A Mini-Guide to Employee Benefits

The numbers are in – and they’re not good. Annual research consistently reveals that medical expenses and worries over not enough money for retirement are the top financial challenges facing US employees today. Understandably, attempts at coping with such financial burdens results in 50% of workers suffering from stress, and a whopping 47% felt that their ability to focus on work had been negatively affected (29% of whom said it affected their overall productivity).

In 2016 the Society for Human Resource Management (SHRM) did a job satisfaction and engagement study and discovered that 60% of US employees rated employee benefits as being very important to them. Interestingly, 30% said having insufficient benefits was a good reason to leave their employer, yet only 27% felt their company’s benefits offerings were very satisfactory.

When having excellent employee benefits is considered a key contributor to employee satisfaction and retention, it’s not that surprising that workers choose to work for the company that will provide the benefits they and their family need, at costs they can afford.

When having excellent employee benefits is considered a key contributor to employee satisfaction and retention, it’s not that surprising that workers choose to work for the company that will provide the benefits they and their family need, at costs they can afford.

Companies in highly competitive industries that require skilled workers (of which there is a perceived global shortage), increasingly have trouble attracting and retaining top talent.

That’s why 19% of companies had strategically altered their benefits (primarily healthcare) specifically to boost employee retention. And 12% did it to make themselves more attractive to new recruits.

Below are the most commonly leveraged benefits:

Replacing and recruiting new employees can be a significant financial drain on a company (typically 25-213% of the employee’s salary), so it’s in a company’s best interest to foster employee satisfaction and retention, and offering good employee benefits can help.

Finding the Balance

It costs a lot of money for an employer to offer employees group benefits — on average an additional 30% of the employee’s salary. For a company to be successful it’s critical that employee benefit packages meet the needs and budget of its employees, but also fits within the company’s budget and meets federal regulations.

This is where certified Benefits Brokers (or better yet, Benefits Advisors) can come in handy. A good benefits broker will work on behalf of a company to wade through the multitude of benefits packages available from insurance companies.

They will also:

  • know what is popular and what competitors are offering,
  • manage negotiations with insurance companies,
  • ensure compliance with current federal and state requirements,
  • minimize the employer’s risk,
  • work within the employer’s budget to select suitable offerings, and
  • manage employee enrollment.

When you consider what a good benefits advisor does, they may be well worth the additional cost.

Generally, group plans don’t just cover health care. They can also include important benefits such as life, disability, long-term care, and financial savings accounts that cover additional health care expenses.

Ultimately, the cost to employer and employee is based on two factors: premiums and deductibles. Premiums are the costs shared by each party for the benefit provided — a low premium comes at a lower cost to the employer.

Deductibles are the amount paid by the employee before coverage on a benefit kicks in. The higher the deductible, the lower the employer’s cost. For most businesses, benefit premiums paid out on behalf of employees are tax deductible.

As a rule, larger companies receive larger group discounts from the insurer. Smaller companies working with thinner budgets might be better off providing employees with non-financial benefits such as telecommuting, flexible work schedules, paid time off, or opt for higher deductibles and lower premiums.

Workers across all generations agree that their particular benefits needs varied widely from one generation to another. This is why offering a single benefit plan won’t do anymore. It’s so important to maintain a skilled workforce and have an advantage over competitors, and companies must be able to provide affordable employee benefits that are attractive enough to recruit and retain employees. But how?

Try surveying employees directly for their benefits wants/need, and then offer flexible plans that allow them to choose only the benefits that they want at prices they can afford.

Companies interested in attracting Highly Skilled workers predict the following trends in individual benefits over the next three to five years:

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Eligibility/Who to Cover

Under the Affordable Care Act (ACA), “applicable large employers” must offer health coverage to eligible full-time employees and their dependents under the age of 26, but not necessarily to spouses. Some companies may cover part-time employees for some or all of the same benefits available to full-time employees. And sometimes benefits differ based on an employee’s level/position within a company.

TIP: When trying to budget employee benefits costs account for the fact that not all employees will participate, or may only take certain offerings.

There are a few reasons for this: employees may not want to pay premiums for insurance benefits they know they won’t use, or they may have their own private plans, or they’re covered through a spouse’s plan.

This helpful chart shows average full-time employee participation and premiums paid in their company’s health care plans.

A waiting period for new hires is not uncommon. Unless restricted by Open Enrollment or ACA rules, companies may make a new employee wait 60 to 90 days before they can enroll in a group plan. This avoids the cost of enrolling a new hire only to have them leave the company a couple of months later.

Open Enrollment is perhaps the most commonly used course for managing health care enrollment. Once a year for an open period of approximately three months, individuals may purchase or change their health care benefits options and provider.

TIP: GoCo can help streamline the Open Enrollment process for your company through their online portal. Employees can view, select and update available benefits, and automatically know how much it’s going to cost them.

