Salary alone is not always enough to attract employees. Before accepting a job, potential new hires want to know what employee benefits are included in their package. It’s the quality of these benefits that can seal the deal and bring desirable employees to an organization.
The basics of employee benefits
There are two types of employee benefits that human resources management needs to be aware of when it comes to compensation and benefits: those required by law and those that are added perks, or fringe benefits. U.S. employers are legally required to provide the benefit of taking out taxes from an employee’s paycheck for Social Security, Medicare and Federal Insurance Contributions (FICA). They also must also offer workers compensation as a benefit.
Depending on the state and company size, an employer may also be required to contribute to a healthcare plan, disability insurance, and family and medical leave.
Other than those legal obligations, benefits are not required. Going above and beyond legal requirements, however, is what attracts talented employees who feel valued by a company and want to stay long term.
Types of employee benefits
When a human resources department takes the time to find and hire qualified employees for a position, those employees can bring a lot to a company. Besides a paycheck, what can a company offer their prized employees? They can offer a full benefits package that assures employees their company places a high value on their education, experience and hard work.
When a company gives a worker anything that goes beyond a compensation package—salary, commission, bonus, hourly wage (plus overtime as required by the federal government’s Fair Labor Standards Act) or combination of those payments—it’s a benefit. A benefits package is the cumulative list of every benefit that comes along with a job. These packages will vary from company to company and are frequently used as an incentive to attract potential employees or keep valuable workers loyal to a company. A benefits package frequently includes insurance, retirement plans, and paid time off, but companies can add other benefits to attract and retain quality employees.
The term retirement benefit covers a broad range of compensations such as pensions and retirement plans. It also covers ongoing benefits when employment ends in retirement such as health insurance, stock options and other perks. Social Security is also considered a retirement benefit. The Social Security Administration reports that 96% of workers are eligible for Social Security and the amount of the benefit payment will depend on how much a worker earned during their entire working career.
A pension plan is a defined benefit plan that “promises a specified monthly benefit at retirement” according to the Department of Labor (DOL). An employer can offer an exact dollar amount per month as part of a pension plan or use a formula such as years of service and salary to determine the monthly payment. Pension plans are often taxable.
Pension plans are not as commonly offered as they used to be. Many companies now offer 401(k) investment plans that employees fund. Employers may match all or part of their contributions.
A 401(k) plan is one type of retirement plan, and it is a defined contribution plan. It does not guarantee a specific amount at retirement. Another common type of retirement plan is the Simplified Employee Pension Plan where employees contribute money from their pay to the plan on a tax-favored basis to an individual retirement account (IRA) that’s owned and managed by the employee.
While pension plans and 401(k) plans tend to be the most common, there are other retirement plans that an employer can offer to employees. A Roth IRA differs from a traditional IRA because it does not have the tax-favored basis. Because they are funded with after-tax dollars, contributions to Roth IRAs are not tax-deductible. However, if all qualifying conditions are met, withdrawals on a Roth IRA are tax-free.
Profit-sharing plans and employee stock ownership plans can also be part of a retirement package. According to the IRS, only employers can contribute to profit sharing. They don’t have to contribute each year, making it a good benefit to offer that also allows an employer some flexibility if cash is tight in any given year.
If a company chooses employee stock ownership plans (frequently referred to as an ESOP), the employer puts shares of stock in a plan for participating employees. Those shares must vest—which usually occurs after a specified period of employment—before they are available. Once an employee leaves a company, the vested shares of stock are given to them by the employer.
Paid time off
Most employees look at paid vacations, a form of paid time off (commonly referred to as PTO), as one of the best perks of a benefit package. Paid vacation are days that an employee can plan to take off from a job—usually with management or human resources approval—and still be paid for those days.
Some employers offer a flexible PTO package. That package can encompass vacation pay, but it can also cover things like maternity/paternity/family leave, jury duty, sick time, personal time, and paid federal, national and religious holidays.
