As a small business owner, you’ve been there more times than you can count: your employees need comprehensive benefits to continue working with you, and your choices are limited. Managing the cost of these benefits within the constraints of a small business budget is a challenge for many business owners like you. How do you balance affordability and competitiveness? How do you know which of these investments can positively impact your business in the long term?
Did you know that employee benefits can account for up to 30-40% of total payroll costs? This means that for every dollar spent on wages, a significant portion is dedicated to benefits. These costs vary widely depending on the type of benefits provided, the number of employees, and the industry in which your business operates.
The Average Cost of Employee Benefits
On average, employee benefits can account for 30–40% of an employee's total compensation package, according to the Bureau of Labor Statistics (BLS). For small businesses, this translates to approximately $11.86 per hour per employee or about $23,700 annually based on a full-time 40-hour workweek.
These costs vary widely, though and this is due to factors like industry, company size, geographic location, and the types of benefits offered. Companies in industries like tech or finance may spend more on benefits to remain competitive, while businesses in retail or hospitality may offer more limited packages.
Breaking Down Employee Benefits Costs
1. Health Insurance
Health insurance is often the largest component of a benefits package. According to the Kaiser Family Foundation, the average cost of employer-sponsored health insurance in 2023 was:
$7,911 per year for single coverage
$22,463 per year for family coverage
Employers typically cover 70–80% of these costs, leaving the remaining portion for employees. Small businesses may qualify for tax credits under the Affordable Care Act (ACA) if they provide coverage through the Small Business Health Options Program (SHOP).
2. Retirement Plans
Offering a retirement plan is another significant cost, but it’s an investment in your employees’ long-term security. On average:
Employers contribute 3–5% of an employee’s annual salary to a 401(k) plan.
Businesses can also offer SIMPLE IRA or SEP IRA plans, which may have lower administrative costs and fewer compliance requirements.
3. Paid Time Off (PTO)
PTO includes vacation days, sick leave, and holidays. According to BLS data, the average cost of PTO is about $2.55 per hour worked or 10% of total compensation.
4. Dental and Vision Insurance
Dental and vision benefits are highly valued by employees and are relatively affordable for employers.
Dental insurance typically costs between $15–$50 per employee per month, depending on the coverage level.
Vision insurance averages around $5–$15 per employee per month.
5. Additional Benefits
Many businesses are incorporating additional perks to meet the evolving expectations of employees:
Wellness programs: Average cost ranges from $150–$300 per employee annually, but these programs can lead to reduced healthcare costs and improved productivity.
Tuition assistance: Employers may offer up to $5,250 annually tax-free for educational expenses.
Employee assistance programs (EAPs): These cost about $12–$40 per employee annually and provide mental health support and resources.
Factors Influencing Benefits Costs
The cost of employee benefits will depend on a variety of factors. Let’s look at a few:
Industry: Competitive industries like tech or finance often require more comprehensive packages to attract skilled workers.
Company Size: Larger companies benefit from economies of scale, while small businesses may face higher per-employee costs.
Location: Costs can vary significantly based on regional healthcare rates and living expenses. For instance, benefits in urban areas may be pricier than in rural locations.
Plan Design: Customizable plans, such as high-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs), can help control costs.
How Small Businesses Can Manage Employee Benefits Costs
For your business, you want to balance value with cost-effectiveness. Let’s look at some strategies to manage costs effectively:
1. Use Tax Credits and Deductions
The ACA offers tax credits for small businesses with fewer than 25 full-time employees, covering up to 50% of premium costs if coverage is purchased through the SHOP Marketplace. Also, contributions to retirement plans are tax-deductible, reducing overall expenses.
2. Offer Flexible Benefits
Flexible options, such as voluntary benefits (e.g., supplemental life insurance or pet insurance), allow employees to choose additional coverage while minimizing employer costs.
3. Negotiate with Providers
Work with insurance brokers or benefit consultants to negotiate better rates. Joining a professional employer organization (PEO) can also provide access to group rates typically reserved for larger companies.
4. Encourage Preventative Care
Promoting preventative health measures can reduce long-term healthcare expenses. Wellness programs and routine screenings help employees stay healthy and avoid costly medical interventions.
5. Leverage Technology
Find ways to use benefits administration software to streamline processes like enrollment, claims management, and compliance tracking. This reduces administrative burdens and ensures cost-effective operations.
Why Offering Benefits is Worth the Investment
It is true: the cost of providing benefits can be significant, the advantages far outweigh the expenses.
For Employers:
Improved Retention: A 2022 SHRM report revealed that 79% of employees would stay longer with an employer offering robust benefits.
Attraction of Top Talent: Competitive benefits make your business more appealing in the job market, especially to skilled workers.
Enhanced Productivity: Healthy, satisfied employees are more engaged and less likely to take time off due to preventable health issues.
For Employees:
Financial Security: Benefits like health insurance and retirement plans reduce financial stress, allowing employees to focus on their work.
Work-Life Balance: PTO and wellness programs help employees recharge, fostering better mental and physical health.
Partner with CIIG for Your Benefits Needs
We understand the unique challenges small businesses face when it comes to offering employee benefits. Our team specializes in creating customized solutions especially designed to fit your budget and goals.
With CIIG, you gain access to:
Expert Guidance: Our advisors stay updated on the latest industry trends to ensure you receive the best options.
Affordable Plans: We negotiate competitive rates without compromising quality.
Comprehensive Support: From selecting plans to managing enrollments, we handle it all so you can focus on growing your business.
Providing employee benefits is an investment in your team and your business’s success. By understanding the costs involved and implementing smart cost-management strategies, small businesses can offer competitive packages that attract, retain, and motivate top talent.
Let CIIG help you navigate the complexities of employee benefits with personalized solutions that work for you. Contact us today to learn more!
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