Cost of Employee Benefits to Employer
When you think about your salary, you probably first think about how much money you make per year, per hour, or how much you get each paycheck.
While your salary is important, you may be overlooking a substantial part of your compensation—your employer provided benefits.
The Bureau of Labor Statistics reports that annual salary makes up about 68% of the value of the average worker’s total compensation. The remaining 32% comes from the cost of employee benefits to the employer. That’s one-third of the total value of your compensation coming from non-salary sources.
This statistic is particularly important if you are starting to think about going freelance or starting your own company. You may have a plan to match your current salary while being your own boss, but are you ready to take on the cost of a wide range of employee benefits that an employer would usually cover?
At Empire Resume, we wanted to take some time to review and appreciate the employee benefits many employers provide at no or low cost to their employees.
Considering the Value of Employee Benefits
Here’s a list of some of the more common workplace benefits and the cost of employee benefits to the average employer:
1. Medical Insurance
After your actual salary, medical insurance is likely the most important benefit you receive from your employer. Depending on your employer and the type of plan you have, the value of your medical insurance could be anywhere from $5,000 to $30,0000.
To put that wide range into to context, the Milliman Medical Index (MMI) reports that in 2019, the cost of healthcare for an average family of 4 was just under $29,000. The average employee medical insurance plan picked up 59% of that cost, or $17,110.
The same report says that a single person would incur healthcare costs of about $6,350 in a typical year. Of that, the employer would pick up $3,775.
The rest of the cost in both scenarios would be covered by the employee through payroll deductions and any co-pays. Of course, some employers may subsidize more or less of the company-sponsored medical insurance plan.
It’s easy to take employer-sponsored health coverage for granted since most companies do offer it. But employee-sponsored medical insurance plan represents a significant financial value that shouldn’t be dismissed.
2. Health Savings Accounts (HSA)
HSA are widely misunderstood, but they can actually be quite valuable if used correctly. HSA are typically offered by employers when they also offer high deductible health plans.
With a high deductible plan, the medical coverage itself is less expensive, but you must meet a large deductible ($5,000 to 10,000) before the insurance kicks in. Please note that if you’re someone whose family has high medical bills each year, then this may not make sense for you.
However, if you can opt for the high deductible plan, your employer will also set up a health savings account for you that you can contribute pre-tax dollars to. On top of your contributions, your employer will add $500 to $1500 to the account (that’s free money).
The purpose of the HSA is to help offset some of those out-of-pocket medical expenses that may come up. You can submit receipts for medical or dental expenses and get reimbursed from the account.
Here’s where most people misunderstand the HSA. Many people think it’s a “use it or lose it” type of plan. That is not true. The money that is in the HSA is yours to keep if you don’t use it withing a certain year, you choose a different healthcare plan in subsequent years, or even if you leave your current employer.
If you wanted, you could continue to allow the account value to grow through contributions and interest. Then, you could submit 10 years’ worth of qualifying medical and dental bills at once and get a lump sum back tax free. You can even leave the money untouched and use it for healthcare expenses in retirement.
3. Retirement Plan
Without employee-sponsored retirement plans like a 401(k), many workers wouldn’t have any retirement plans in place. Not only does an employer sponsored plan make it easy to save through payroll deductions, but most employers match your contributions up to a certain percentage of your salary. That means, if you’re not contributing to your company’s 401(k), then you’re leaving money on the table.
Here’s an example: Let’s say a 40-year-old employee earns $60,000 a year and plans to retire at age 65. If that person earns a 6% annual return on their 401(k) contributions and has a 3% employer match, they will see an additional $104,000 in their account just from the matching contributions after 25 years.
4. Dental Insurance
You may not relish going to the dentist, but if you need a cavity filled or a root canal, you’ll be grateful to have dental insurance to cover some of those costs.
An average dental plan costs your employer $1,500 to $5,000 per year. This will pay for at least 50% to 75% of most procedures and pay for 2 preventative visits in full per year for each family member.
Some plans also include coverage for orthodontics, which is important if you have kids that may need costly braces.
5. Disability Insurance
Disability insurance could also be called paycheck insurance. If you can’t work due to a non-related illness or injury, then disability insurance kicks in to ensure that you continue to get 60% to 70% of your paycheck.
Your employer subsidizes this coverage to the tune of $2,000 to $4,000 per year, which makes this important coverage relatively inexpensive for you—usually just a few dollars per paycheck.
6. Life Insurance
Many employers offer life insurance coverage equal to your salary at no cost to you. This coverage costs employers about $200 to $500 per employee.
Often, you can elect higher amounts of coverage for a low additional cost. Whether you opt for additional coverage or not, you’ll only be covered by your group life insurance if you’re an employee of your company, so it may not fit all of your life insurance needs. But it’s definitely a “nice to have” if you can’t afford your own policy just yet.
7. Employer Contributions to Social Security
We all pay into the Social Security and Medicare system with each paycheck. These programs are designed to guarantee each of us some level of income and healthcare upon retirement.
What you may not realize is that employers also pay into that system. Your employer is required by law to contribute 7.65% of your salary (the same amount you pay through payroll deductions). So, while you are enjoying Social Security and Medicare benefits in retirement, know that your employer had a role in making it possible for you and other retirees to have those benefits in place.
8. Employee Stock Purchase Plan (ESPP)
If your employer offers an employee stock purchase plan, you’ll be able to purchase company stock through payroll deductions at an up to 15% discount.
Over time, those discounts can add up and you may see a higher return on your investment when it’s time to sell. However, remember that when you do sell, any profits will be taxed as income.
9. Student Loan Repayment Benefits
This is becoming an increasingly popular benefit, especially with the rise in student debt over the past two decades. With this benefit, your employer will pay about $1,000 or $2,000 per year to help you repay any student loan debt you may have.
For example, if you have $10,000 in student debt and you’re paying 6.5% interest, your employer may pay $100 per month toward that debt. In that scenario, you’d pay off that debt 5 years sooner that if you were tackling it on your own. Plus, you’d save more than $2,000 in interest.
10. Other Cool Benefits
On top of everything we’ve just mentioned, an employer may offer a variety of other amazing benefits such as free or discounted legal aid, commuter reimbursement programs, on-site fitness centers, pet insurance, long-term care insurance, and a variety of health and wellness programs.
You may also get discounted tickets to sporting events, concerts, theme parks, or museums in your area just by being an employee of a certain company.
What’s Your Total Compensation?
If you’re interested in an estimate of the value of your employee benefits, then here’s a quick calculation. Add up the dollar value of the employee benefits you have, divide by your salary, then multiply that number by 100.
Here’s a conservative example. Let’s say that an employee who makes $50,000 per year has medical insurance that costs his employer $10,000 per year, dental insurance that’s $2,500 per year, and basic life insurance that’s $500 annually. Plus, their employer contributes $2,000 annually to their 401(k).
That equation is: $15,000 (in benefits) divided by $50,000 (annual salary) x 100 = 30%.
In this case the workers benefits are equal to 30% of their salary. Once you look at benefits in that light you can really start to appreciate them a lot more. There may be many advantages to being your own boss but missing out on a lot of these employer-paid benefits certainly isn’t one of them.
Maria Gold is a Content Manager/Writer for Empire Resume. She is dedicated to helping educate and motivate people with the latest career articles and job search advice. Her interests range from writing to programming and design. She is also passionate about innovation, entrepreneurship, and technology.