When thinking about employee benefits, it’s important not to forget about other expenses that employers may incur. These can include things like training costs, reimbursements for work-related expenses, and even perks such as company cars or travel allowances. While these may not fall under the traditional definition of benefits, they can still have a significant impact on an employee’s overall compensation package. In this article, we’ll take a closer look at some of these other employee expenses and what they mean for employers and employees alike.
Healthcare costs
Healthcare costs contribute to a significant part of employee expenses. Healthcare expenses incurred by employees are either paid for entirely by the employer or shared between the employer and employee. Healthcare costs can be broken down into two broad categories, which are insurance premiums and out-of-pocket costs.
Insurance premiums refer to the amount of money paid on a monthly or yearly basis to maintain health insurance coverage. The amount of premium paid will usually depend on the type of health insurance offered by the employer. In some cases, the employer will cover the full cost of health insurance premiums for their employees, while in other cases, the cost may be shared between the employer and employee. If the employee pays a portion of the premium, the cost will be deducted from their paycheck either on a pre-tax or post-tax basis.
Out-of-pocket costs refer to the expenses incurred by employees when they need healthcare services. This includes deductibles, co-payments, and coinsurance. Deductibles are the amount that an employee must pay before their insurance coverage kicks in. Co-payments are fixed amounts paid by the employee for each healthcare visit, while coinsurance is the percentage of the cost of care that the employee must pay. In most cases, out-of-pocket costs will vary based on the type of healthcare service the employee requires. For instance, a visit to the emergency room may attract higher copayments, deductibles and coinsurance than a visit to the primary care physician.
Employers may offer different types of health insurance plans, and each plan may have different costs and levels of coverage. Some of the common types of health insurance plans offered by employers include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and High Deductible Health Plans (HDHPs). The HMO plan usually has lower monthly premiums but greater restriction in selecting providers. PPOs allow employees to select a wider range of healthcare providers but at a higher cost than HMOs. HDHPs typically have lower monthly premiums, but high deductibles and out-of-pocket expenses, and also come with a Health Savings Account (HSA).
The cost of healthcare services has been on the increase in recent times, hence the need for employees to take proactive measures to manage their healthcare expenses. One such way is by taking advantage of health savings and flexible spending accounts. Health savings accounts (HSAs) are personal savings accounts that allow employees to set aside tax-free funds for paying their out-of-pocket healthcare expenses. The money contributed to the HSA account is not subject to tax as long as it is used for medical expenses. Flexible spending accounts (FSAs) are another way for employees to pay for their healthcare expenses with tax-free dollars. The money contributed to the FSA account can be used to pay for deductibles, co-payments, and other out-of-pocket expenses.
Retirement Benefits
Retirement benefits are employer-provided benefits that help employees prepare for retirement. This typically includes a form of savings plan, often a 401(k), that allows employees to make contributions towards their retirement that are either tax-free or tax-deferred. Employers often match employee contributions up to a certain percentage, providing additional savings over time. Additionally, some employers may offer pension plans, which provide annuity payments to employees after retirement based on a predetermined formula.
Retirement benefits are an important offering for employers to attract and retain employees. Many workers consider retirement benefits to be a key factor in their decision to accept a job offer or to remain with an organization. By providing these benefits, employers can help their employees save for the future and provide them with an increased sense of financial security.
One way to make the most out of retirement benefits is to invest early and consistently. This can help maximize the power of compound interest, which can greatly increase an employee’s overall savings. Additionally, employees should review and understand their retirement plan’s investment options and fees. By doing so, they can make informed decisions about their contributions and ensure that their investments align with their long-term financial goals.
Employers may also offer additional retirement benefits, such as retiree healthcare or life insurance. Retiree healthcare provides health coverage to retired employees, while retiree life insurance provides a death benefit to the employee’s beneficiaries after their passing. These benefits can be valuable for employees who may face increased healthcare costs or those who want to provide for their loved ones after they are gone.
For employers, retirement benefits can be costly. In addition to the cost of providing benefits, employers also incur administrative costs to manage retirement plans. This can include the cost of hiring third-party administrators or advisors to manage the plan, as well as legal and regulatory compliance expenses.
Despite the cost, retirement benefits are a valuable offering for employees and can help employers attract and retain top talent. By providing a competitive retirement package, employers can demonstrate their commitment to their employees’ financial well-being and create a more loyal and engaged workforce.
Disability Insurance
Disability insurance is one of the most important employee benefits that offer financial support when an employee is unable to work due to a disability. In simple terms, disability insurance is a type of insurance that provides a portion of an employee’s salary when they are unable to work due to a disability. This type of employee expense is typically paid for by the employer to ensure that their employees have adequate financial support in case of an accident or illness. Disability insurance is sometimes also referred to as income protection insurance or disability income insurance.
There are two types of disability insurance: short-term disability insurance and long-term disability insurance. Short-term disability insurance typically provides coverage for a period of up to six months, while long-term disability insurance can provide coverage for an indefinite period of time, depending on the severity of the disability. The coverage typically provides a percentage of the employee’s regular salary, such as 60% or 80% of their pre-disability income.
