Benefits for Beginners
The ultimate employee benefits starter guide.
Benefits for Beginners
While employers with fewer than 50 employees are not required by law to offer benefits, many small and mid-sized employers are offering group benefits as a way to retain and attract talent. This e-book tackles common benefits questions, terminology and strategies that small and mid-sized employers can use to provide a solid foundation for employee benefits.
How Benefits Give Employers a Competitive Edge
Employee benefits are key in keeping employees happy—an essential factor in employee retention. According to the SHRM 2018 Employee Benchmark Survey—
92% of employees surveyed indicated that employee benefits significantly impacted overall job satisfaction.
And employers are listening. The same survey indicates that “of the 34% of organizations that increased benefits offerings in the last 12 months, 72% cited retention as a reason for doing so.”
The recruitment market is facing a shortage of skilled talent, which means employers must compete to hire quality candidates. Competitive benefit offerings make employers more attractive to prospective hires and increase the likelihood of acquiring talent.
The SHRM survey also indicates that “organizations that use benefits as a strategic tool for recruiting and retaining talent reported better overall company performance”– and this difference is significant. When compared to employers offering non-strategic benefits, employers offering strategic benefits are almost two times more likely to employ more satisfied workers.
Which Benefits Should I Offer?
The IRS classifies fringe benefits as “a form of payment for the performance of services” outside of an employee’s regular wages. Put simply, fringe benefits are the little ‘perks’ employees receive for working at a company that isn’t included in an employee’s regular income.
It is important to note, however, that an individual doesn’t necessarily need to be an employee to receive fringe benefits. Independent contractors, partners, or directors performing services for an employer may also receive fringe benefits. Here are some common fringe benefits:
- Health insurance
- Life insurance
- Tuition assistance
- Company-paid meals
- Wellness programs
- Paid time off
- Commuter benefits
- Health savings accounts
Ancillary benefits are all non-health plan benefits. Common examples of ancillary benefits include:
- Vision insurance
- Dental insurance
- Life insurance
- Short-term disability insurance
- Long-term-disability insurance
Each of these benefit types can be classified as both a fringe benefit and an ancillary benefit.
Voluntary benefits are benefit plans that are available to employees without the financial assistance of the employer. These benefits require employees to pay the full premium required by the carrier. For instance, some employers offer voluntary life benefits outside of the core benefit package offered to employees. If an employee wants to enroll in voluntary life, that means that the employee would be responsible for the full cost of coverage. The employer would only subsidize the cost of the core benefits such as health, dental, vision and life, not voluntary life.
Statutory benefits are employee benefits that are required by law. According to the Bureau of Labor Statistics, statutory benefits are those that “provide workers and their families with retirement income and medical care, mitigate economic hardship resulting from loss of work and disability, and cover liabilities resulting from workplace injuries and illnesses.” Here are a few examples of statutory benefits:
The most attractive employee benefits
Now that we’ve classified benefit types, let’s look at the most attractive employee benefits. Rather than simply offering increased wages, employers are increasingly offering unique benefit packages that reflect company culture and employee preferences.
Here are the 5 most attractive employee benefits according to Harvard Business Review:
Better health, dental, and vision insurance:
While non-insurance benefits are gaining in popularity, health, dental, and vision insurance remain the most popular employee benefit. In fact, 88% of workers surveyed reported that they would consider or heavily consider a position with good insurance options for these three segments.
The rise in the Millennial workforce has greatly changed the culture of the working world. Increasingly, employees seek positions that permit work hour flexibility. No, this doesn’t mean that the employee gets free reign. It just means that the employee has more options as to what time of day work is done and where a task is accomplished. By offering employees more autonomy over their schedule, employers increase overall employee satisfaction and are much more likely to retain the employee.
More vacation time:
Similarly to employee preference for flexible work hours, workers express greater interest in supplemented vacation time. Some employers even offer unlimited vacation days — another extremely popular benefit.
If you’re an employer, you’re probably thinking, “Of course they want vacation days…how will more vacation help my business?” Increasing employee vacation time can actually benefit you and your employee. In fact, according to CNN’s interview with expert Brigid Schulte, those who forgo vacation time are, “sicker, less productive, stressed, and more anxious and depressed.” In sum, vacation allows employees time to rest which makes them better workers when they return to the office.
