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Employee benefits 101: An incomplete guide to get started

August 12, 2021 - 18 min read



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What are employee benefits?

Why are employee benefits important?

What is an employee benefits program?

What are the main types of employee benefits?

10 employee benefits examples

8 things to consider when choosing benefits 

Choosing employee benefits is an important decision

Health insurance, wellness programs, and flexible schedules. These are just some of the benefits today’s top candidates expect before joining a company. 

To stay competitive, companies need to make employee benefits a key component of their compensation package. 

As employee needs are evolving, building the right employee benefits program has never been more important. 

For a complete guide on employee benefits, including what you should consider before choosing them, look no further. 

What are employee benefits? 

The employee benefits definition is:

Any form of extra compensation that an employer offers on top of your base salary or wages. 

The right employee benefits can help motivate employees, keep them healthy, increase employee engagement, and attract new talent to join an organization. 

Some common employee benefits examples are health insurance, paid vacations, and retirement plans. 

In addition to the most commonly offered benefits, many employers also offer what’s known as fringe benefits (or perks). These include things like gym memberships, employee discounts, or childcare support. 

There are a handful of employee benefits that companies are legally required to provide, but most are discretionary. This means that employers don’t have to provide them. 

Yet, the majority of employers choose to include them anyway because employees value them. 

Why are employee benefits important?

reasons-why-employee-benefits-are-important-employee-benefits The best employee benefits have the power to enrich an employee’s mental fitness, physical fitness, and financial well-being. 

Here are six ways in which they can impact your employees and your organization’s success: 


1. Increases employee happiness 

If you want to improve the satisfaction and happiness of your employees, choosing the right benefits is key. 

A recent MetLife survey revealed that customized benefits that fit employee needs are among the top five drivers of happiness at work

2. Increases loyalty and reduces turnover

Benefits are a win-win for both employers and their teams. 

On average, organizations that have no employee benefits in place have a turnover rate of 157%. In contrast, those that offer multiple types of benefits saw a 138% reduction in turnover. 

3. Improves employee productivity and engagement

The pandemic has left many of us languishing. At work, this can look like procrastination, feeling disengaged, or unmotivated. Benefits can motivate employees, increase their productivity, and create a more engaged workforce. Some examples include flexible working hours and mental health assistance. 

4. Helps your company stay competitive 

Competition for talent is fierce. While interviewing for a role, 55% of professionals interview for two other positions at the same time. 

According to a 2019 Employee Happiness Index, offering a quality employee benefits program is important if you want to stay competitive and attract the top talent in the market. 

The most qualified employees will likely gravitate toward companies that offer the best benefits.

5. Prevents burnout and absenteeism 

Leaders can reduce burnout and prevent absenteeism by offering benefits that support their teams. This includes wellness programs, days off, and childcare assistance. 

Taking care of your health and taking time off can help treat and prevent burnout. 

6. Compensates and incentivizes employees 

Financial compensation isn’t the only thing that motivates employees. Benefits like employee discounts or extra time off can also be used to reward and incentivize your team. 

Some companies use salary-packaging as a cost-effective way to compensate their employees. 

This strategy is when employers offer valuable benefits to employees in exchange for a reduced salary. 

What is an employee benefits program?

An employee benefits program encompasses all the benefits a company offers its employees. The program has two main components: 

  1. Mandatory benefits required by the federal government. These include:
  • Medicare and Social Security
  • Workers’ compensation insurance 
  • Unemployment insurance 
  • Healthcare coverage 
  • Federal Family Medical Leave Act (FMLA) 
  1. Optional benefits that the employer chooses. On top of the benefits they’re legally required to offer, employers often also offer additional ones.

These additional benefits can include paid time off (PTO), unlimited PTO, or additional medical coverage.

The cost of setting up an employee benefits program isn’t cheap, especially for small businesses. The US Bureau of Labor Statistics reports that in 2021, benefits cost employers $12.18 per hour on average. In the long run, however, the benefits of having one greatly outweigh the costs. 

One way companies can significantly reduce the cost of their employee benefits package is by cost-sharing

In a cost-sharing plan, employers pay a part of the cost, and the rest of it comes out of the employee’s paycheck. 

Small businesses need to find the right balance between an affordable yet attractive benefits program. A successful benefits program meets employees’ needs and the company’s values. 

What are the main types of employee benefits? 

Here are the main types of employee benefits that organizations typically offer: 


Insurance plans

Insurance plans are at the core of any solid employee benefits program. Some are mandatory, while others are seen as a basic requirement. These include:

  • Health insurance
  • Dental and vision insurance
  • Life insurance
  • Disability and critical illness 
  • Health Spending Account (HSA)
  • Flexible Spending Account (FSA) 

Offering these types of benefits to employees (and their families) shows that you care about their health and well-being and that of their loved ones. 

Retirement plans 

Competitive employee-sponsored retirement plans can attract and keep the right candidates. Especially if you’re able to offer them matching contributions. 

Commonly offered plans like 401(k)s and IRAs offer tax benefits for employers and employees alike. 

