Courtesy Suite Advice LLC
By Rose Miller
Benefits have become a very important issue for current and potential employees. In recent years, surveys show the workforce places greater importance on benefits than even wages. Although administering benefits and explaining all the details is usually the job of human resources, managers need to know basic information about employee benefits for a variety of important reasons. First, a small employer may not have an HR department, and employees will look to the person who just handed them that large packet of confusing information. That person should be prepared to answer complex questions. Sometimes, the human resources department is not part of the benefits plan purchasing process, resulting in large gaps in knowledge regarding plan documents and details.
Job candidates, during a job interview, are likely to inquire about benefits, and the hiring manager will want to be able to provide decent answers (or at least the correct answers!). Benefits are a selling point when interviewing job applicants. If the hiring manager is able to promote the organization’s benefits package well, it can help attract high-quality employees to the company. When new employees come on board, they will undoubtedly have even more questions about benefits, and they may also need help with the enrollment paperwork. Academic institutions and nonprofits often lead with generous benefits because their wages may not be as competitive as those in private-sector industries.
The tricky part is how employers balance the cost of insurance programs with the desire to attract the best talent. I’m dating myself when I tell you that “once upon a time” employers paid the entire cost of premiums. Premiums began to escalate by double digits in the early 1990s. As a cost-containment strategy, employers began sharing premium costs with employees.
The most common strategy began with a 75/25 split, with the employer paying the larger portion. Then the trend became the employer picking up individual coverage and employees paying any additional cost for selecting higher-premium options. With the Affordable Care Act (ACA), some companies developed a flat amount that the employer contributes toward any option selected. For example, all employees receive $200 per month toward any plan option selected.
Another past trend scaled an employee’s premium share downward as the employee climbed the corporate ladder. Becoming a partner, for example, may mean the organization picks up the entire cost of health insurance. However, a provision in the ACA mandates that a company satisfy annual testing that compares the premiums paid by lower-income employees with those paid by the highest-paid employees. Many companies have been able to stay competitive by offering a variety of benefit options, some with high deductibles that are complemented by either a health reimbursement arrangement (HRA) or health savings account (HSA).
In smaller businesses, a strategy may be to drop company health insurance altogether and send employees to state health care exchanges. These small businesses add a new, flat taxable amount to the employee’s base wages to help pay for the premiums. Even a small business can remain competitive by offering other benefits such as discounts, memberships or flexible work arrangements.
Offering benefits is still a way for a company to differentiate itself from, or keep up with, its competition. Evidence points to employees placing greater value than ever on company benefits. Employers who do not review their entire benefits package for competitive advantage are missing the mark.
The cost of benefits has become so important that the cost of continuing benefits has been negotiated in termination agreements. Rather than a number of weeks’ salary as severance, terminated employees are negotiating a number of months of payments toward COBRA continuation of benefits.