Budgeting for Employee Benefits

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One of the most common questions we hear when discussing benefits programs is “How much should I be planning to spend on this?” Well the answer isn’t so clear cut; it’ll depend a lot on the size and profitability of your company and on what you are trying to accomplish through your benefits package.

What is clear is your benefits package is one area that can truly make a small business a draw over a large corporation. As a small business you have the opportunity to tailor your benefits package to your team. While a large corporation may have a larger budget to throw around they also have to try and find the best solution for a much broader population and this can result in a very uniform and impersonal benefits package. On the other hand a small business with a benefit packaged developed specifically for their team is able to provide solutions that are more meaningful. Having a tailored

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benefits package is one of the most powerful tools (other than your culture) to keep your talented employees; and if you have been doing any hiring lately, you’ve seen applicants getting pickier and know that a good benefits package is a real advantage.

If you are looking for a magic number for budgeting purposes, you may as well use the national average for private sector employers, at least as a starting point. According to a recent report from the Bureau of Labor Statistics employers spend, on average, 30.5 percent of an employee’s total compensation on benefits. Now for some businesses this is going to be unattainable and that is OK; it just means you are going to have to prioritize your offerings based on the needs of your employees.

Of that average 30.5% the largest portions were distributed as follows; 8.2% to health benefits, 8% to legally required benefits such as unemployment insurance, 6.9% to paid leave and 4% towards retirement savings.

These are the categories that you just can’t get around. If you aren’t currently offering Paid Time Off, at least a 3% match for retirement savings plus Health, Dental and Vision Insurance on some sort of a cost sharing basis this is your starting point. While these are not always a given in a small business they are the meat and potatoes of the benefits world and without them you really aren’t ready to add any non-essentials.

If you are ready to add more then we still have 3.4% of total compensation to flush out your benefits package in a way that will be meaningful to your employees.

This is where demographics and employee input are really going to matter. If you have an aging workforce you are most likely going to have a population that is more interested in a rich insured benefits portfolio. If you have a very young population on the other hand, we might be talking about more flex-time, PTO or tuition assistance. Maybe your team is more diverse and would like to see more of an emphasis on self-improvement, wellness, or maybe they really do want all of your help to go towards paying some extra rent so that you can have pets in the office.

The best starting point is going to be to ask them! Ask them anonymously and ask everyone. Ask them to rate the benefits they are currently receiving and to suggest two or three new benefits that they would like to have. Your benefit package should be a strategic offering designed specifically for your company to help you retain and recruit the best talent. And after putting in all that work to find the best options, the best broker, and the best quotes; don’t forget to educate your team on the benefits that are available to them and how they can get the most value out of them.