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The 6 types of employee benefits: How to go beyond the minimum

August 2, 2021 - 22 min read


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What are employee benefits?

Why are employee benefits important?

6 different types of employee benefits and incentives

Should you offer all 6 types of employee benefits?

Compensation packages are becoming increasingly more complex.

Gone are the days where an employer paid you an hourly wage or salary for 40 years then continued to support your pension when you retire.

Now, employee contracts are made up of a variety of benefits. Some are required by law, such as paid time off (PTO). Some are not required but expected. And others are just nice to have.

If you’re in the process of negotiating a new role or are responsible for the benefits of the employees in your company, then it’s a good idea to be familiar with the wide variety of employee benefit packages out there.

Let’s take a look at the six main types of employee benefits you should know about, and some examples of what they might look like.

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What are employee benefits?

We all understand the basic employee-employer contract: in return for their hours spent in the office or on the job, employees are paid a wage or salary. But that’s not all that makes up an individual’s remuneration (pay) package.

When a business owner, hiring manager, or HR representative sends a job offer to a potential employee, this offer will include a proposed salary as well as an employee benefits package.

Employee benefits are offered to employees over and above what they are receiving as a salary. Additional benefits beyond insurance and retirement are often colloquially described as perks.

Examples of benefits within a package may include:

  • Medical insurance 
  • Dental and vision coverage
  • Profit-sharing
  • Stock options
  • Retirement benefits
  • Wellness benefits such as reimbursement for gym memberships or race registrations, weight loss programs, and smoking cessation
  • Educational incentives such as programs to help cover employees’ college debt and tuition for postsecondary education in fields of study related to their current jobs
  • Continuous learning stipends
  • Well-being benefits such as access to coaching, or meditation and fitness apps 
  • Volunteer opportunities, support for volunteering, and matching of donations
  • Flexible spending accounts (FSAs)
  • Flexible work arrangements (increasingly important with the shift to remote work/hybrid models)

From the jobseeker’s perspective, evaluating different job offers means comparing not only the initial base pay and bonus structure, but monetary compensation and benefits as a whole. Employee benefits are often found in your organization's employee handbook

male doctor giving his patient advice - cost of benefits

Why are employee benefits important?

Offering a comprehensive employee benefits package has several advantages for small businesses and large corporations alike. 

First, it shows that you recognize that employees have needs beyond the workplace and that you’re invested in employees’ overall health and well-being. An example of programs highlighting employee wellness include Peleton’s corporate wellness initiative.

Second, it can help you to differentiate yourself from competitors in the hiring market. This allows you to attract talent by offering more annual sick days than other similar businesses, or unrestricted time off, an educational stipend, or covering 100% of health insurance costs. The types of benefits offered as well as the details of each can send a message about what the company values and how in touch it is with the workforce. Are the benefits the bare minimum? Are they serviceable or compelling?

Third, employee benefits can help with employee retention, which is more important now than ever before given the rate at which people are quitting jobs post-pandemic.

Employee assistance programs that focus on mental health assist employees through challenging times. They can even give career change guidance and counseling to ensure employees find the best fit within your organization.

According to the Society for Human Resources Management (SHRM) 2018 employee benefits survey, 92% of employees consider benefits an important contributor to their overall job satisfaction.  And a third consider their current benefits to be the main reason they plan to search for a new opportunity in the next year.

The survey found that benefits packages that include more than financial compensation are more likely to provide companies with a competitive edge.

6 different types of employee benefits and incentives

Some types of employee benefits may be expected in your industry or even required by law. Others are benefit types you can use to differentiate yourself and attract higher-quality candidates.

The various kinds of employee benefits packages fall into six main categories:

  1. Benefits that are required by law
  2. Medical insurance
  3. Life insurance
  4. Retirement plans
  5. Disability insurance
  6. Fringe benefits

Let’s list the different types of employee benefits and discuss each in detail.

1. Benefits that are required by law

When putting together a package, the first thing you’ll want to make sure to include is the plans you’re required to offer by law.

