How to Design an Employee Benefits Plan
My team was nearing the end of the interview process with a highly qualified software engineer, and we knew we needed to seal the deal. The candidate was excited about the role, the team, and the mission, not to mention having all the right experience, but he had disclosed that he was interviewing with several other firms.
I began walking him through the company’s benefits package during our final conversation. When I mentioned the client’s parental leave policy–six months paid leave, regardless of gender–his face lit up. “My wife and I want to try to start a family soon, but no other company has even mentioned parental leave. This makes it an easy decision.”
Even though one competitor offered more money, we won out by showing how our clients’ benefits aligned with his priorities.
Benefits plans can vary widely from one company to the next and, as this anecdote shows, can be a make-or-break factor in becoming an employer of choice for top candidates. Thus, carefully crafting a benefits package that serves your employees and organizational goals is necessary if you want to set your company apart.
Let’s discuss the upsides of taking a strategic approach to employee benefits and walk you through designing a benefits package that’s effective for your organization.
The Difference Between Employee Benefits and Perks
Both benefits and perks are forms of non-wage compensation, but there are some key differences in what they involve and how they’re perceived.
Benefits are standard components of an employee compensation package that are considered “essential” by most candidates and in some cases are mandated by law. This includes health insurance, retirement plans, sick leave, family leave, and paid time off. Benefits are typically standard across employees regardless of job title or seniority level.
Perks, on the other hand, are “nice-to-haves” rather than essentials, and they’re primarily tied to boosting employee satisfaction rather than meeting basic needs. Perks are wide-ranging, including gym memberships and company cars to flex scheduling and casual Fridays. They may be company-wide or tied to performance or role.
From a hiring manager’s perspective, think of benefits as must-haves. These are things all top candidates are going to be looking for, and not having them will be a major detriment to your ability to hire. Perks are things that sweeten the deal, making your company a more desirable place to work and more appealing than competitors.
Why Create a Strategic Employee Benefits Plan?
Attract top talent
It’s an ultra-competitive market out there, employee benefits are a recruitment strategy as much as they are an HR function. The best candidates have their pick of solid job offers to choose from, and they won’t settle for one with a company whose benefits are sub par.
Related: Attract Top Candidates With These In-Demand Perks and Benefits
Boost retention
High-quality benefits not only make employees feel valued; they also make it possible for those employees to hold their jobs long-term. Without comprehensive health insurance, for example, an employee who develops a chronic illness or has a family member that does might have to seek out job opportunities at a company with more robust coverage.
Related: Highly Effective Strategies for Employee Retention
Maximize ROI
For the average employer, BLS reports that benefits account for 29% of total compensation costs. In some cases, that number is as high as 38%. When such a huge chunk of your budget is devoted to benefits, it’s just good business sense to make sure you’re getting it right and deriving maximum ROI from your investment.
Keep rising costs from getting you down with our ‘Reducing Labor Costs’ eBook.
Learn from our experts on how to streamline your hiring process.
Most Popular Employee Benefits
1. Healthcare
According to SHRM’s 2024 Employee Benefits Survey, which is one of the longest-running bodies of research on employee benefits in the United States, health-related benefits were far and away the most important benefits category according to HR reps. Close to 90% of those surveyed ranked health benefits as ‘very important’ or ‘extremely important.’ Preferred Provider Organization (PPO) plans are the most prevalent health insurance offering, made available by 82% of employers.
This year’s SHRM survey showed the growth of telemedicine and mental health benefits level off after several years of increasing, indicating that these benefits are becoming standard similar to dental or vision coverage. The latter two offerings are nearly universal, with 99% of employers offering dental coverage and 96% offering vision benefits.
This next part is purely anecdotal, but I think it’s worth noting. I can’t tell you how many candidates we’ve hired who have spouses that are self-employed and thus, rely on the employee’s company-sponsored health plan. With more people entering the freelance marketplace, comprehensive health insurance is even more of an asset for the employers that offer robust coverage.
2. Retirement
94% of employers surveyed said they offer a traditional 401(k), with 84% also offering employer-matched contributions at some level. The popularity of Roth 401(k) plans is on the rise, up 10% in prevalence since 2020. Company-sponsored retirement planning and investment advice are offered by about half of employers.
3. Leave
Leave benefits have made big gains in recent years. Paid vacation, holiday and sick leave are now nearly universal, all offered by 96% of employers. Even percent offer unlimited paid leave.
Parental leave, which is among the most-desired benefits by employees, has also seen growth within the last several years. Thirty-nine percent of employers offer paid maternity leave while 32% offer paid paternity leave.
4. Career Development
With up to 49% of workplace skills expected to become irrelevant thanks to AI, career development is paramount if you want to attract forward-thinking employees. Sixty-five percent of employers rank this benefit as ‘very important’ or ‘extremely important.’ A growing portion of employers–80%, up from 74% in 2020–cover the costs required to help employees develop new career-related skills.