The cost of disability insurance varies depending on several factors such as the type of coverage, the size of the company, and the location of the employer. The typical cost of disability insurance for a small business is between $20 to $50 per employee per month, while larger businesses may pay less per employee. Generally, employers purchase disability insurance as a group policy, which means that the cost is spread among all participating employees. Employers can choose to pay the entire premium or have employees contribute a portion of the cost.
The process of filing for disability insurance is typically straightforward. An employee who suffers from a disability would need to provide a doctor’s note or other medical documentation to prove that they are unable to work. Once the insurer receives the documentation, they will process the claim and begin paying out any benefits owed to the employee. Most disability insurance policies have a waiting period before benefits are paid, which could be between 30 and 90 days. This waiting period allows the insurer to verify the claim.
Disability insurance is a critical type of employee expense that provides peace of mind for both employers and employees. Employers can provide financial support to their employees without incurring significant cost, while employees can rest assured that they have income protection in case of a disability. Employers who do not offer disability insurance may find it difficult to attract and retain top talent, especially if their competitors are offering this benefit. Ultimately, disability insurance is an important investment that can protect both employers and employees.
Life Insurance
In order to attract the best employee talent, employers often offer life insurance policies as an additional benefit. Life insurance policies can help employees provide for their families if they were to pass away unexpectedly. There are a few different types of life insurance policies that an employer may offer:
- Term life insurance: This is the most common type of life insurance offered by employers. Term life insurance policies provide coverage for a set period of time, typically 10-30 years. If an employee passes away during the coverage period, their beneficiary will receive a lump sum payment.
- Whole life insurance: This type of insurance provides coverage for an employee’s entire life, as long as they continue to pay their premiums. Whole life insurance policies also have a savings component, so employees can accrue cash value over time.
- Universal life insurance: Similar to whole life insurance, universal life insurance provides coverage for an employee’s entire life. However, the premiums and death benefit can be adjusted over time. This type of policy also has a cash value component.
- Group life insurance: This type of policy provides coverage to a group of employees, rather than just one individual. Group life insurance policies are often less expensive than individual policies, and they may be offered at no cost to the employee.
When choosing a life insurance policy, employees should consider their personal financial situation, as well as their age, health, and family situation. Employers may offer a range of options to choose from, so it’s important for employees to review the details of each policy and select the one that best meets their needs.
Life insurance policies may also provide additional benefits beyond just a death benefit. For example, some policies may include accidental death and dismemberment coverage, which provides a payout if an employee is killed or loses a limb in an accident. Other policies may offer long-term care coverage or disability benefits if an employee becomes unable to work due to an illness or injury.
It’s important to note that the life insurance policies offered by employers may have limitations or exclusions. For example, a policy may not provide coverage for deaths related to suicide, or it may have a waiting period before coverage kicks in. Employees should review the terms of their policy carefully to understand any restrictions or limitations.
In summary, life insurance is an important benefit that can provide financial security for an employee’s loved ones in the event of their untimely death. Employers may offer a range of policy options to choose from, so it’s important for employees to review the details of each policy and select the one that best meets their needs.
Commuting expenses
Commuting expenses refer to the costs that an employee incurs by traveling to and from their workplace. The expenses can be significant, especially if the worker lives far away from their place of work. There are different modes of transportation, including driving, public transportation, and cycling, among others.
If the employee uses their own vehicle for commuting, they may be eligible for reimbursement from their employer. The amount of reimbursement varies depending on the company’s policies and their location. For instance, some employers may offer a flat rate per mile driven, while others may pay for the total cost of gas used. However, not all employers offer a reimbursement program, and not all employees who use their own vehicle for commuting are eligible for reimbursement.
Some companies provide shuttle services to employees who live far away from the company’s premises. This option can help reduce commuting costs for workers who would have otherwise spent a considerable amount of money on transportation. Additionally, some employers may allow their workers to work remotely. This option means that the employee does not have to travel to their workplace and, therefore, saves on commuting expenses.
Public transportation is also a common mode of commuting. Employees who use public transportation may incur costs such as bus fare, train tickets, and parking fees. Some employers may offer discounts on public transportation passes, which can significantly lower the cost of commuting for the employee. Additionally, employees who use public transportation to commute are eligible to receive a tax deduction on their income tax returns.
Cycling is an excellent alternative to other modes of commuting, and it is also cheaper. However, cycling may not be suitable for all employees, especially those who live a significant distance from their place of work. Additionally, cycling may not be practical in adverse weather conditions. Some employers may provide bicycle storage areas or offer incentives for employees who cycle to work, such as discounted gym memberships.
In conclusion, commuting expenses can be significant, especially for employees who live far away from their place of work. However, there are options available to employees to help mitigate these costs, such as reimbursement programs, shuttle services, and working remotely. Public transportation and cycling are also viable alternatives to reduce commuting expenses. Employers should consider offering incentives to employees who choose these alternatives as part of their employee engagement strategy.
