For many HR teams, there’s a fine balance between offering attractive benefits and managing costs. A strong employee benefits package is a great way to attract and retain top talent, but most companies have a budget to stick to.
To achieve this balance, companies need to answer three key questions: How much do benefits cost on a per-employee basis, what factors impact those costs, and how can they optimize the benefits package so it works for everyone?
Here’s a guide to the average cost of popular benefits, plus how to lower them.
Breaking down employee benefits costs
While most conversations about compensation focus on salaries, labor statistics show that
benefits make up about 30% of an employee’s
total compensation. That means that for every dollar spent on employee wages, the average employer spends an additional $0.30-0.40 on their benefits.
Here’s a breakdown of the main
employee benefits categories and their associated costs.
Legally required employee benefits
Employers are legally required to provide certain contributions and protections that support employees and ensure workplace security.
Social Security and Medicare. Employers must match employee contributions to Social Security (6.2%) and Medicare (1.45%).
Federal and state unemployment insurance. While unemployment costs can vary, they’re usually between 0.6% and 6% of an employee’s salary.
Workers’ compensation. The cost to protect employees injured on the job averages
$0.90 per $100 of payroll, but this varies depending on the industry and risk level.
Insurance benefits
Employee health insurance costs can be expensive, but health-related benefits are some of the most valuable components of a benefits package. They improve employee well-being and allow people to bring their best selves to work.
Life insurance. Basic policies often cost $50-200 per employee annually, depending on coverage levels.
Short- and long-term disability. The costs for short- and long-term disability insurance also vary, but typically average 1-3% of payroll.
Retirement benefits
Offering financial benefits shows employees that their employer is invested in their long-term financial security.
Paid leave
Paid time off (PTO) supports a healthier work-life balance by giving employees time to rest and reset
Paid holidays and vacation. Costs for PTO can total about 2%-4% of an employee’s annual salary.
Sick leave and personal leave. Employers typically allocate an additional 1-3% of payroll to offer paid leave for illness or personal reasons.
Lifestyle and wellness benefits
Employers looking to enhance their benefits package often include lifestyle and
wellness perks to support overall employee well-being.
Wellness stipends. This covers expenses like gym memberships, counseling, or wellness apps, typically at a set annual amount of $500-1,000/year per employee.
Financial wellness programs. Some financial wellness programs, like financial coaching or student loan assistance, can come with added costs for the business. However, solutions like EarnIn offer valuable tools, including
access to earned wages, credit monitoring, and more, all at no cost to employers.
What impacts employee benefits costs?
The per-employee cost of benefits isn’t one-size-fits-all. Let’s look at some of the factors that influence how much a company pays.
Company size
Larger companies can often negotiate better rates for benefits like health insurance. Smaller organizations have less bargaining power with providers, so they’re more likely to face higher per-employee costs.
Type and variety of benefits
The type and depth of benefits, like fertility assistance, mental health programs, or tuition reimbursement, can significantly influence costs. Generally, the more comprehensive the benefits package, the higher the investment required.
Geographical location
The cost of benefits like insurance vary based on where the company is headquartered and where employees are located. If there are employees residing in regions with elevated healthcare expenses or strict benefits regulations, per-employee costs will increase.
Competitive market expectation
Recruiting in competitive industries like tech and healthcare can be difficult, which means certain companies may need to invest more money into high-value benefits to attract top talent.
Employee demographics
The age, family status, and health needs of the workforce could influence what companies choose to spend on. Younger employees may prioritize perks like wellness stipends, while older workers often place greater value on comprehensive healthcare coverage.
Implementation fees and administrative costs
Implementation fees for benefits like setup, integration, and ongoing management can significantly increase costs. But not all benefits come with a high cost. EarnIn offers valuable financial wellness tools, such as on-demand pay, at no cost to employers. Employees can get paid the same day they work – up to $150/day, with a max of $750 per pay period – starting at just $2.99 per transfer. With no setup fees for employers and no integration required, EarnIn is a simple, cost-effective way to enhance a benefits package while supporting employees' financial well-being.
Participation rates
Higher participation in voluntary benefits like dental or vision insurance can lead to better rates for employers. When more employees opt in, providers often lower premiums thanks to reduced per-unit administrative costs.
How to create an effective benefits program
Offering
competitive benefits doesn’t mean overspending. Here are some practical strategies to keep employer costs for employee compensation under control.
1. Survey employees
The best way to find out what employees want from their benefits package is to simply ask. Conduct regular surveys to learn what benefits employees care about most. This knowledge aligns offerings with their needs, preventing unnecessary spending on underutilized perks.
2. Evaluate the ROI
Take stock of which benefits offer the greatest value to employees and the organization to figure out which can deliver the strongest return on investment (ROI). For example, some companies might be able to add wellness stipends without greatly increasing their spending. If those stipends lead to higher engagement, the company is likely to
reduce employee turnover, making this benefit well worth the added expense.
3. Benchmark benefits
Compare the company’s benefits package with those of competitors in the industry. Identifying gaps or redundancies refines offerings without sacrificing value, and could help spot opportunities for cost savings.
4. Offer tax-advantaged benefits
Take advantage of tax incentives by implementing health savings accounts (HSAs), flexible spending accounts (FSAs), or retirement plans. These benefits programs reduce taxable income for employees and lower payroll taxes for employers.
5. Negotiate with providers
Leverage the company’s size and workforce participation to negotiate better rates with insurance carriers and service providers. Some might also be able to tap into discounts by bundling multiple services from a single provider.
6. Include lowcost benefits
Not every benefit needs to strain an organization’s budget. Look for low-cost perks that provide value to employees without driving up costs.
One example is EarnIn, which offers
financial wellness tools at no cost to the business. Partnering with a provider like EarnIn can enhance employee satisfaction adding costs.
Frequently asked questions
What is total compensation?
Total compensation refers to the full pay and benefits package an employee receives from their employer. It includes the employee’s salary or wages, plus additional benefits like health insurance, retirement contributions, paid leave, and other perks. By understanding total compensation, employees can better evaluate the full value of their role, and employers can create competitive packages that attract and retain top talent.
How much are benefits worth per hour?
The per-hour value of benefits depends on employees’ compensation and the structure of the benefits package. If benefits account for 30-40% of an employee’s total compensation, someone earning $20 per hour in wages might receive an additional $6-8 per hour in benefits. Calculating the per-hour cost can provide valuable insight into the total cost of employee compensation.
What are the benefits of offering unlimited PTO?
Many employers now offer unlimited PTO, which offers surprising advantages. It eliminates the need to pay out unused vacation time when an employee leaves the company, reducing financial liabilities. Unlimited PTO can also improve employee satisfaction by promoting flexibility and trust.
Offer financial wellness without the financial investment with EarnIn
Employee benefits are a critical component of total compensation, and a major investment for employers. From healthcare and retirement contributions to wellness perks, costs can quickly add up. That’s why it’s important to balance meaningful support for employees with cost-effective solutions that deliver real value.
EarnIn offers a powerful way to enhance your benefits package without adding additional costs. In addition to on-demand pay – which allows employees to access up to $150 per day, with a max of $750 per pay period in minutes, starting at just $2.99 per transfer – we provide a suite of financial wellness tools designed to reduce stress and improve retention. With no employer cost and no integration required, companies can easily offer EarnIn as a voluntary benefit.
Request a demo to see how easy it is to add EarnIn to a benefits package.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
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