How to decide which employee benefits to offer (and when)

Offering a small business 401(k) plan is a great way for employers to entice top talent to join their organization, become engaged employees, and hopefully encourage them to remain a member of their workforce for the long haul.

While you may have a specific amount of money in the budget to spend on benefits or perks, making the decision whether to offer a new benefit — or save the money for a future, more expensive offering — can be difficult.

Related article: How much does a 401(k) cost small business employers?

What to consider when deciding which benefits to offer

When your business is trying to figure out which benefits to offer (and when to offer them), these are the several factors to consider.

Many employees prefer benefits over salary increases

Employees may increasingly value comprehensive benefits. While Glassdoor's 2015 survey found 79% preferred benefits to pay raises, recent data suggests a deeper trend. According to Indeed & Glassdoor’s 2023 Hiring and Workplace Trends Report, there’s been a rise in advertisements for health insurance, retirement benefits, and paid time off (PTO) for vacation and sick leave. Post-pandemic, sectors like manufacturing offer more perks and employee benefit packages previously associated with tech firms. 

What’s more, a survey from 2023 found that roughly 90% of all employees believe workplace well-being affects personal life, suggesting that the modern employee may value a more comprehensive compensation package — not just a high-paying salary. 

Some types of employee benefits are valued more than others

According to the 2023 SHRM Employee Benefits Survey, surveyed employees preferred employers offering benefits that help employees strike a better work-life balance and take care of their physical and mental health. Here are a few key takeaways from the survey and the types of incentives employees prefer: 

• Health-related benefits: 89%

• Retirement savings plans and benefits: 81%

• Leave Benefits: 81%

• Flexible working benefits: 70%

• Family-friendly benefits: 68%

• Financial (non-retirement) benefits: 52%

• Wellness benefits: 49%

There are countless examples of benefits that you can offer part-time and full-time employees to enhance retention, increase employee satisfaction, and set your company apart from others. This can include Health Savings Accounts (HSAs), stock options, vacation time, flexible work schedules, flexible spending accounts (FSAs), and more.

Are you offering these benefits? When you’re looking at what to offer, start with the above list. If you’re not offering all of them, review your budget to see if you might be able to add a new offering to your benefits package.

Are the benefits you offer at market rate? If you’re offering the five benefits listed above, benchmark against your competitors to gauge if what you’re offering (e.g., the amount of your employer 401(k) match or the percentage you cover for healthcare premiums, etc.) is competitive. If not, you might be able to allocate additional money from your budget to boost the benefits you’re currently offering.

What other types of benefits could you offer? If your benefits package includes these five benefits, and your package is competitive with what companies in your industry are offering their employees, consider additional types of benefits your employees might appreciate. In addition to healthcare, time off, and retirement investment benefits, there are benefits such as:

• Flexible schedules, paid parental leave, and childcare assistance

• Professional development programs and tuition reimbursement programs

• Employee discounts for gym memberships or wellness programs

Keep in mind that there are options about how to manage the costs of many benefits. In some cases, employers share costs with their employees while for other benefits, eligibility occurs when the employee reaches a defined tenure with the organization. Or, participation in some benefit plans, such as tuition reimbursement, may require that an employee stays with the organization for a designated length of time after graduation, or they must repay a portion of the tuition expenses.

Understanding what employees want requires communication

Before you make changes to your total pay package, you’ll want to determine what benefits your company can afford, as well as what makes sense for your employees. Employee preferences for benefits vary based on individual needs. For example, an employee who is middle-aged may be more concerned about retirement investment benefits while an employee with a young family may be seeking excellent healthcare benefits for themselves and their dependents.

One-on-one conversations, surveys, and focus groups should be used to gather employee perspectives about current and future benefits. The data you collect may provide insight and also highlight the benefits that will contribute the most value to the total pay package you provide for employees.

FAQs about deciding which employee benefits to offer

What is the most common type of employee benefit?

Health-related perks are the gold standard. A whopping 89% of employees, according to the 2023 SHRM Survey, prioritize health insurance, including dental and medical coverage. Hot on its heels? Retirement savings plans. In fact, a 2022 study from Human Interest shows that access to a 401(k) was listed as the second most wanted benefit, right after health insurance, across 2,000 Americans.

What are some unique benefits companies can offer to stand out?

In addition to healthcare and retirement, employers have options that can help them stand out. Think tuition reimbursements, gym memberships, and wellness programs that champion mental health and overall well-being. Parental leave, childcare aid, and flexible hours may also be big hits. In the financial corner, health savings accounts (HSAs) and flexible spending accounts (FSAs) are options. And in today's digital age, professional development programs can help attract top talent.

What are the legal requirements for providing employee benefits?

In the U.S., the Family and Medical Leave Act (FMLA) mandates unpaid leave for family and medical reasons. The Affordable Care Act (ACA) sets the bar for health coverage. And don't forget about workers' compensation and unemployment insurance — they're non-negotiable in most states. Small business owners should also pay attention to state-specific requirements, like short-term disability or paid sick leave. 

Know when to update your employee benefits

There's not a one-size-fits-all answer regarding when to update your benefits plans. But there are considerations that will help you identify if the time is right to update your plan, or offer something new:

• Regulatory changes: There can be significant changes in benefits, rules, and regulations (i.e., the Affordable Care Act). It’s important to review your plans to ensure your benefits package is compliant with new regulations. 

• Employee population changes: Regularly assessing and understanding the needs of your employee population will help you identify if it’s time to make a change. Compare the needs of your workforce against the costs based on the number of participants — in many cases, you'll be able to receive discounts on benefits offerings as your population grows. Understand those thresholds and make sure you're requesting updated cost information when your population increases. This information will provide an idea of when it makes the most financial sense to modify your offerings.

• Recruiting needs change: Benefits are an important part of your recruiting strategy. If you’re finding that the candidates you’re seeking aren’t accepting employment offers from your company, examine your benefits package to see if an update might improve your recruiting results.

• Financial changes: If your organization experiences financial issues, you may need to consider reducing the benefits you offer or increase the options for voluntary benefits. These enable you to continue offering employees a variety of choices for coverage in a cost-efficient way for you and the organization.

• Vendor changes: Benefit options change rapidly and your vendor may be able to put together a new package that works well for your company.

• Annual check-in: Review what you’re offering on an annual basis to make sure you’re offering options that your employees want and that you can afford.

• When looking at what benefits to offer — and when — employers must carefully consider all the options. If the intent of providing benefits is to recruit, engage, and retain employees, companies must evaluate if there is a return on the investment for the benefits they offer or plan to offer. 

Bottom line: do employees see the value of the benefit and understand how it directly relates to their contributions at work? To get the most value out of the benefits you offer, make sure the benefits are easy to understand, you make changes and adjustments as needed, and you regularly review the returns on your investment.

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