The Real Cost of Employee Benefits

Today’s job market presents a number of talent management challenges. In fact, most companies are in the tough position of balancing the need to implement programs that improve employee engagement and productivity with those that create efficiencies, reduce costs, and manage compliance and other risks.

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Owing to low unemployment and other market factors, attracting and retaining talent has grown to be one of the leading priorities for HR and business leaders. In addition, as your organization continues to compete for talent, your investment in employee benefits, training, and workplace efficiency tools drives costs even higher.

As you balance the need to attract and retain talent with the imperative for cost control, it’s important to understand some of the related challenges and opportunities available to help shift the tide of rising talent management costs

Attracting and Retaining Talent: Key Challenges

It’s becoming a common narrative: organizations are feeling the effects of both low unemployment and employees who are increasingly seeking elements of work life that will help them feel more engaged and productive. As you offer more of the benefits that employees are looking for, it’s important to recognize and overcome the following challenges:

The Current US Employment Climate

In recent years, unemployment has dipped to a 17-year low of 3.8%, and for 85 straight months, the US has added hundreds of thousands of new jobs across a range of industries. The numbers are staggering, as in the case of the following sectors that have experienced astronomical growth:

In addition to falling unemployment, a slowing wage increase rate and low inflation have kept many Americans in their modest-paying jobs. Recent reports highlight the fact that the rate of US annual wage increases has slowed to just 2.5%, while inflation has risen a mere 2% in the last year. While wages are increasing slightly faster than the rate of inflation, for now, US employees are staying put in their jobs.

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Employees are Placing More Value on Benefits

On the surface, modestly increasing wages might look like good news for employers. However, while US employees are not leaving jobs en masse for compensation reasons, they are looking for new and improved benefits like better health insurance, flexible work arrangements, and financial planning tools that help them plan for retirement or care for an ill family member.

According to Glassdoor’s 2017 recruiting statistics guide, 80% of employees (and 90% of Millennials) prefer new or additional benefits over a pay increase. The same report highlights other findings that point to the increasing importance of benefits to employees, for example:

  • 57% of US job candidates count benefits and perks among their top considerations before accepting a job.
  • 84% of employees who are highly satisfied with their benefits also report high job satisfaction.
  • The top three benefits with the highest correlation to employee satisfaction are health insurance, vacation/PTO, and retirement planning options such as 401(k)s and pensions.

As a result of employees’ increased preference for new or enhanced benefits, one-third of companies have increased their benefits offerings in the last year, according to the SHRM 2017 Employee Benefits Survey. The same report also points out that while only a small portion of employers decreased benefits last year (6%), they did so for financial reasons like the increasing cost of employee benefits.

Millennial Preference for Benefits

Another challenge for organizations today is the growing influence of the Millennial workforce. In a recent survey, 96% of Millennials said great healthcare benefits would be the most important factor in helping them to decide between two otherwise equal job offers. Considering that Millennials are estimated to comprise 75% of the workforce by the year 2025, employers need to take note of the value Millennials place on workforce benefits. And, it’s not just healthcare and time off benefits Millennials seek, but also benefits like training and opportunities for career advancement.

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  • 57% of US job candidates count benefits and perks among their top considerations before accepting a job.
  • 84% of employees who are highly satisfied with their benefits also report high job satisfaction.
  • The top three benefits with the highest correlation to employee satisfaction are health insurance, vacation/PTO, and retirement planning options such as 401(k)s and pensions.

As a result of employees’ increased preference for new or enhanced benefits, one-third of companies have increased their benefits offerings in the last year, according to the SHRM 2017 Employee Benefits Survey. The same report also points out that while only a small portion of employers decreased benefits last year (6%), they did so for financial reasons like the increasing cost of employee benefits.

The Cost of Employee Benefits are on the Rise

At the same time that organizations understand the need to expand benefit offerings, there is also a growing concern about the affordability of doing so. Successful talent management costs money. According to the US Bureau of Labor Statistics, insurance benefits comprise the largest non-wage labor expense for US employers. And, there are other labor costs like paid leave, investments in employee retirement and savings, and legally-mandated benefits costs.

Most employers currently offer employees at least one type of insurance plan. However, even the cost of offering a modest level of benefits continues to rise, at a level faster than the rate of inflation and the overall pace of economic expansion. According to research conducted by the Office of the Actuary in the Centers for Medicare & Medicaid Services, aggregate US healthcare spending is estimated to increase 5.6% annually through 2025. And, this rate of increase is expected to outpace projected GDP growth by 1.2 percentage points.

Any way you look at it, the cost of employee benefits is increasing at an alarming rate. Consider these findings:

  • The average annual premiums for single and family coverage health benefits were $6,690 and $18,764, respectively, in 2017. These rates reflect a 4% increase in single coverage and a 3% increase in family coverage compared to 2016.
  • Employer healthcare costs are expected to rise by 6.5% in 2018, according to research conducted by PWC.

Aligning Cost with Opportunity

Despite the related challenges, it's possible to effectively offer world-class benefits that help you attract and retain talent without letting benefits costs get out of control. While some organizations will simply increase employee contributions through higher deductibles and out of pocket fees, there are other more effective methods of managing health costs that can save money for you and your employees. Find out more and download our latest e-Book, “How to Get Your Escalating Benefit Costs Under Control.” Drive employee engagement with cost-effective benefits and increase your competitive advantage in today’s job market.

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Get Your Escalating Benefits Costs Under Control