Bear in mind that employment laws differ by country and state. Here, we’re going to outline the specific federal requirements in the US.

All companies operating in the US are required to offer these benefits:

  • Workers' compensation insurance: This covers the costs of medical care, rehabilitation costs, replacement income, etc., for those who become ill or injured as a result of their job
  • Social Security and Medicare contributions
  • Minimum wage requirements and overtime pay
  • Unemployment insurance: This provides partial replacement of income for a short period of time if your employee involuntarily loses their job with you
  • Disability insurance (in some states)

In addition, employers with 50 or more full-time employees must provide:

2. Medical insurance

Medical insurance is one of the most common employee benefits. However, there’s really no general standard of medical insurance.

This is because the specifications of insurance policies differ from provider to provider. In addition, medical insurance is somewhat of a general umbrella term that covers a few specific policy types:

  • Healthcare insurance
  • Vision insurance
  • Dental insurance

Let’s look at a general description of these types of insurance benefits. Bear in mind that the details will depend largely on your insurance provider.

Healthcare insurance

Healthcare insurance plans cover general health issues. Here are a few examples:

  • Hospital accommodation
  • Yearly physicals
  • Emergency ambulance fees
  • Resetting and casting a broken leg
  • Prescriptions
  • Doctor’s fees
  • Laboratory services
  • Treating an ear infection
  • Pregnancy and maternity care
  • Antibiotics for strep throat

Prescription coverage can vary and is an important consideration for employees of all ages. They will want to know whether coverage extends to their preferred prescriptions and delivery methods that fit their lifestyle.

Many healthcare plans exclude vision and dental, which is why these are often considered separate policies. Dental and vision are typically considered optional premiums and are generally on top of standard plans.

Vision insurance

Vision insurance is an insurance policy that covers medical expenses relating to eyesight. This might include:

  • The cost of annual eye tests
  • Contributions toward new glasses or contact lenses
  • Medically necessary surgery (often, surgery such as LASIK is considered elective and therefore not covered)

Employees likely want to know how broad glasses and lens coverage is and whether it extends to frames from vendors they find stylish or lens providers that are convenient and fit their lifestyle.

Dental insurance

Dental insurance is a pretty easy one to grasp; it covers dental costs. There are three categories of dental insurance which are covered by employers differently. Plans typically cover 100% of preventative dental costs but only half of basic services and major procedures such as dental surgery.

Examples of costs that dental insurance generally covers are:

  • Preventative care like routine exams
  • Braces and retainers (most likely to be covered if the equipment is deemed necessary for proper mouth functioning)
  • Tooth extraction
  • Treatment of gum disease

In addition, employers can also opt to provide a health spending account. There are three different kinds of accounts, each of which has different features.


3. Life insurance

Another common employee benefit offered to entice new hires and support and protect employees is life insurance.

There are a few different kinds of life insurance policies offered as part of an employee benefits package:

  • Group term life insurance. This is an insurance contract that covers several people (as opposed to an individual life insurance policy) in the event of death for any reason. These are often much cheaper than individual life insurance policies.
  • Group accidental death and dismemberment. This is similar to group term insurance. However, it only covers specific circumstances leading to death or dismemberment.
  • Business travel accident insurance. This provides coverage for death, injury, or paralysis while on business premises or traveling for business reasons.
  • Split-dollar life insurance. This style of insurance policy outlines how an employee and employer will split the cost of premium payments, cash value, and death benefits from a life insurance policy.  


4. Retirement plans

Many companies still contribute toward an employee's retirement. There are two main methods for this:


Pension plan

More common today

Less common today

Account that employees can contribute to and employers can make matching contributions.

Employers guarantee and fund a specific pension payment when the employee retires.

Employees can invest funds in various institutions, typically mutual funds and ETFs.

Employees do not have control to invest funds.

Employees assume any investment risk.

Employees do not assume the investment risk.

Note that though an employer may offer 401(k) plans, that doesn’t mean that they contribute towards it.