How to Design an Employee Benefits Plan
Set goals
Start by considering your needs as a company and the needs of your employees. Ideally, the benefits plan you develop should be at the intersection of these two sets of objectives.
To develop organizational objectives around benefits, ask questions like ‘how does this play into our mission?’ For example, if your mission is to be a leader in your industry, that can’t happen if you don’t offer employees basic benefits like health insurance and retirement.
When developing objectives, also consider factors like your size, location, industry, and any labor union contracts. Be mindful of benefits trends like those we’ve outlined above to understand what’s considered “essential” among your target candidates.
Assess employee needs
Next, it’s time to assess the needs on your employees’ side.
One of the best ways to understand which benefits matter and are most useful to them is to ask them directly using a tool like a benefits survey. You can also gauge opinions on your benefits offerings from people you interviewed but did not hire by asking about it in your candidate experience survey. If you use these methods, though, be prepared actually to factor the input into your decision-making.
Another good strategy for assessing employee needs is to examine your existing benefits plan if you have one. Which benefits do employees take advantage of the most? Are there any benefits you’re offering that are under-utilized? If so, is it due to a lack of actual demand, poor communication surrounding this benefit, a high buy-in cost, or something else? These are useful data points as you shape a new benefits package.
Conduct market research
A competitive labor market means you can’t design your employee benefits plan in a vacuum. You need to consider what your competitors are offering because it factors directly into your offer acceptance rate.
Conduct some market research to determine the benefits offerings at your top three to five biggest competitors. You don’t have to mirror what they’re doing, but you need to make sure your own offerings are comparable or better.
Find the perfect fit for your team.
Speak to one of our recruiting experts today.
Set a budget
If you already offer benefits, you have some data to go on when setting a budget. If not, you’ll need to estimate.
Take your employees’ base salaries and add between 20% and 50%. This will give you a rough estimate for the low and high end of how much benefits will cost. Then, it’s time to obtain quotes and assemble the various pieces of your benefits package to fit within your budget.
As you forecast costs, be sure to factor in new hires you plan to make in the year ahead. Large organizations may opt to partner with a benefits consultant that can streamline benefits procurement while balancing high-quality offerings with optimized costs.
Prioritize benefits
Based on the goals and employee needs you defined above, outline which benefits are must-haves and which are nice-to-haves (a.k.a. perks). This may require a careful examination of your employee base and the benefits they’re most likely to actually take advantage of.
For example, we noticed with one of our clients that tuition reimbursement was a high-demand benefit, but it was only very desirable to a small portion of their workforce, namely early-career employees. After weighing the pros and cons, we advised this client to table tuition reimbursement in favor of more flexible scheduling and PTO policies, which would make a more widespread impact on the entire workforce while also being highly appealing to incoming job applicants. You can weigh the pros and cons of your own benefits options in a similar way.
Also, as we just touched on, consider the impact your benefits may have on recruiting. If you have a high need for mid-level managers, it makes sense to prioritize benefits that are likely to be important to this group, like family leave or low-deductible health insurance plans.
Be sure to factor in compliance laws that require you to provide certain benefits. Under the Affordable Care Act, for example, companies with 50 or more employees must offer health insurance. Your state may have its own set of requirements when it comes to benefits like sick leave.
Related: Ways to Lower Your Employee Benefits Cost
Communicate benefits to employees
Benefits do no good if employees aren’t aware of them. Use a methodical approach to inform workers of the benefits available to them, especially any that are new and noteworthy. You can do this through printed materials, email campaigns, and dedicated online platforms like an employee benefits portal.
Do your due diligence to make sure you’re in compliance with any legal restrictions surrounding benefit communications. Under provisions in the Affordable Care Act, for example, employers are required to inform employees about any material changes to their health insurance benefits with at least 60 days notice.
Showcase benefits to candidates
Your benefits strategy can really shine in helping you win top talent and differentiate yourself from competitors, so it should be a key element of your recruitment marketing.
Create content that showcases your notable benefits offerings, like a testimonial video from an employee talking about your lucrative retirement matching. Incorporate information about benefits into your candidate communications. Bring it up during job interviews, especially later-stage interviews for high-value positions.
Don’t leave candidates wondering about what their insurance or PTO will look like if they decide to work for you; instead, be proactive with sharing this information.
Analyze results
Your employee benefits plan should be ever-evolving, just like your workforce itself. This means tracking progress, use, and costs and analyzing them regularly.
Don’t take the cost of your benefits package for granted; shop around for providers at least every other year to make sure you’re getting the best deal and staying competitive. Consider using an outsourced HR or benefits provider to better manage costs and access niche expertise.
By regularly evaluating your employee benefits plan and making sure it’s tailored to your employees’ needs, you’ll be better positioned to attract top talent and grow your business.
