Know Your Benefits Cost Per Employee

17 Aug

Health Benefits Can Be CostlyWith the continual uncertainty of the job market, employers need to recognize a few basic truths. First, conditions will eventually improve, even if it takes years. Second, when the market does begin to progress, it will become more difficult to hold on to talent and even top performers, as many will begin seeking opportunities elsewhere.

For that reason, HR departments need to implement effective retention strategies that include competitive compensation structures and benefits programs. More importantly, as this trend unfolds, HR teams need to assert their role as part of a greater corporate strategy.

Compensation may be the most costly aspect of running a business, but employee perks and benefits, which are usually credited for generating retention levels, are the second most expensive budget segments.

In recent years, the cost of benefits has been growing even more quickly than wage gains, especially with the skyrocketing cost of healthcare insurance. In fact, healthcare costs are also exceeding inflation rates and generating waves of uncertainty regarding compliance with new regulations such as the Patient Protection and Affordable Care Act of 2010. Accordingly, HR executives are finding a larger, more important role within the C-suite and executive strategy.

Chief executives need to leverage the most accurate data available in order to forecast revenue and expenses over extended periods of time – be it a year, two years or even five. However, HR planning is notoriously difficult, and given its emerging role within corporate and financial planning, assessment can become even more challenging.

For that matter, HR managers need to provide their CEOs and financial executives with HR expense projections for the coming year as soon as open enrollment is completed. Of course, such projections are much more difficult to obtain over longer time frames, so HR teams should narrow down projections as accurately as possible and include best- and worst-case scenarios.

Businesses also need to factor in the impact of healthcare legislation, as the new law is expected to roll out over the next decade, imposing new financial and regulatory burdens on small and large businesses all the while. For example, small firms that are not mandated to offer coverage for employees will need to weigh the ups and downs of doing so – while eliminating coverage may save money, it may also discourage workers and lead to departures.

To help paint a picture for executives regarding the company’s cost of benefits, HR teams need to provide them with an accurate assessment of the average employee’s share of total benefits costs. To do this, divide the total benefits costs by the total number employees. In drafting a benefits budget, be sure to Include healthcare costs, retirement plans, savings plans, tuition, life and AD&D insurance plans, reimbursement and automobile expenses.

How to Calculate the Benefits Cost per Employee

If the total benefits expense is high, HR managers need to provide the executive team with analysis that narrows down and targets what it is that is driving up costs. It may simply be rising healthcare premiums, in which case managers may want to adopt wellness programs to improve health or cut coverage for some employees altogether. Retiree benefits may also be racking the company’s benefits budget.

Such an analysis should also tackle how benefits are affecting employee retention and engagement levels. Draft ideas and strategies that could help contain and ultimately reduce these expenses.

Interested in learning more business metrics that can help human resources provide strategic information to the C-Suite?  Download our What the CEO Needs From Human Resources white paper now.

One Response to “Know Your Benefits Cost Per Employee”

  1. Emily Perryman August 24, 2011 at 11:26 am #

    It is true that compensation can be the most costly aspect of running a business, since it can consists of health and life insurance coverage, vacation, sick time, disability, and so on. It can be these benefits that motivate your employees to work hard and stay with the company even when the market starts to pick up, but it’s important to remember that not only benefits, like health care, are important to people when they are deciding whether to stay or leave.
    It’s also important to have a good relationship with your employees and a comfortable work environment. It can be these things that set you apart from other employers.

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