- Strong benefits help retain employees, reducing training and turnover costs
- Benefits can benefit company culture (and productivity) through higher morale & reduced stress
- In some cases benefits can be more tax-beneficial to the employer in comparison to additional salary
We have discussed at length the benefits that many employers may offer up and above salaries: retirement, insurance, pension, health savings plans, etc. These benefits can be very attractive to employees, with some simply seeking employment to obtain these benefits, like health insurance.
This commentary changes the perspective. Let’s start to think about benefits from the employer’s perspective. When we meet with new entrepreneurs or small business owners, it is not unusual to receive initial hesitation about incorporating a new employee benefit. To many young companies and small businesses, an additional employee benefit is another line item expense that reduces the capital that could otherwise be used to expand the operation. While this initial monetary capital is important to protect, eventually most businesses find that the human capital is one of the most important aspects of a business’s success.
As entrepreneurship flourishes and startup barriers to entry are being reduced, we wanted to address the ever-popular question, “why should I provide these benefits?” Below are several reasons why we encourage a healthy benefits package to most small business owners.
One of the more frustrating things business owners have to deal with is employee turnover. A great deal of money, and just as importantly time, is spent training new employees. Remember, this is an investment, just like any other type of investment. If you have a great crew of employees, providing comprehensive benefits up and above salary can help increase retention.
New employees, especially millennials, have been trained to review benefits when considering new job proposals. If a potential employee has multiple offers, all with similar pay and job satisfaction, the position that has the most additional benefits will likely be chosen over the others. Benefits can not only attract employees from a monetary standpoint, but they may also demonstrate the culture of the employer and provide some insight into what is important in the employer’s perspective.
Employees who work for employers that provide a suite of benefits will generally be more loyal and have higher morale. A rich benefits package demonstrates the employer’s vested interest in the employees.
Reduction in Employee Stress
Most people recognize that in a perfect world everyone would have an abundance of insurance coverages, retirement savings, etc. However, for most, having these coverages is not a reality, thus causing stress in one’s life. As we all have likely experienced, a stressed employee or colleague can lead to poor performance at work which can negatively impact others. While we cannot remove all of the stresses of life, providing employees with comprehensive health insurance, disability insurance, life insurance, retirement savings, etc. may certainly help reduce employees’ concerns about finances.
Reduction in Taxes
When an employee is paid a salary, the employer must pay applicable employment taxes on this wage base. By offering more benefits and a lower salary (respective to the benefits) the employee may have a similar result, whereas the employer may end up paying less in taxes, thus being more profitable. There may even be tax credits that the business can receive in certain circumstances.
A benefit to the business owner, as well
Don’t forget… most small businesses are owner operated, meaning that the owners are working in the business themselves. Therefore, these benefits would likely be beneficial to the ownership, as well.
As one considers employee benefits, it does not have to be an all-or-nothing approach. It may make sense to add one benefit now and then consider adding more benefits in the future. There is certainly not a one-size-fits-all approach.
If you are considering your benefits or want a second opinion, please do not hesitate to reach out to us. We are always happy to help analyze options.