How Much Should Your Company Spend on Employee Benefits?
As a small business owner, you’re always thinking of ways to bring in and retain great talent for your business. It can be difficult to compete with larger enterprises that offer comprehensive compensation, employee benefits and more features to their employees. As a small business, how do you make your total compensation attractive to prospective and current team members?
One of the most important factors to consider is keeping employee satisfaction high with an efficient benefits plan. As a small business, you need to be able to compete with larger organizations, but you can feel particularly vulnerable to financially unsustainable plans. Unfortunately, many businesses end up overspending and wasting thousands of dollars on their employee health benefits because they haven’t implemented flexible options for employee benefits coverage that will keep your employees healthy, protected and satisfied, without waste and inefficiency.
So how much, really, should a small business owner spend on employee health benefits? As is often the case for complex questions, the answer is: it depends.
Below we’ve listed a few options to keep in mind when thinking of how much you should spend on your employee health benefits.
Think about your company’s demographics
The amount that a company will spend on employee benefits will vary depending on factors such as the company’s demographics, the age of the company, and the options that you can offer. In some cases, the demographic composition of your company – the ages, genders and roles of your employees – may actually determine the composition of your benefits package, as well.
For example, if your business is a startup with an average age of the employees being in the late-twenties or early-thirties, your employees may use more paramedical treatments such as massage, chiropractic, and acupuncture treatments rather than prescription drugs or disability. Your business can gain from older employee’s experience – but they will likely make more medical claims, as well, driving your premiums up. Getting the balance correct – providing the coverages with your employees need, at whatever stage of life they’re in – is a key driver of your plan costs.
Start small and grow
It can be a big commitment to offering a comprehensive benefits package. Offering 100% coverage can seem like an effective way to better compete with large companies for top talent. This is especially useful when there’s a shortage of talent. However, as a new company, it may be easier to start with 80% coverage until you are certain that you can afford a more robust plan. Starting small and scaling up is a better idea than biting off more than you can chew with a more expensive plan. You don’t want to lose staff members if you need to scale back your benefits package because you’ve realized you can’t afford it.
Small businesses can also protect themselves by ensuring employees have “skin in the game”. By asking employees to cover even a small portion of their employee health benefit costs, you’re expecting them to choose their needs carefully. Employees will be more likely to choose lower-cost alternatives, and to refrain from abusing generous plans if they understand their own costs will rise.
Putting caps on high cost or high-frequency benefits like prescription drug coverage or “paramedicals” can also help keep costs down. Some businesses cap drug coverage at $10,000 per year, for example, or they implement a “combined maximum” for paramedical expenses. An employee can choose to spend, for example, $200 on massage and $300 on physiotherapy. Once they have exhausted the maximums on their paramedical coverage, their limits are done for the year and further treatments must be funded directly by the employee.
Health Spending Accounts
One of the most popular forms of coverage is Health Spending Accounts (HSA). In fact, this coverage is so popular that many employees – and employers – now include this as a standard component in a benefits plan.
The Health Spending Account offers your employees a great amount of flexibility, allowing employees to spend the full amount allocated to them. With an HSA, you don’t need to offer something like expensive vision coverage. Instead, employees that need vision benefits can use their Health Spending Account to cover the cost of glasses or other vision care.
Many smaller companies make a Health Spending Account the central component of their employee health benefits. Employees have the advantage of directing their health spends to the place they need it the most, and employers can set almost any limit on the number of benefits provided. In other words, employees get choice – and employers get cost certainty.
Good Advice Is Key
Are you looking for help or advice to help you pick the best small business employee health benefits? Review your options with one of our licensed advisors on the phone or in-person or contact us for a comparison quote.