What Is the Average Cost of Benefits Per Employee? The Complete Guide
Learn what your company can expect to pay for employee benefits, plus how to save on costs and optimize your budget
Our 2023 Benepass Benefits Benchmarking Guide reveals insights on top pre-tax and perks programs, average stipend contributions, and benefits design so you can design more competitive benefits.Get the guide
Learn what your company can expect to pay for employee benefits, plus how to save on costs and optimize your budget
Budgeting for employee benefits is one of many tasks that HR teams have to grapple with, and it can be quite a head-scratcher. How can you provide an enticing mix of benefits at a reasonable cost?
Prepare to do some serious number-crunching as our guide digs deep into the latest industry data. We’ll introduce you to some hard figures on the average cost of benefits per employee and explain how to maximize the ROI of your offering so it’s financially tenable.
BLS data reveals the average hourly rate business owners paid in employee benefits in December 2022. The results depend on the sector:
Based on a 35-hour work week, the average monthly cost of employee benefits is:
Plan out your annual costs using the average cost of employee benefits per year:
The ratio of benefits to salary is approximately 1:2, or a third. As an example, for every $10 you spend on employee benefits, you’ll spend $20 on salary, for a total of $30. But the averages differ slightly from this example, depending on your sector:
Whether you’re budgeting monthly, quarterly, or annually, your employer costs depend on the pricing structure of your preferred provider organization. Some common options are:
No two employee benefits programs are alike — the amount you’ll pay depends on numerous factors, including:
The most obvious driver of employee benefits cost is the size of your business. Larger companies may be able to negotiate better per-employee rates. But smaller businesses with fewer employees may access discounted plans through group policies or self-funded plans.
Trying to offer every possible benefit will come at a premium. However, if you consolidate a wide variety of benefits into a single flexible benefits account, you’ll save money and offer your employees more choices.
Build the potential for price increases into your annual budget as your benefits provider will factor inflation, rising healthcare costs, and other externalities into their fees.
Example: PwC projected a 6.5% growth in the cost of medical care spending in 2022. The company notes that the aftereffect of the pandemic has been a key inflator in driving prices up.
The process of setting up and maintaining an employee benefits program can involve some costly errors, including:
Does your organization’s location matter? It could. Bay Alarm Medical research finds that higher average employee benefits are associated with larger cities like San Francisco and New York. Higher-rate states include Arizona, which is home to eight Fortune 500 companies.
Employee benefits aren’t a set-it-and-forget-it situation. As your organization evolves, so will the needs of your workforce — and you’ll need to adjust their individual policies accordingly.
Example: John is a 25-year-old single man when he joins your company. Five years later, he’s married with a toddler and another baby on the way. His spouse and children are now included in his health insurance program, so you should budget for the family premium costs associated with John’s new plan.
Factor in exchange rate fees if you work with a non-domestic benefits provider or a distributed team with employees from many different countries. This can be tricky to budget for with fluctuating currencies — one month, you may pay more than expected, and the next, you could gain a little back.
Benefits providers may charge a one-time fee to cover setup and onboarding costs. It’s worth asking your provider whether they offer any discounts or promotions to keep these costs down.
If an employee’s benefits membership card is lost or stolen, some providers charge a replacement fee every time, which can add up quickly. Be aware of any such costs before signing a contract.
Some benefits are mandatory, but voluntary plans can support your employee retention and engagement goals. Consider a mix of the following:
Health insurance coverage typically takes up the lion’s share of the overall benefits budget. The average cost of health benefits per employee depends on the sector:
The precise cost of employee health coverage may depend on pre-existing health conditions, the annual deductible, and your contribution strategy — specifically, the percentage of contribution you offer to pay before your workers chip in. Health reimbursement arrangements and health savings accounts provide flexibility when offering coverage to employees and can bring down your overall spending.
In the event of an employee becoming injured or falling ill while doing their job, workers’ compensation insurance covers the related medical expenses and any lost wages.
Around 1% of an employee’s compensation package goes toward this insurance, but the exact cost depends on what the job entails and whether your company is in a high-risk industry.
Example: A construction worker who works at height would typically have a higher insurance premium than an office worker at a tech company or law firm.
Disability coverage will pay the annual salary of an employee who can no longer work due to an injury, accident, or non-work-related illness. The cost of providing this reassuring coverage is exceptionally low for companies. Short-term and long-term disability makes up no more than an average of 0.3% of the total compensation package for workers across all sectors.
Surprisingly, a recent U.S. Bureau of Labor Statistics report finds that only 35% of private industry workers have access to long-term disability insurance. This percentage extends to 43% for short-term cover. Adding this critical healthcare policy to your benefits package could be a game-changer for talent acquisition and employee retention strategies.
Life insurance benefits are an essential form of financial security for your employees. This common type of cover provides a lump sum payment to the surviving family members of an employee who passes away.
Much like access to disability insurance, a life policy costs around four to eight cents for every hour worked, amounting to just 0.1% of the total compensation cost.
This type of employee benefit allows your staff to purchase company stock with employee discount rates. Startups might offer incredibly generous stock options at around 10% of the market value, which can be a huge incentive for talented employees.
In other situations, employers may match a percentage of the stocks purchased by their staff, making it an attractive option.
Federal Insurance Contributions Act (FICA) contributions are taxes that pay for Social Security and Medicare services. Mandatory employer and employee contributions are 7.65% of the salary, for a total FICA contribution of 15.3%.
