What are the Types of Employee Benefits, and Why are They Important?
Long-term retention and high productivity levels at work can be enhanced through a comprehensive employee benefits package. After all, it is the employees who bring an organization’s vision to life. Given their value to a company, an attractive benefits package is a proven way to show appreciation for employees’ hard work, maintain job satisfaction, and help them thrive. According to Gartner, 63% of employee compensation adjustments are a significant part of retention strategies.
Let’s take a detailed look at the different types of employee benefits and why they are a significant deciding factor for job seekers.
Importance of Employer Benefits
The core of a company’s work culture lies in how well they treat its employees. In addition, a good employee benefits package makes employees feel valued and drives motivation to help them perform better. It can boost productivity, aid talent retention and recruitment, increase employee engagement and highlight the organization’s values.
According to The Business Blocks, over 50% of employees would quit their current job for a new job that offers better benefits. If two roles offer the same salary and one includes better benefits, the latter becomes a better financial proposition from an employee perspective.
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What are the Four Major Types of Employee Benefits?
While the importance of employee benefits is clear, the type may vary depending on the organization. A well-rounded employee benefits package is created based on a combination of two things: the company’s budget and employee requirements. In fact, employers generally take demographics, current trends, and industry type into consideration.
We have listed below the four most popular types of employee benefits that are offered today:
1. Retirement
Companies may offer retirement plans such as employee pension, stock ownership, cash balance or profit-sharing to help employees secure their finances post-retirement. For instance, in the U.S., 401(k) is a common benefit where the employee puts a pretax percentage of earnings towards a retirement plan, which the employer may also contribute to. At retirement, employees become eligible to receive this amount.
2. Additional Compensation
This involves any monetary incentives over an employee’s base salary. Performance bonuses, stock options, awards, commissions, and equity are a few examples. The idea is to link financial compensation to result-oriented performances in order to build motivation and bring out the best in every employee.
3. Insurance
Providing insurance plans like medical, healthcare, life, or disability insurance is an effective way for organizations to show they care about their employees’ well-being. They could offer short-term or long-term coverage, depending on the employee’s needs. Health insurance is the most offered employee benefit, with 58% of companies including it in their packages, according to Team Stage.
4. Time Off
Paid Time Off (PTO) leaves are offered to employees at no cost or deductions. They can be used for vacations, sick leave, better work-life balance, or other purposes. As per Zippia, 90% of businesses reported that paid family leave resulted in improved productivity, whereas 99% said it boosts employee morale. Other PTO days may include sabbatical, training days, maternity/paternity leave, or bereavement leave.
Examples of Employee Benefits
Employee benefits are distinctive and will generally vary based on the organization. Basically, any tangible or intangible perks that are offered in addition to the base salary are regarded as compensation under employee benefits. Health insurance, performance bonus, stock options, corporate discounts, paid sick leave, and retirement savings plans are a few of the common examples of this.
Sometimes employee benefits can also look like student loan assistance, in-house professional development training, unemployment insurance, asynchronous work or four-day work weeks, mental health workshops, and referral bonuses.
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Must-Know Employee Benefits Programs
An employee benefits program is introduced in order to motivate employees and ensure their needs are well taken care of. It typically includes healthcare insurance, PTO, retirement plans, and fringe benefits. These are the top five programs that all professionals must know about.
1. Benefits at Work
Employee benefits at work can look like flexible work hours, remote working options, paid parental leave, professional training and skill development opportunities, meal vouchers and free food and beverages at work. The benefits are likely to vary based on the type of organization.
2. Benefits for Health
This involves employee wellness programs like free access to mental and physical health workshops, gym memberships, healthcare-related services such as medical, dental, and vision-related insurance plans, and other aspects of an employee’s overall well-being.
3. Legally Mandated Benefits
These are standard employee benefits that are generally required by law or by federal/state governments. In essence, these include unemployment insurance, payment of minimum wages, complying with the Family and Medical Leave Act (FMLA), Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage, and overtime pay.
4. Fringe Benefits and Perks
Fringe benefits are extra compensation or perks employers offer to boost employee motivation. Sabbatical, paid leave, commuter benefits, child care, relocation assistance, flexible work hours, reimbursements, and employee discounts are a few examples.
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How Much Do Employee Benefits Cost?
One of the key aspects of drafting a good employee benefits package is to identify the optimum benefits as per employee needs and examine the cost as well as the value gained from each benefit. This will help create a balanced compensation package that works well for employees and fits the budget.
As per the US Bureau of Labor and Statistics, the average hourly cost of benefits per private industry employee is $11.68. Benefits programs may also help cut down indirect costs like sick leaves, missing work due to injuries, and low productivity levels, among others.
While it might seem like a huge cost to cover initially, having the right employee benefits in place can actually be a huge advantage in the long run.
Why Do Employers Offer Benefits to Employees?
We have established that a generous employee benefits package can do wonders for an employee’s professional and personal well-being. But there is another reason why leading organizations worldwide develop and extend unique benefits to their employees. Employee benefits are one of the biggest drivers of engagement and retention at the workplace. They help retain high-performing employees without the need for exceptionally high salary raises.
Further, the process of giving up a portion of their salary for access to other perks or benefits is known as salary packaging. In fact, his can also work in the employees’ favor, resulting in tax deductions or other gains.
In a nutshell, today’s employees are not just looking to work with organizations that offer monetary compensation. They are driven by companies that truly invest in the professional growth of their employees. Offering training and development programs as part of the benefits package is a great way to help employees learn better and upskill in their field.
Addressing an employee’s overall contribution to a company and designing an appropriate employee benefits package is probably among the most important skills every Human Resource (HR) practitioner should have. Hence, learn more about this as well as other aspects of HR through the online courses with Emeritus, and expand your career trajectory in this field.
By Neha Menon
Write to us at content@emeritus.org