Health insurance, according to the DOL, is “an employee welfare benefit plan established or maintained by an employer or by an employee organization (such as a union).” The benefits can be offered to an employee only or it can be extended to their dependents, also. A company can pay for the health plan in total or it can require employees to contribute some of their pay to help cover the health plan. Health plans encompass medical insurance and can also include dental and vision health.
Health insurance is usually the most expensive employee benefit an employer can provide, according to Harvard Business Review, but it’s also one of the top benefits that an employee looks for when accepting a job. Eighty-eight percent of respondents to a benefits survey said it was their top consideration.
Life insurance benefits and disability insurance are also frequently part of an insurance benefits package. Employee life insurance benefits add value to a benefits package by giving an employee the peace of mind. If something happens to them, their family will have some financial security to fall back on. It’s often one of the additional things a potential employee looks at when considering a job offer, after compensation, insurance, retirement benefits, and PTO.
There are two types of disability insurance that employers can offer. The first is short-term disability insurance that ensures an employee will continue to receive a portion of their income if they are out of work for a short, defined period of time because of illness or injury. Many employers offer short-term disability as part of a benefits package, according to The Balance Careers.
Long-term disability insurance covers an employee for an extended period of time if they are ill or injured and cannot work. Some employers offer this type of insurance as part of a comprehensive benefits package. Employees can also get it on their own from a third-party insurance company.
Work-life balance benefits
Retirement, paid time off and insurance benefits are attractive to employees, but increasingly human resources professionals are discussing the work-life balance with a large segment of the workforce, and that segment is parents.
Not all companies are capable of offering flexible hours, but those capable of doing so can attract quality workers with this benefit. After health insurance, The Harvard Business Review says being able to switch work hours around is the most attractive benefit to potential employees.
Along with flexible hours, benefits that help create more harmony between work and home include work-from-home options, additional vacation time and comprehensive health insurance. Adding free day-care to the employee benefits package is very helpful in providing a work-life balance for employees with children.
Gym memberships and yoga studio memberships are benefits that attract employees, too. The Harvard survey found that 39 percent of employees see a free gym membership as an important employee benefit. And, if that membership happens to be to a fitness center that’s on-site, making it easy to exercise before or after work—or even during a lunch break—it’s even more attractive.
Almost all of the above benefits, except compensation, fall under a category sometimes referred to as fringe benefits. Additional fringe benefits that can appeal to highly qualified workers can include a company car, educational assistance, a housing allowance, free food and drinks in the office, and the ability to keep perks such as frequent flyer miles from travel or loyalty points from a company credit card. Sometimes, it’s the additional fringe benefits that can be the deciding factor for an employee considering taking a job with a company.
Mental health benefits
Today’s employees often seek more than a traditional health insurance that covers physical health. They also expect mental health benefits. As of 2014, most individual and small group health insurance plans must cover mental health and substance use disorder services, according to MentalHealth.gov. Employers are required—in most instances—to carry mental health care benefits that are not more restrictive than coverage for medical and surgical services.
Many employers go beyond these basic requirements to offer more robust mental health benefits that allow employees to access the care they need—whether that is a digital wellness app or therapy session or medication management—at no or low cost. The best of these benefit programs offer clinically-validated assessments to match the employee with the exact level of care they need and guide them through their mental healthcare journey for faster and more effective outcomes.
How employee benefits are changing
The Society for Human Resource Management (SHRM) found that nearly 1 in 3 workers needed to purchase equipment to assist in their remote work when COVID hit, but not all employers were reimbursing for those unexpected expenses. Compensating remote workers for expenses such as internet connection or necessary office equipment purchased out of pocket can be additional benefits offered to employees during COVID. These benefits should be continued as some workers will remain remote for some time.
Because of COVID, many employees are also changing their health benefit packages. Adding employee benefits such as virtual healthcare options and improved mental health benefits are vital during this stressful time.
Spring Health supports employers with comprehensive mental health care benefits. Request a demo to find out how Spring Health can support the mental health of your employees, whether they continue to work remotely or are returning to the workplace.