According to the Federal Unemployment Tax Act (FUTA), employers must contribute towards an employee’s unemployment insurance. This pays out if they are laid off or become unemployed through no fault of their own.
The cost of FUTA and the criteria will vary depending on the state, but BLS data suggests that the price is around 0.1 to 0.4% of an employee’s total compensation.
The benefits listed above are staples your employees can’t do without. But additional benefits can differentiate your offering and win hearts and minds. Some options include:
These perks are a chance to get truly creative and respond to what your employees want, need, and expect from their employer. The cost of offering voluntary benefits will vary significantly, so it’s up to you to take it from here and research the most suitable rewards for your employees. Check out our resource on the most important benefits to employees for more ideas that are top of mind for employees in 2024.
Naturally, when pricing up your total benefits spend, you’ll want to get the most bang for your buck. Whether your goal is to save money on the overall cost of benefits or to maximize what your employees receive, follow these nine tips to stretch those dollars further.
Few companies can offer all the benefits, as nice as that would be. Instead, employers must focus on selecting perks and stipends that provide the most value to their employee demographic. Maximizing value boils down to understanding why you’re offering benefits in the first place — what will they bring to your business plans? Some popular reasons include retaining employees, improving job satisfaction, and providing rewards that support employees with work-life balance so they can bring their whole selves to work.
"Cost is important; we want those dollars in the field, we need them in our growth, we need them to support those that are supporting our clients."
Learn what your employees want, not by guessing, but by asking them. Employee surveys are one way to understand the sentiment around benefits, but Liam Liu, Co-Founder and CMO of ParcelPanel, prefers to use focus groups to learn about employee preferences. He told us:
“Through focus groups, we’ve established that benefits prioritizing work-life balance are the most important to our employees. We also consider the budget available and any compromises employees will make when deciding between different options.”
When selecting your insurance company or benefits provider, ensure you understand the package fees. Ask upfront about fees associated with support, exchange rates, or any other costs that could come up.
A good provider should be transparent and make all fees known before you commit to any contracts, as well as provide discounts or promotions.
Example: Benepass doesn’t charge any foreign exchange, support, or replacement card fees, making budgeting a cinch.
Creating the perfect blend of benefits to satisfy your employees is an arduous task, and this becomes even more complex in larger organizations. HR Works podcast host Josh Zygmont believes that personalization is one of the key trends in the benefits space, allowing a company’s offering to evolve in response to employee needs. He explains:
"It’s the trend we've seen across the board; you get into your car, and everything’s set to your personal settings from the moment you go. The same could be said for benefits programs."
“Our employees are the ones we’re lining up these benefits for! Instead of a blanket benefits program, go the extra mile to personalize specific options so that each employee is allowed that one benefit they’ve been looking forward to.”
Offer personalization without sacrificing budget by choosing a lifestyle spending account with customizable benefits. You’ll empower your employees to make decisions about which benefits are the right fit for themselves and their families.
Benchmarking is the process of comparing your employee benefits program with similar programs at other organizations in your industry. You’ll measure your program against the competition’s to determine if you’re wasting money on benefits other companies aren’t providing and don’t deliver the ROI you want. For a comprehensive picture, compare against local and national averages or even global benefits if you’re a remote-first company.
Benchmarking is especially useful if you’re considering renewing or changing your benefits provider, enabling you to negotiate a better price and ensure your program is competitive.
The cost of the benefits themselves doesn’t represent the finish line of employer spending. Consider the time it takes your HR team to deploy the benefits and manage any changes throughout the cycle, for example, when employees join or leave the company.
Get around this by selecting a benefits provider like Benepass that consolidates all your programs in a single platform, eliminating the administrative burden of dealing with multiple providers.
Your employees won’t use all their benefits to the max. Whether they forget, aren’t interested, or don’t understand what’s available, dollars will always be left on the table. Some benefits providers will pocket the difference, but others, like Benepass, offer employee forfeiture. With Benepass, you can set expiration dates for benefit funds and recoup any unspent money.
Example: If you offer your employees a $100 food and beverage allowance but they only spend $75, the money isn’t lost. Instead, your company will receive the $25 back to put toward other benefits.
Many companies use a handful of point solutions to administer their benefits — one provider might help you administer wellness benefits while another administers a food program. The more point solutions you have, the more fees you’ll rack up as well. Consider opting for a vendor that allows you to consolidate your programs in one platform, reducing costs and improving the employee experience along the way.
Example: Benepass empowers companies to consolidate all their benefits programs — both perks and pre-tax — in one platform. The cost of adding new programs is cheaper than bringing on another point solution. You can also cover a wider range of expenses in a single account by opting for a lifestyle spending account.
Some of the costs related to your employees’ benefits are tax-deductible. When selecting your provider, understand which products are tax-advantaged and how to capture these deductions.
Example: You may need to supply documentation for some benefits as evidence to support non-taxability. In case of an audit, Benepass simplifies this by providing automated spending data from employee card transactions and receipts to validate eligible spending.
Here’s the stinger: Your benefits packages will need adjusting every year in time for open enrollment, which usually happens in the fall.
Your employee needs change, along with industry trends, so you must keep your benefits packages up-to-date with the latest rewards. Typically, you can expect an annual premium adjustment which is an excellent opportunity to check in and review whether your current benefits offerings are still relevant and performing in line with your expectations.
Benepass supports companies in distributing meaningful employee benefits that support their workforce’s personal and professional well-being. But we’re not about breaking the bank.
Our flexible benefits accounts enable your HR teams and employees to stay in control of budgeting and allowances with real-time insights into how your workers use their benefits.