19 Sep Will Offering More Employee Benefits Save Money?
We all know that the cost of employee benefits is increasing. A “cafeteria plan” is one way to rein in those costs. Through this plan, employees can select from an array of benefits, a “cafeteria” offered by your company.
Example: Suppose you are prepared to offer five optional benefits. That is, benefits not required by Social Security or other laws and in addition to vacation. Let’s assume those benefits are:
- Five paid holidays per year.
- Five paid personal days per year.
- Bonuses for extra effort, such as high sales or signing up new customers.
- Company contributions toward a life insurance policy for the employee.
- Company contributions toward a health insurance policy for the employee and his or her family.
This is your “cafeteria” of benefits. But instead of providing all five benefits, explain to your employees that they may select any four of the five. In effect, you’re allowing them to choose their own fringe benefits. And, you’ll realize substantial savings in the process.
The list of benefits in our example is typical of what employers have traditionally offered their workers.
But many employers today are investing in “new-wave” benefits such as daycare assistance, wellness programs and flexible work schedules.
The cost is substantial. But also substantial is the cost of not providing them, in terms of higher turnover rate among your workers, absenteeism, tardiness and work time spent contacting babysitters and making other personal calls.
A bank in California initiated one of the new-wave benefits, a day-care center for employee’s children. After a year, turnover rate among workers who had used the bank’s daycare center stood at less than one-quarter the rate of workers who had used other daycare centers, and one-eighth the turnover rate of employees as a whole.
Also, users of the daycare center were absent an average of 1.7 days less than the control group, and their maternity leaves were 1.2 weeks shorter. Daycare centers are certainly not a wise investment for all employers, but a creative benefits package is.
Cafeteria plans, which are set up for the purpose of allowing employees to use non-taxed dollars to pay for the benefits, cannot include certain benefits in the non-taxed package. For example:
- Long-term care insurance;
- Educational assistance plan benefits;
- Scholarships and fellowships;
- Medical savings accounts;
- Certain non-taxable fringe benefits such as no-additional-cost services, qualified employee discounts, working condition fringe benefits, qualified transportation fringe benefits, and de minimis fringe benefits;
- Deferred compensation other than under a 401 (k) plan.
If these benefits are included in a cafeteria plan, they are taxable.
Creative Perks Can Work for Your Organization
Be aware of the benefits that employers of comparable size are offering, as well as benefits offered by your competitors. Your employees are likely to know what benefits others are offering. You should, too.
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