureau of Labor Statistics, the average cost of benefits per employee in the private industry is $10.88 per hour — around 30% of the total cost of compensation. However, costs can vary significantly based on the comprehensiveness of the benefits package.
A basic benefits package may include health insurance, paid time off, and a retirement plan. This can cost an employer approximately $8,000-12,000 per employee per year. An enhanced package may offer richer health coverage, increased leave, disability/life insurance, and more retirement contributions, costing $15,000-25,000 per employee annually.
Factors impacting costs include plan design choices like deductibles, co-pays, covered services, and contribution matching. The demographics and health status of the workforce also play a role. Covering older employees or those with chronic conditions raises costs.
The advantage of basic packages is lower premiums and out-of-pocket costs. However, they may not provide adequate coverage and can lead to higher turnover. Enhanced packages improve recruitment and retention but have higher price tags that strain budgets.
Budget Considerations
Small businesses need to carefully balance the costs of employee benefits with their budgets. There are several strategies businesses can use to make benefits affordable:
Start by only offering core benefits like health insurance and retirement plans, then expand the offerings over time as the budget allows. According to ADP, health, dental, vision and retirement plans are standard starter benefits.
Have employees contribute to the cost of benefits through payroll deductions. This increases employee buy-in while reducing costs for the employer.
Shop multiple insurance providers each year to find the most cost-effective plans. Comparing quotes annually can reveal opportunities for savings on premiums. Next Insurance recommends using an insurance broker to simplify the process.
Leverage tax advantages of certain plans like HSAs, FSAs and 401(k)s to maximize savings for both employers and employees.
With careful planning, small businesses can provide competitive benefits packages while meeting budget needs. Starting small then expanding over time is an effective approach.
Lowering Benefits Costs
There are several strategies small businesses can use to lower the costs of providing employee benefits while still offering competitive and valuable packages:
Preferred Provider Networks
Using a preferred provider network for health insurance plans can help lower premium costs by negotiating discounted rates with certain healthcare providers and facilities. This gives employees incentives to use in-network providers. Research shows preferred provider networks can reduce claim costs by up to 30%.
Voluntary Benefits
Offering voluntary benefits allows employees to select and pay for additional coverage like accident, critical illness, or identity theft insurance. This enhances the benefits package at little to no direct cost for employers.
Wellness Initiatives
Investing in programs to improve employee health and wellbeing, such as gym discounts, smoking cessation plans, or health screenings, can lower insurance premiums over time by reducing claims. Healthier employees also miss less work.
Increased Deductibles/Copays
Plans with higher deductibles and copays lower premium costs but employees pay more out of pocket when receiving care. This design shift should be communicated clearly during open enrollment.
Employee Education
Educating employees on how to make the most of their benefits, like using in-network providers or generic prescriptions, ensures they maximize their coverage for the lowest costs.
Impact on Recruitment
Offering a competitive benefits package is crucial for small businesses to attract top talent in a tight job market. Research shows that benefits significantly influence candidates' decisions when evaluating job offers. According to a survey by PeopleKeep, 87% of employees said improving retirement benefits positively impacts morale and helps with employee retention.
With unemployment rates low, candidates have multiple job options and are carefully comparing compensation packages. A study by Czech Business Guide found that expanded talent pools and employer branding expertise are key benefits of effective recruitment. Small businesses need to leverage their benefits offerings to stand out and attract skilled workers.
AI recruitment tools can also help small businesses by enhancing the speed and insights of the hiring process. Overall, investing in the right benefits package gives small businesses an advantage in competitive talent markets and helps them secure the best candidates.
Impact on Retention
Offering a competitive benefits package can significantly improve employee retention for small businesses. According to research from United Insurance, 78% of employees say they are more likely to stay at a company because of the benefits program. Retirement plans, health insurance, paid time off and other popular benefits promote loyalty by showing employees their value to the company.
High turnover is costly for small businesses, so benefits that retain top talent provide major savings. Replacing an employee can cost 20% or more of their salary in recruiting, training and lost productivity costs. Reducing turnover is critical, and benefits are an effective retention tool. Employees who feel their needs are met through benefits are more engaged, happy and likely to stay long-term.
With the high costs of losing employees, small businesses should optimize their benefits packages. Offering the right mix of benefits makes employees feel invested in the company and less likely to leave for greener pastures. Retaining top talent ensures small businesses maintain productivity, institutional knowledge and human capital.
Impact on Satisfaction
Offering a competitive benefits package has been shown to greatly increase employee satisfaction. According to research by SHRM, 60% of employees rate benefits as a very important factor in their job satisfaction, ranking it 3rd behind respectful treatment and compensation/pay.
Satisfied employees tend to be more productive and have higher job performance. A 1998 study on the relationship between benefit satisfaction and organizational commitment found a strong positive correlation. Employees who were satisfied with their benefits had higher organizational commitment and performance.
However, benefits satisfaction has been declining over the past decade. One SHRM study found that benefits satisfaction dropped to its lowest level in 10 years in 2022. This corresponded with a decline in overall employee wellness. To boost satisfaction, employers should focus on offering benefits like health insurance that support overall wellbeing.
Choosing a Plan
When it comes to choosing a benefits plan, small businesses should compare options from multiple insurance providers. Getting quotes from at least 3 providers allows you to compare premiums, services, provider networks, and more. Look at the plan designs and coverage details closely - not all plans are created equal. Consider the deductibles, copays, coinsurance, and maximum out-of-pocket costs that employees would be responsible for paying.
It's also important to educate employees on plan offerings and engage them in the selection process. Communicate details clearly about covered services, provider networks, prescription drug coverage, and any employee premium contributions required through payroll deductions. Encourage employees to review materials and ask questions. Getting their input will help assess what plan features matter most to your team.
Ultimately the goal is choosing an affordable plan that provides robust coverage aligned with what your employees value. Comparing multiple provider options and plan designs is key for small businesses to make the best benefits decision. Engage employees in the process so they understand and appreciate the plan you select.
Conclusion
The right employee benefits package is crucial for small businesses in Canada looking to recruit and retain top talent. By offering a competitive mix of health insurance, retirement savings, paid time off, and other perks, small companies can attract candidates and foster loyalty among existing staff.
The most valued benefits tend to include health coverage, retirement plans, disability insurance, and flexibility. While enhanced packages have higher costs, starting with core benefits and expanding over time can allow small businesses to balance benefits with their budgets.
Strategies like using provider networks, increasing cost-sharing, and promoting employee health can help manage expenses. Data shows benefits strongly influence recruitment, retention and satisfaction. With benefits costs rising, small businesses need benefits strategies tailored to their workforce demographics and budgets.
The key is choosing a plan with the right mix of affordability and attractive offerings. With benefits competition increasing, small companies can't afford to neglect compensation. The investment in thoughtful benefits plans will pay dividends in top talent acquisition and staff loyalty.