As an employer, you want to provide your team with top-of-the-line employee benefits. But at what point does the cost of providing those benefits outweigh the upside?
In a 2018 US Bureau of Labor Statistics study, the average annual cost of employee benefits per employee was $21,726. Added to the average workers’ salary of $50,000, that’s a total cost of $71,726 per employee.
But figuring out the cost of your employee benefits largely depends on the perks your company offers and whether your company adjusts its benefits based on employee compensation rates.
Read on to learn about the average cost of employee benefits in the US in more detail.
US Bureau of Labor Statistics Study Broken Down
When you break the March 2018 BLS study down, you’ll find that the average price of labor per hour is $36.63, $11.60 of which comes in the form of benefits. $2.63 of the $11.60 is for insurance, and when compounded, the average annual cost of health insurance per employee is $5,698.
From these numbers, it’s easy to calculate an estimate for the average employee’s costs. By taking each employee’s base salary and multiplying it by 1.25 or 1.4 (depending on the comprehensiveness of the package you offer), you can ballpark the employee’s labor cost.
Health Insurance Cost
The numbers from the Bureau of Labor Statistics serve as a rough guideline, but other factors also influence your employees’ health insurance cost.
These factors include:
- The insurance carrier
- The type of plan you choose (ex: PPO, HMO, etc.)
- The network of providers
- Your location
- Your contribution strategy
- The demographics of your employees (your “employee census”)
When a company provides health insurance to its employees, the business usually opts for a group plan that covers everyone, known as “employer-sponsored health insurance.”
The NCSL notes that this coverage has been on the rise for the past three years. In 2017, the average annual cost for family health insurance was $18,764. That number rose by 5% in 2018 to $19,616.
It’s worth noting the overall trajectory of cost increases, which is something to consider when budgeting your employees’ compensation and salary. When building your employee benefits packages, looking at trends and potential expenses is crucial to make sure you’re not misreading your numbers.
An easy way to avoid the hassle of group health insurance programs is by offering a reimbursement program for employees. Providing group plans can be challenging, and insurance companies can be a pain. But Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) allow employers to offer non-taxed reimbursement for some healthcare expenses.
The advantage of a reimbursement plan is that you give your employees more control of their coverage while cutting your expenses. Moreover, you do so while improving their well-being and wellness.
Much like health insurance, life insurance can be more complicated if you plan on going for a group plan. The employer has to make sure they comply with all nondiscrimination requirements to be tax deductible. For example, the group plan you choose must apply to at least 70% of your employees.
There are, however, a few ways to work around the nondiscrimination limits to your group plan. You can offer benefits to small subsects of employees if you base them on the following categories:
- Marital status
- Job duties
- Length of service
- Participation in a pension, profit-sharing, stock bonus, or accident and health plan
- Other employment-related factors
Group life insurance policies typically come in set amounts, such as $50,000. Employers and employees usually have to co-pay the premium. For example, if the premium is $200 per month, the employer might pay half of the premium while the employee pays the other half.
The payroll taxes a company pays to the government fund unemployment insurance. Each state has its own unemployment rules and regulations. If your company has locations in multiple states, it is wise to familiarize yourself so you can gain a full picture of your total cost.
The Federal Unemployment Tax Act and the State Unemployment Tax Act comprise the majority of unemployment taxes companies have to pay. Employers pay the majority of the State Unemployment Tax, but some states require employees to pay a portion.
Both workers and employees cover the cost of Social Security:
- Workers pay 6.2 % of their earnings up to a capped salary at $127,000.
- Employers pay the same percentage of the employee’s earnings toward Social Security.
- The combined employer-employee contribution to Social Security is 12.4%.
- Contractors have to pay the full 12.4% on their own.
The Cost of Your Employees’ Benefits
Optimizing your employee benefits to attract and retain talent without breaking the bank is an essential function for any business. Knowing the average cost of these benefits can help you balance lower costs while still providing the benefits that will boost employee retention and keep key employees with you for longer in their careers.