With the rapid change in technology, more employees are able to perform day-to-day tasks remotely. The option to work from home allows more flexibility in personal life which, in turn, results in an increase in worker productivity. In addition to an increase in productivity, employees working from home also exhibit greater peace of mind, better physical health, and improved relationships.
Student loan assistance:
More frequently, employers are offering student loan assistance as a benefit opportunity for employees. This benefit is particularly popular with the younger demographic transitioning into the workforce. While this particular benefit type is not currently prevalent, the Consumer Financial Protection Bureau anticipates a significant increase in employer coverage of student loan repayment in the near future.
Other popular employee benefits:
- Tuition assistance
- Paid maternity/paternity leave
- Free gym membership
- Free daycare services
- Free fitness/yoga classes
- Free snacks
- Free coffee
- Company-wide retreats
- Weekly free employee outings
- On-site gym
- Team bonding events
While these benefit preferences are a good starting point, the attractiveness of benefits to employees also depends on specific job characteristics, as these might be different from national averages. The graph below illustrates the percent of employees with access to benefits that participate in categorized by job characteristic.
Other factors to consider when selecting benefit offerings
When deciding on which benefits to offer employees, it is important to understand benefits trends at large, but also how unique factors may affect your employees’ preferences and participation. When choosing employee benefit offerings to take into consideration:
Dominant workforce ideals:
First, take into account the dominant ideals of the current workforce. Millennials are becoming the dominant demographic in the working world and therefore have a significant influence on the workplace culture. Because of this presence, an employer must create a benefits package that a millennial will find useful.
The workforce is becoming increasingly focused on personalization, so well-thought-out benefits speak volumes to potential hires. For instance, if your staff base typically falls between 25 and 30 years old, it would make sense to offer childcare benefits. However, for a company predominantly composed of baby boomers, childcare will probably not have the same appeal. Likewise, it would be prudent to offer tuition assistance benefits for when your target demographic is younger.
Employers should also evaluate the benefits packages offered by competitors. Conducting research on common benefit offerings within a given industry provides employers insight into the employee wants and needs when it comes to benefits. Using this information, employers can offer benefits that employees want and, as a result, increase employee retention.
How much do group health plans cost?
Health plan costs vary pretty substantially depending on the type of plans offered, the region in which your business operates, and the demographic makeup of your employees. That said, on average, annual premiums for single coverage for small businesses total $6,163 and annual premiums for family coverage total $16,625, according to the Kaiser Family Foundation.
Small group premiums tend to be more expensive in the Northeast, and less expensive in the West, with the Midwest and South close to the national averages.
How much of the premium are employers responsible for? Carriers used to require 50 percent contribution for at least the employee-only premium. Some carriers and groups will allow for a smaller percentage, but it depends on the situation.
Costs can be contained in a number of ways for small groups, including implementing different funding strategies or plan designs such as Health Savings Account-eligible plans.
Do I have to offer the same benefits to everyone?
The Patient Protection Affordable Care Act (PPACA), commonly referred to as the Affordable Care Act (ACA), states that employee benefits should not discriminate on the basis of race, color, sex (including pregnancy), national origin, religion or sexual orientation. These laws also prohibit segmentation of benefits that favor highly compensated individuals.
Title VII established by The Equal Employment Opportunity Commission (EEOC), mandates that an individual’s eligibility for benefits, the number of benefits received or the premium charged to participate in employer-offered benefits cannot be determined on the basis of race, color, sex (including pregnancy), national origin, age (ADEA) or religion.
Likewise, the Health Insurance Portability Accessibility Act (HIPAA) prohibits employers from offering group benefits that discriminate against individuals based on health factors such as:
- Health status
- Medical condition (including both physical and mental illnesses)
- Claims experience
- Receipt of health care
- Medical history
- Genetic information
- Evidence of insurability; or
HIPAA also regulates discrimination in regards to Cafeteria plans (Section 125 plans), plans that provide employers an opportunity choose “among at least one taxable benefit (such as cash) and one qualified benefit.” Under HIPAA, group benefits cannot discriminate in favor of highly compensated employees in terms of eligibility, contributions and/or benefits. Because this is a tax-related law, the Internal Revenue Service (IRS) enforces these regulations.
