Providing employee benefits typically accounts for $3 of every $10 businesses spend on employee compensation. As an employer, you want to focus on employee benefits that are not only cost efficient, but can help you retain and attract quality employees.
A recent survey conducted by the Society of Human Resource Management (SHRM) asked more than 2,500 H.R. execs to weigh in on what they consider the best employee benefits offered by employers. The top four include health care plans, a retirement plan, paid vacation/leave, and flexible work arrangements.
Here are some important features to consider in each of these key benefits.
Health insurance is the bread and butter of employee benefits. In today’s tight labor market, it is increasingly offered to part-time employees in addition to regular full-time employees. The classic Preferred Provider Organization (PPO) plan remains the most common type of health insurance offered, but nearly six in 10 employers now offer a High Deductible Health Plan (HDHP) that gives participants the ability to also contribute to a Health Savings Account (HSA).
The HSA is in itself an extremely valuable employee benefit. Employees get a tax break on what they contribute to their personal HSA account, and they will owe no taxes when they use HSA money to pay for qualified medical expenses. Because there is no use-it-or-lose-it requirement with an HSA like there is with a flexible spending account (FSA), it can become a stealth retirement account, giving employees the opportunity to build tax-free savings they can use to pay for eventual out of pocket medical expenses not covered by Medicare during retirement.
Flexible savings accounts (FSA)s are another key health benefit offered by the majority of employers. With an FSA, employees can set aside pre-tax dollars to pay for eligible expenses, but they have to make sure to use it by the end of the year.
A workplace retirement plan gives employees the chance to save a lot more in a tax-advantaged account than if they were saving on their own. In 2020, anyone under the age of 50 can contribute $19,500 to a 401(k) compared to $6,000 in an Individual Retirement Account. (Workers at least 50 years old can contribute $26,000 to a workplace defined contribution plan, and $7,000 in an IRA.)
About three-quarters of employers chip in a matching contribution. And a majority of retirement plans now offer a Roth 401(k) option in addition to the standard Traditional 401(k). The allure of a Roth 401(k) is the prospect of tax-free withdrawals in retirement. With the classic Traditional 401(k), participants get an upfront tax break on their contribution but will owe income tax on every dollar withdrawn in retirement.
Nearly all employers in the SHRM survey provide paid time off (PTO), which typically bundles vacation and sick days. Paid paternity leave has increased from 21 percent a few years ago to 30 percent in 2019.
Most employers are open to telecommuting or have a set work from home policy. Seven in 10 employers allow telecommuting on an ad-hoc (as requested) basis. But offering jobs with telecommuting built-in is on the rise. In 2019, 40 percent of employers offered work schedules with telecommuting baked in, either a set number of days per week or for certain times of the year.
In addition to those universally popular benefits, a new niche benefit that is gaining some steam is employer assistance with student loan debt repayment. This benefit was unheard of five or so years ago. In 2019, the SHRM survey reports that 8 percent of employers now offer, double the rate from the previous year.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.