In most instances, the purchaser is required to live with their choices until the next open enrollment period. When a “Life Event” happens, special enrollment is permitted. Generally, a life event is considered:

  • getting married or divorced
  • having, or adopting, a child
  • changing jobs and leaving that employer’s group insurance plan
  • losing existing coverage
  • moving to a different state
  • becoming an American citizen

TIP: When preparing for the open enrollment period, ask your insurer for an employee information package showing existing and potential insurance offerings, then encourage direct communication between the insurer and the employee to minimize potential problems with the enrollment.

Statutory Benefits

There are many state and/or federally mandated employee benefits and taxes that companies must be on top of. All of them vary slightly in eligibility and employer/employee contributions.

Family and Medical Leave Act (FMLA): If you are a company with 50 or more employees, you are federally obligated to provide job-secured leave (including continued health care coverage) under the FMLA. The Act allows eligible employees to take up to 12 weeks of unpaid leave in a 12 month period in order to manage various family and medical matters.

TIP: It isn’t uncommon to ask employees to use their paid leave in place of, or in combination with, unpaid leave, but it needs to be set up before they go.

Disability Insurance (and Paid Medical Leave): While the FMLA typically covers an employee’s unpaid absence from work due to disability, some states (and cities and districts) have implemented separate disability plans that cover partial-pay support once coverage under the FMLA runs out. Each jurisdiction has its own rules for eligibility, payout percentages, and maximums, so you’ll need to know what rules apply to you.

Some states require employers to pay their employee’s disability insurance premiums, but often it’s funded by the employee directly into the program or through payroll taxes.

Social Security and Medicare: The Federal Insurance Contributions Act (FICA) is an insurance plan for old-age, survivors, disability, and hospital costs. Social Security taxes finance the elderly, survivors, and disability insurance portions while Medicare taxes finance the hospital insurance part.

Employers and employees both pay into these taxes regardless of their employees’ age or social security status.

At time of writing, the federal government was still months away from replacing the Affordable Care Act (“ACA” or “Obamacare”) with a new access to health care plan. Until then, all rules under the ACA are still applicable. Check out GoCo’s blog post on ACA Compliance for more information.

Unemployment Insurance: This is an employer-based federal and state tax, administered by each state and governed under Federal Unemployment Tax Act (FUTA) rules.

Workers’ Compensation: The US Department of Labor oversees workplace injury/disability compensation programs, commonly known as Workers’ Compensation.

Usually, programs are administered by each state, requiring employers to pay into the program in one of three ways: directly to workers, payments to the state-run insurance program, or payments to an insurance company.

Common Group Employee Benefits

Insurers design group employee benefits plans for employers to offer insurance coverage to their eligible employees (or ‘group’). Usually, employees don’t have to have a physical exam or answer in-depth health-related questions which is why they are popular.

The ACA mandates eligibility, minimum essential coverage and affordability, so be sure any plans you offer meet these requirements because it can mean serious penalties for non-compliance.

Employees ranked the following benefits by level of importance and satisfaction with their employer’s current offering:

Some of the most common benefits provided in a group plan include:

Health care: Group coverage usually includes medical, dental, and vision care. The goal of health care coverage is to financially help employees maintain good health, or manage costs associated with illness, disease, or accident.

Plans typically include related medical treatments and prescription drugs and supplemental plans may also cover critical illness and hospital stays.

Health care benefits plans are often partially (or sometimes fully) paid by the employer, and can have a deductible or capped amount for the employee.

Vision and dental plans are usually supplemental voluntary plans offered separately by employers. Because the cost to provide vision and dental insurance is nominal, more than 90% of employers offer these benefits.

TIP: to save money and avoid paying premiums to an insurer, you can choose to directly reimburse some or all of a vision and/or dental expense incurred by your employees.

Life Insurance: For many employees, their only access to life insurance is what is provided through their employer’s benefits plan. Most often, it is group term life insurance written on a guaranteed issue basis that allows eligible employees to obtain basic coverage without undergoing a medical examination.

Some plans allow employees to increase their coverage (for an additional cost), and/or convert it to an individual policy when they leave the company. Fees may either be paid by the employee, the employer, or shared by both.

Disability: Both short-term and long-term disability policies are commonly provided by employers when life insurance coverage is also offered.

Short-term plans often require a waiting period of 0 to 14 days before a covered individual receives benefits. Coverage is usually provided for a maximum of six months to one year.

Long-term disability starts paying benefits once sick leave and the short-term policy end (typically 30 to 180 days).

Again, some states, cities, and districts have their own disability insurance requirements for individuals, so be sure you know what rules apply to you.

Accidental Death and Dismemberment (AD & D): AD & D insurance is often provided when individual disability insurance isn’t available. It pays a set benefit if a covered employee dies in an accident, or if they are permanently injured or suffer the loss of an extremity, hearing, or sight as a result of an accident. If the injury happens on the job, Worker’s Compensation may take over.

AD & D may be provided as part of a group life insurance policy, or as a stand-alone voluntary benefit. Fees may either be paid by the employee, the employer, or shared by both.

Retirement: Providing an employee with a retirement plan is not mandatory for employers (unless stipulated by a union contract or other such agreement). There are two major types of plans: defined benefit and defined contribution. Employers may offer one or the other, or both, and each may have different rules for eligibility.