Some states may also have laws in place that limit the employer’s ability to segment employee benefits by group. For instance, some states have paid sick leave laws in place that require employers with 50 or more employees to offer paid leave to all employees. Find employee discrimination laws for your state here.
So how can you segment employee benefits? Employers can legally offer different benefits to “similarly situated individuals” based on classes such as:
Implementing employee benefits
Now that you’re ready to implement benefits, you might be wondering, “Do I need a health insurance broker?”
Technically, employers do not need a broker to offer benefits, however, we highly encourage employers to partner with a broker. Benefits are extremely complex and require keen attention to detail, significant time commitment, industry knowledge, and compliance expertise. A broker will help it’s employer clients to select the best benefits packages for their unique needs and guide that employer through open enrollment, billing, and problem resolution.
How to choose a broker
Choosing a health insurance broker is a tedious task. You want a broker who is helpful in keeping your benefits spend down without sacrificing any benefits that help you with employee recruitment and retention. Guess what? There are brokers who care about your business and your employees just as much as you do!
Here are some tips that you can follow to make sure you’re choosing the right broker:
1. Consider all of your options:
You can never consider too many brokerages. There are lots of brokerages out there, some will go above and beyond to keep your costs low without sacrificing benefits, most will just follow market trends.
2. Ask questions:
A good broker will be able to field all of your questions about alternate financing, plan administration, and compliance. Here’s a link to some questions you should ask your broker.
3. Talk to your friends:
If you’ve noticed that other businesses are keeping the cost of their health plan down, don’t hesitate to ask how they’re doing it.
4. Ask about the broker’s clientele:
If the broker is having a hard time holding on to clients, chances are they’re not a good fit for you.
5. Don’t be afraid to make a change:
You’ve got to do what’s best for your business. Shopping around could save you a lot of money!
How to communicate benefits employees
After choosing to offer benefits, getting employees to participate in benefits is the next battle. How are you supposed to inform employee benefits enrollment and make sure your staff makes the best choices possible?
Great question. Employee benefits communication and education is a common struggle that plan administrators face yearly—but that doesn’t mean you need to accept the status quo. Here’s a look at benefits communication best practices that will help you boost employee benefits participation.
What benefits information to communicate
At minimum, employers should communicate the scope of available benefits to each employee as well as the premium that will be charged to the employee and how that premium will be paid. Employers looking to engage employees in benefits should also consider including common benefits terminology, enrollment instructions, educational opportunities, and available resources.
How to communicate benefits with employees
Employees at large report being stressed about benefits—which benefits to choose, how much those benefits will cost and how each covered individual will be affected by those benefits decisions. In order to ease this stress, employers must establish clear and accessible communication channels in order to inform employees of their benefits.
Evaluate communication channels:
Consider how your employees most commonly access information. Are your employees constantly on social media? Do they relentlessly check their email? By identifying your employees’ most-used communication channels, you can identify the modes of communication that are best suited for your company. For instance, if your company has an intranet that employees frequently check, you could post benefits information on the intranet.
Understand employee preferences:
MetLife conducted a study to evaluate employee preferences for benefits communication. In this study, MetLife gathered feedback from employees who rated their company’s benefits communication A or B-level. According to SHRM, MetLife determined that employers want:
Guidance from employers
Simplified benefits content
Life event-specific benefits information
In-person benefits help
Online decision support tools
Written confirmation of benefit elections
Ongoing benefits education
When to communicate benefits with employees
Unfortunately, benefits communication can’t just be a “one and done” sort of venture. In order to truly reach employees, administrators need to repeatedly communicate benefits to employees using a variety of communication channels. When should you start? A rule of thumb is to start communicating benefits three months prior to open enrollment. By planting the seed early, administrators give employees ample time to consider their benefit options and to ask questions prior to enrollment.
Intermittently in these three months prior to enrollment, continue to provide employees with helpful and informational benefits content. By keeping communication consistent, administrators encourage employees to continue thinking about benefits.
