Between 85-90% of companies employing 10 or more people have an employee benefits program. When asked why they have a benefits plan, company responses range from “need to be competitive” to “wanting to help our employees”.

Although valid, these responses do not address the real issue. Companies should purchase benefits for the same reason they consider hiring people, purchasing equipment or choosing a location: to make money.

Can an employee benefit package improve your firm’s profitability? Consider the following factors.

Defined Corporate Policy
With the implementation of an employee benefits program, a corporate personnel policy is created, establishing the amount the company is prepared to pay in the event of a disability, death, high medical/dental expenses or the retirement of a valued employee. Many companies measure their success by their administrative capability, which is enhanced by skilled employees who realize their company’s expectations. On the other hand, an employee’s performance can be enhanced when he/she knows what to expect from the company in the event of a serious disability, death, high medical/dental expense, or retirement. With the definition of this policy, the company will not have to make tough, untimely, or unpopular decisions based on the employee’s personal popularity or the company’s economic circumstances. Nor will unproductive time need to be spent on individual employee benefit considerations.

Employee Benefits: Tax-Free Compensation
Employee benefits represent one of the last tax-free forms of compensation for both employees and companies. With a few minor exceptions, both premiums paid by the employer and the benefits received by the employees are tax free. Knowing that the benefits package offered by the company is competitive allows employees to focus less on their salary requirements, and more on getting their jobs done.

Alternative Form Of Compensation
Employee benefits programs are an excellent form of alternative compensation. Ask an employee how he/she would react to a 2% salary increase, and, considering the insignificant after-tax salary gain of such an increase, the response would understandingly be poor. Ask the same employee, however, how he/she would feel about a fully sponsored dental plan, and you’ll find that the reaction will be significantly more positive. However to the company’s benefit, the cost of fully paid dental plan is less than 2% of salary. Companies can often get better value for their money by allocating some compensation dollars to benefits rather than to salaries.

Retention and Attraction
Next to customers, most companies consider skilled, satisfied employees their most valuable asset. An effective, well-communicated employee benefits program can positively influence morale. Although few employees can tell you their exact details of their program, they have the perceptions of whether or not their plan is a good one. If that perception is positive, these plans can have a significant effect in attracting and retaining quality people.

The Intangibles
Employee benefits provide certain beneficial intangibles to the company. Companies have a need to fulfill their social and moral obligations to long service employees. When well communicated, this approach often creates an atmosphere of “family” which leads to a closer, more harmonious and productive work relationship. A well-engineered program will often provide employees with a sense of long term security and longevity, thus enhancing company morale and adding to the firm’s profitability.

Designing an Employee Benefits Program
Simply implementing a benefits program does not guarantee results. To ensure positive results, a program must be designed properly. Key elements include:
a) Administration: Most small and mid sized companies cannot afford to hire a full-time employee to administer a benefits program. Administration procedures should be simple, straightforward and involve a minimal amount of time. Many companies can train an existing employee to take on benefits administration in addition to his/hers current responsibilities.
b) Life Insurance and Long Term Disability: These benefits are salary related and this relation is generally understood in the work force. Therefore, the distinction in an employee benefits program is often drawn in terms of the company’s health and dental plans. If the health plan is difficult to understand or use, the entire program may be perceived negatively.
c) Integrated with Government Benefits: These benefits include provincial medical care, Canada Pension Plan, O.A.S, EI., and Workers’ Compensation. While these government benefits should not be duplicated, existing group insurance plans should be integrated without overlapping.
d) Tax Effective Premium Allocation: Two of the benefits with negative tax implications are life insurance and long term disability. Employer-paid life insurance payouts in excess of $25,000 coverage are considered taxable income to the employee. Tax laws state that employee-paid disability benefits render the actual benefit payout tax-free, while employer-paid payouts for disability render the benefit, upon receipt, as taxable.
e) Communication: If employees do not understand their company’s benefit program, the company is wasting its money. Face-to-face employee meetings, whether in small groups or individually, allow the company to explain its purpose and enhance public relations. Handbooks, benefit certificates, and instructions detailing how to complete claim forms should also be provided.