Employee Benefits That Cost the Employer the Most Money

Employee Benefits That Cost the Employer the Most Money

The highest operating costs for any organization is staff pay, followed by employee benefits. From medical insurance to sleep pods they all come at a cost

Pay compensation remains the highest operating cost for organizations, however the other big employee expense for organizations is the rest of the benefits package, that can boost operating costs significantly higher. In most organizations the non-pay benefits account for almost 29 percent of the total employee expense package with medical insurance being the highest costing benefit. This is followed closely by the state mandated benefits such as social security and medicare contributions. Although it is a large expense for organizations, most employers will agree that offering a good employee benefits package and keeping employees happy and engaged is worth the price.

What Are The Most Costly Employee Benefits?

Medical Insurance

According to a study conducted by the Bureau of Labor Statistics late in 2018, most organizations spend an average of $11.60 per hour on non-pay employee benefits. Any company with over 50 employees must offer employees some sort of medical coverage. In most cases this means that the employer is responsible for up to approximately 80 percent of the cost of the insurance and the rest is met by the employee. The employer portion guideline ranges between 70 and 80 percent, depending on whether the coverage is for an individual or a family. This makes medical insurance not only the most expensive employee benefit, but also the most sought after, as medical costs are always on the rise and this is fast becoming a prerequisite. Providing medical insurance is beneficial to both the employer and the employee as a healthy employee is worth more to an organization than one that is constantly worrying about medical issues and expenses.

Social Security and Medicare Costs

Social security is a federal benefits program that employers must provide all employees on payroll with. Both full time and part time employees are required by law to make social security contributions and also make contributions towards medicare. Social security is different from a pension or retirement plan as this is a plan where employers make contributions to a pool of funds on behalf of an employee. Social security is handled by the federal government and funded through payroll taxes that are collected from both the employees and the employers. The employer is also required to match the contribution made by the employee in both medicare and social security. The current cost of social security is a total of 12.4% of the employees pay, which is paid in a 50/50 split by the employer and the employee. The cost of medicare is a total of 2.9% which is also paid in a 50/50 split. This employee benefit is mandatory at the Federal level and costs the employer a significant sum of money each year, but still less the medical coverage.

How Much Do Additional Benefits Cost the Employer

Many employers offer their employees additional employee benefits such as flexible spending accounts (FSA) and health savings accounts (HSA) . These are special accounts that employees can put aside money that they can use to pay medical expenses. This money is put aside pre tax so it can be a valuable employee benefit for most.. These types of benefits are actually of great value to the employer as they come with minimal cost and in return employees avoid paying payroll tax on the amount that the employee contributes to the FSA.
Another additional employee benefit that organizations can offer that have minimal additional costs is paid-time-off. Although at first this sounds counterproductive as employees are being paid to have time off work, in reality this is not an additional cost as many employees will not take all the time that they are due off. Any vacation time that is taken off, is a loss for the organization, but is often lost on a line item when an organization calculates their actual profitability.

The Cost Of Non-Traditional Employee Benefits

More organizations are starting to offer a range of non-traditional employee benefits such as sleep pods, free food, onsite gyms, daycares, discount tickets and remote or flexible work options. Although some of these may include some initial setup costs, they are all benefits that an employer can provide without having to invest heavily into. All of these benefits can boost morale and increase employee engagement, which is beneficial to the employer so worth the initial investment.