LAST REVIEWED Apr 13 2020 10 MIN READ
By Liz Sheffield
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 post: 401(k) cost to employers.
What do you need to consider when making decisions about what benefits to offer, and when? We have four things to keep in mind:
Many employees prefer benefits over salary increases
Employees understand the value of an excellent total compensation package. According to Glassdoor’s Q3 2015 Employment Confidence Survey, nearly four in five (79%) of employees would prefer new or additional benefits to a pay increase. In many cases, benefits directly relate to an employee's compensation. For example, if an employer matches the 401(k) contribution or pays 80 percent of the employee’s medical premium, it can amount to significant savings in the employee’s take-home pay.
The survey results showed some interesting differences based on gender and age when it comes to who prefers benefits or perks to a pay raise: Women (82%) Men (76%) Aged 18-34 (89%) Aged 35-44 (84%) Aged 45-54 (70%) Aged 55-64 (66%)
The data is somewhat surprising--it seems logical that older employees might be more interested in retirement or health benefits. But when you consider the financial issues facing today’s younger population (huge student loan debt, questions about social security benefits, etc.) that may explain why they’re more likely to prefer benefits. Regardless, the data illustrates that many employees value benefits and perks more than receiving a pay raise.
Some benefits are valued more than others
The employees surveyed by Glassdoor indicated that the following benefits were the most preferred: Healthcare insurance: 40% Vacation/Paid time off: 37% Performance bonus: 35% Paid sick days: 32% 401(k) plan, retirement plan or pension: 31%
Are you offering all of 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.
Related article: 5 Ways to Evaluate Employee Happiness
Know when to update your 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 that your benefits package is compliant with new regulations. Example: Small Businesses Required to Offer Retirement Plans Under New State Laws.
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 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 changes 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 which you can afford. This end of year HR checklist may help!
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.
Visit our Learning Center for other HR & Employer Benefit resources like this one.
Image credit: StockSnap
Liz Sheffield has more than a decade of experience working in HR. Her areas of expertise are in training and development, leadership development, ethics, and compliance.