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The Role of Employee Benefits

As a part of total compensation, benefits contribute to attracting, retaining, and motivating employees. Different employees look for different types of benefits. Employers need to examine their benefits package regularly to see whether they meet the needs of today. Benefits packages are more complex than pay structures, so benefits are harder for employees to understand and appreciate. Employers need to communicate effectively so that the benefits succeed in motivating employees. Social Security contributions, pensions, and retirement savings plans help employees prepare for their retirement. Insurance plans help to protect employees from unexpected costs such as hospital bills. Some benefits, such as Social Security, are required by law. Other regulations establish requirements that benefits must meet to obtain the most favorable tax treatment. Even though many benefits are not required by law, they have become so common that today’s employees expect them. A large employer without benefits would be highly unusual and would have difficulty competing in the labor market. Benefits impose significant costs. On average, out of every dollar spent on compensation, more than 30 cents goes to benefits. An organization managing its labor costs must pay careful attention to the cost of its employee benefits. Why do organizations pay a growing share of compensation in the form of benefits? It would be simpler to pay all compensation in cash and let employees buy their own insurance and contribute to their own savings plans. That arrangement would also give employees greater control over what their compensation buys.