Paid time off (PTO)

Paid time off is essential for the work-life balance and well-being of employees. Even though it’s not legally mandatory in the US, the majority of employers offer some sort of PTO benefits. The main ones are:

Incentive plans 

Incentive plans like bonuses and employee performance rewards are forms of extrinsic motivation. When used correctly, they motivate employees to put their best work forward and increase job satisfaction.


10 employee benefits examples 

According to recent trends and statistics, these are the most common and sought-after employee benefits: 


1. Paid vacation

According to SHRM, 98% of employers include paid vacation in their employee benefits program. To stay competitive, every company needs to offer some form of paid time off. 

Paid vacation should especially be on the list of employee benefits for small businesses. It’s a budget-friendly way to attract, retain, and compensate employees. 

2. Health care plans 

The 2021 MetLife survey revealed that 95% of employees prioritize health insurance over other benefits. Respondents also rated dental, vision, and life insurance as some of the most important benefits employers can offer. 

Health benefits will always be high on the list of priorities for employees. To meet their needs, it should also be a priority on your list of benefits. 

3. Wellness and mental health assistance

The COVID-19 pandemic brought to light just how important our wellness and mental fitness are in and outside the workplace. Out of all employees surveyed by MetLife in 2019, 68% believe employers have a responsibility for their health and well-being.

In response to this need, as of 2020, more businesses have started implementing workplace wellness benefits. These include access to free mental health services and subsidized gym memberships.

4. Retirement plans

Offering a solid retirement plan is a great way to retain and compensate any employee. That’s why 93% of employers offer a traditional 401(k) plan or something similar. 

5. Flexible work schedules

Work-from-home options and flexible schedules are more desirable than ever before. 

Companies that are rated highly on flexible work arrangements saw a 137% increase in talent acquisition. Post-pandemic, employers plan to offer more flexibility to attract and retain employees. 

6. Tuition assistance 

Debt repayment and tuition help are becoming popular benefits among employers. Companies that want to stay competitive need to consider offering some sort of tuition assistance program. 

Considering the cost of higher education in the US, this benefit is very attractive to recent graduates. 

7. Skills development

People want to keep learning and developing their skills. Investing in your employees’ professional growth will make them more inclined to invest back in you. 

Coaching, mentoring, and workshops are just some examples of skill development benefits you can offer. 

8. Caregiving support 

The pandemic made it clear that many adults are struggling with child and eldercare while working full-time jobs. 

Offering caregiving support or parental leave is becoming a very popular employee benefit. 

9. Financial wellness education

Financial wellness is an important piece of the puzzle for employees’ overall well-being. Consider offering perks like financial literacy sessions or free portfolio reviews.

10. Employee discounts and perks

Discounts and work perks are becoming increasingly popular with the younger workforce. 

And they’re another cost-efficient way to attract candidates without breaking your budget. Some of these perks include free food, coffee, access to health clubs, and activities.


8 things to consider when choosing benefits 

Before putting together your employee benefit plan, here are a few important things to keep in mind: 


1. Legal requirements

Make sure you’re well-versed in the legal requirements and implications of each benefit you choose. For example, once you reach 50 employees, you’re legally required to offer health insurance benefits

2. Common mistakes 

Making mistakes can be costly and cause a lot of unnecessary hassle. 

Some common errors include not enrolling employees in benefit plans on time or purchasing the wrong kind of insurance plan. 

3. Employee needs 

You should always consider employees’ needs and wants before choosing benefits. Taking a survey or having one-on-one conversations can help you find out what benefits they value. 

4. Costs

Since employee benefit programs can be costly, you need to create a budget and figure out what you can afford. Choosing benefits without considering cost is pointless if you can’t afford to pay for them. You can use this guide to help evaluate the cost of benefits

5. Benchmarking 

Benchmark against your competitors to make sure you’re staying competitive. For example, are your competitors offering a better 401(k) match than you?

6. Trends 

Like we mentioned before, benefits are constantly adapting to employees’ changing needs. Wellness trends like virtual fitness and breathwork, for example, have become increasingly popular since the start of the Covid-19 pandemic. 

Before choosing yours, it’s important to do your research and choose benefits that attract employees and make you stand out. 

7. Flexibility 

Flexible plans that can be tailored to the individual needs of each employee are better than one-tier packages. How flexible can yours be? 

8. Insurance provider 

Insurance plans can become a big part of your total benefits package. Choosing a reputable insurance provider is something you must carefully consider. 


Choosing employee benefits is an important decision 

There’s no one-size-fits-all when it comes to employee benefits. Every company is different, and employee needs are diverse. 

But you can find the right benefits for your company that fit within your budget. Consider which extra benefits will be most valued by your employees and make them part of your total compensation package. 

Taking the time to choose the right benefits leads to a happier team and keeps your organization competitive. 

At BetterUp, we can help you build personal development and career development benefit options for your team. 

Request a demo to find out more.

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Published August 12, 2021

Maggie Wooll

Managing Editor

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