Right before enrollment, employers should arrange an in-person presentation of benefits to all employees. This session should be a “crash course” in a company’s employee benefit offerings. Because this lesson is conducted just before enrollment, it allows employees to complete enrollment with benefits fresh in their minds.
Communicate benefits with BerniePortal
BerniePortal is an HR and benefits platform that streamlines common administrative challenges faced by small to mid-sized businesses. BerniePortal simplifies the overall open enrollment process by providing an informative benefits enrollment experience to its users.
Plan premium: This is the amount you pay per month for coverage in a health plan. If you have employer coverage, your employer may pay all, some, or none of your premium. Individual health insurance consumers pay their own premiums, through the Affordable Care Act created subsidies for certain consumers based on income.
Deductible: This is the amount you must pay in full before your health plan kicks in to cover a portion of your medical expenses. If your deductible is $2,000, you will pay all of your medical bills until you hit $2,000. But it’s important to note—that doesn’t mean you stop paying for health care after your deductible is met.
Coinsurance: After you meet your deductible, you will pay a percentage of additional bills. For example, let’s say you meet your deductible, but then receive another $1,000 medical bill. If your coinsurance is 20 percent, you will pay 20 percent of that $1,000, which comes to $200.
Out-of-pocket maximum: This is the maximum amount you will spend on covered services. After you meet your deductible, you will pay your coinsurance until you hit this amount. However—your insurer may cover little or none of the non-covered services, even if you have already hit your out-of-pocket maximum. That’s why it’s important to familiarize yourself with what is covered under your plan by calling the company or reading your Explanation of Benefits document.
Co-payment: A Co-payment, commonly referred to as “co-pay,” is the amount that a covered individual is responsible for paying upon receiving medical services. Let’s say, for example, John is enrolled in health insurance through his employer. When John goes to the doctor, he will be responsible for paying $25. That $25 is the co-payment for the medical services received.
Eligibility Period: The amount of time than an individual must be enrolled in the group benefit plan before coverage takes effect. The length the eligibility period is typically defined by the employer.
Flexible Spending Account (FSA): FSAs are tax-free medical savings accounts owned, designed and administered by the employer. FSAs do not require HDHP coverage, unlike HSAs.
High Deductible Health Plan (HDHP): A high deductible health plan is a health insurance plan that requires enrollees to pay more money out of pocket before receiving coverage from the insurance carrier. HDHPs include plans in which an individual’s deductible must be at least $1,350 and a family’s deductible must be at least $2,700. Out of pocket maximums for HDHP plans are $6,650 and $13,300 for individual and family coverage respectively.
Health Maintenance Organization (HMO): A Health Maintenance Organization is a health insurance plan type that only provides in-network coverage. These plans also require participants to identify a local primary care provider (PCP) who will serve as the primary point of contact for all medical services. An HMO plan requires participants to receive a PCP referral when needing external medical care. Once this referral has been obtained, the enrollee can then receive coverage for the desired medical service. These plans are typically less expensive than PPOs, however, they offer less flexibility.
Health Reimbursement Arrangements (HRA): An HRA plan is an employer-funded, tax-free health savings account in which the employer reimburses an individual for medical expenses up to a predetermined amount. Unlike HSAs, HRAs do not allow employees to contribute tax-free money to this account.
Health Savings Account (HSA): A health savings account is a benefit owned by employees enrolled in high deductible health plans. HSAs allow employees to place money in a tax-free account to be used for medical expenses. These plans are advantageous because they reduce the enrolled individual’s tax liability.
401(k): A 401(k) is a tax-free retirement savings account that employers offer to employees as an employee benefit. Many of these accounts are structured so that employers will match a certain percentage of the money put into the account by the employee up to a certain amount. These 401(k) plans are often used in lieu of pension plans.
Preferred Provider Organization (PPO): A preferred provider organization plan is a health insurance plan type that provides enrollees coverage for medical expenses both in-network and out-of-network. Through these plans, enrollees are not required to obtain referrals from their primary care physician in order to receive medical services. While these plans provide enrollees more flexibility, they typically cost more than other alternatives such as HMOs.