Defined benefit plans (often called pensions) contain contributions made and managed by the employer. Payouts are set at a pre-determined monthly amount and paid to the employee when they retire.

By contrast, a defined contribution plan is paid into by both the employee and the employer under an investment structure chosen by the employee. Upon retirement, the employee can roll over the full amount of their investment into their own private plan for self-management. A 401(k) is a popular defined contribution plan.

TIP: Employers who offer retirement plans are bound by the Employee Retirement Income Security Act (ERISA), the federal statute that governs most private company retirement plans.

Alternative Popular Employee Benefits

Aside from the most popular group employee benefits, employers may offer a number of other ‘bonus’ benefits geared to increasing employee job satisfaction and retention.

Usually these don’t require the employer to pay out much (if anything) in additional premiums to an insurer. And depending on the benefit, employers may directly reimburse the employee’s expenses toward costs.

Flexible Spending Account (or Arrangement) (FSA)/Health Savings Account (HSA)/Health Reimbursement Arrangement (HRA): These are different ‘savings’ accounts that help employees pay for eligible out-of-pocket expenses. The bonus for employees is that contributions are made in pre-tax dollars and placed into an account to be used by the employee as needed.

Below is a chart showing the basic differences and advantages between each plan. Not shown on the chart is one major difference: an employee may elect to establish an FSA to cover dependent care costs rather than health care costs.

Funds set up in an FSA dependent care plan may not be used toward health care expenses, and vice versa. HSAs and HRAs do not have any other purpose beyond covering health care expenses.

TIP: Both employers and employees need to know the very specific rules for each type of plan, e.g., eligibility, ownership, annual carry-over, maximum contributions, etc. because penalties can apply for over contributions. It’s a good idea to carefully research each to determine the plan that best suits your needs.

Paid Time Off: Paid time off (PTO) plans are currently one of the most popular benefits out there. A full 63% of employees rated PTO as a “very important” contributor to job satisfaction and a direct contributor to “improved employee productivity and morale.”

PTO plans use a set ‘pool’ of paid days off for the employee to use as needed — for family care, illness, vacation, maternity, paternity, doggie play dates — whatever they want.

PTO is overwhelmingly popular with both employees and employers because it is relatively inexpensive to provide compared to other benefits. Employers still approve the employee’s time off, but it saves managers the time and effort spent policing employees’ use of their time out of the office, and it treats employees like the adults they are.

How much PTO is enough? This chart shows average PTO allowance based on employees’ years of service:

Employee Assistance Program (EAP): EAPs are confidential counseling and referral services for employees who want professional assistance dealing with personal matters relating to family, legal, financial, emotional, substance abuse, or something else.

There is often a maximum number of sessions that an employee may participate in each year. Employers usually pay the entire cost of an EAP benefit.

Commuting Costs: Some employers subsidize or reimburse their employee’s costs for travel to and from their workplace (e.g., public transit passes, parking, carpool fees, etc.). In New York and Washington, DC, employers with more than 20 full-time employees are required to offer a commuting pre-tax benefit to employees.


Companies are increasingly offering their employees perks (some of which are truly innovative) in an attempt to increase employee engagement, retention, recruiting and job satisfaction.

Bonuses: paying employees a bonus for referring new employees and clients, rewarding good work, and retention.

Coaching: employees receive confidential one-on-one career and life coaching sessions with a professional coach. TIP: This is especially popular when onboarding new employees.

Concierge Services: concierges help employees with things that never seem to get done on days off — purchasing concert and sports tickets, dropping off dry cleaning, trips to the mechanic, dog walking, etc.

Fitness/Wellness: this popular perk rewards employees for their healthy lifestyle choices by reimbursing them for things like gym memberships, smoking cessation, weight loss, or nutrition programs, etc.

Meals and Beverages: this perk goes beyond free coffee. Break rooms are stacked with free food (snacks or full-on meals) and beverages for employees to enjoy. TIP: if your company can’t afford to offer this daily, try it on a weekly or monthly basis.

On-site Child Care: great for working parents of young children who get to visit with their kids and tend to their needs during the day. The result is improved employee morale and productivity and decreased tardiness and absenteeism.

Student Loan Payback: employ a younger workforce? Paying some or all of an employee’s student loan is a great perk. TIP: make payments annually instead of all at once to encourage longer employee retention.

Supplementary Insurance: Your insurer can usually offer employees discounted rates on auto, home or pet insurance.

Telecommuting: let your employees work from home – even one day a week! The result is improved job satisfaction — 48% of workers with this perk rated themselves at the highest level of the ‘happiness scale’.

Training, Professional Membership, Tuition Fees: encourage employees to increase their skills and involvement in work-related organizations. You’ll be rewarded with a more highly skilled and loyal workforce.

Travel: pay for some of your employee’s travel costs to encourage the use of vacation time and get a well-rested worker when they return.

Volunteering: give employees time off to volunteer with an organization that is near and dear to their heart.

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