What Do You Need To Know About Benefits
We all know compensation packages are important. It’s one of the first major sticking points you will encounter when hiring new team members and unfortunately can be a major motivator for people to look elsewhere. But where do you start in deciding what you should be paying for a given position?
When creating a new compensation package, start with the market value of the position. Compare salary information of companies similar to yours taking into account location, headcount, annual earnings and specific job requirements and working conditions. Don’t forget most of the numbers you see will be self-reported unless you pay for a report and will be based on total cash compensation, not just base salaries. The goal for an employer is to create a benefit and reward for their employees that helps them to attract and retain talented individuals. In the end, the compensation plan you develop must be cost-effective, if you can’t pay as much as the market is paying for a position be strategic. So how do benefits come into play?
When we talk about benefits, most people are interested in the standard (Medical, Dental, Vision, etc. and retirement plans (preferably with a match). Of course the same reason benefits are important to employees is the reason many companies struggle to offer them… benefits aren’t cheap. On average medical premiums rose 5% in 2015 and 7.5% in 2016 and there is no reason to think they won’t rise again next year. In an increasingly competitive talent pool benefits will continue to be a huge selling point.
Not all companies are required to offer health benefits but if you have 50 or more employees, the Affordable Care Act law requires that you cover an affordable healthcare plan for all full time (i.e. 30 hours per week). According to the ACA affordable means that the cost does not exceed 9.56% of the lowest paid employee’s salary. In the past, most companies had defined their fulltime employees as those who worked 35 or 40 hours or more in a week. Now, affected employers have
to offer affordable plans to anyone working at least 30 hours per week on a regular basis. Non-compliant companies are subject to a penalty of $2,160 or more per year, which will be prorated for the months that coverage was not available.
Whether or not you are required to offer medical coverage we encourage you to consider carefully what you can offer as a part of your benefit program. When your employees know that you are doing what you can to take care of them they will be loyal. How many times have you heard someone raving about their company benefits? Could this be the key aspect to culture change? How are you currently showing your employees that you care about them? Studies also show that employees who are healthy come to work more often, increasing productivity and profitability. In many ways, benefits can pay for themselves.
In some cases, it can be more cost effective for an employer to refer employees to the exchange and pay the penalties, depending on the cost of the plan. But, think strategically, where do you want your dollars spent? Surely you would rather put that money towards your employees than towards penalties? In addition, covering an employee’s benefits can save any company money in taxes. It has been estimated that after Uncle Sam is done giving tax cuts, that a company will only pay around 70% of what the benefits actually cost. Let’s say that a plan costs $400 a month. And in order to make it affordable, you charge an employee $100 per month for their contribution. This reduces the payroll liability (employer portion taxes) for the employer because they are Section 125 (pre-tax) dollars. Companies may also be eligible for tax rate incentives at the end of the year. And an employer is not required to make contributions towards any dependents, or even offer coverage but, if you do and an employee elects coverage, it just increases your tax breaks.