Others, however, will. This is known as a matching 401(k) plan, where an employer matches your contributions either fully or partially.

It’s also important to note that pension plans are typically designated for employees who have been with a company for several years. Newer employees are less likely to be eligible.

5. Disability insurance

This is another type of employee benefit that contributes toward an employee’s overall well-being.

  • Short-term disability insurance. This is intended to cover the employee for a short period of time following injury or illness that prevents them from working. It typically covers periods of three to six months.
  • Long-term disability insurance. This covers the employee for a longer period of time. It is typically for more serious disabilities that leave a person unable to work indefinitely or permanently. It typically covers periods of 5, 10, or 20 years.

Disability insurance is not required federally. However, there are currently five states (plus Puerto Rico) that require employers to offer some form of disability insurance. These are:

  • New York
  • New Jersey
  • Rhode Island
  • California
  • Hawaii

6. Fringe benefits

The most common types of employee benefits offered today are:

  • Medical insurance
  • Life insurance
  • Disability insurance
  • Retirement contributions and pension plans

However, there are a whole host of other additional fringe benefits that employers offer. This helps to differentiate themselves from competitors and provide a more holistic offering.

Let’s take a look at eight of them:

1. Stock options

This is a popular option among tech startups and often part of larger corporations’ pay packages.

Stock options give an employee the right to buy the company’s stock at a predetermined price.

Typically, employees need to stay with a company for a specific period of time before they can exercise this right, typically a year. For example, the employee may have to work at the company for one year before their options vest, meaning they can now exercise that right.

If the company has done well during this time, the stock may be worth significantly more than what the employee is paying for it. This means that the stock option gives them a huge financial gain when they exercise the option.

Stock options are popular with tech companies and are typically offered prior to a company going public. This means an employee may need to wait a period of time before being able to see the financial upside, if ever.

This benefit type can encourage employees to stay for the long term. It also indirectly ties an employee’s performance to the performance of the company and their ability to profit financially as a result of stock price increases.

2. Wellness programs

Employee wellness programs include incentives such as

  • On-site exercise facilities
  • Gym memberships
  • In-office yoga and meditation classes 
  • The availability of healthy snacks at work and fully or partially subsidized meals


3. Paid time off

One way to improve your employee benefits package is to include more paid time off. For example, you might offer 10 paid sick leave days per year instead of five. Many companies no longer distinguish between sick days and all other time off, allowing employees to make their own decisions about how they use their time. Further, unlimited PTO has become more common.  

There are a few different kinds of PTO, including:

  • Vacation days
  • Sick days
  • Personal leave (such as bereavement)
  • Volunteering or service days

4. Education costs

Some employers offer student loan repayment assistance. Alternatively, you can offer reimbursement for tuition costs relevant to the employee’s industry and role. Some companies approach this in a tightly defined way to restrict what types of education are eligible, others provide a more flexible learning stipend suitable for classes, workshops, and other continuous learning opportunities.

5. Relocation and housing options

If you’re bringing a new employee on board who is moving from another city, then part of their benefits package might be designed to help with this life transition. For example, a signing bonus can contribute toward relocation costs.

6. Work-from-home costs

If you have a remote or hybrid workplace, consider implementing an employee benefits package that contributes to this.

For example, you could contribute toward office equipment such as a desk, ergonomic chair, and computer monitor.

7. Commuter benefits

Contributions toward the cost of your employee’s daily commute can help ease their concerns about travel costs, and even reduce their payroll tax cost.

This is because commuter benefits are paid for with pre-tax dollars, where employees can claim up to $270 per month for costs relating to travel to work.

8. Childcare

The cost of childcare can be prohibitive to parents in the workforce, especially in the aftermath of the pandemic. As many as 60% of parents received no external childcare support during the pandemic.

By offering contributions toward the high costs of childcare in your employee benefits package, you can reduce your need to rehire to fill a role, allowing employees to return to or remain at work.

Some employers even offer on-site childcare, so parents can easily tend to their children if needed. Others subsidize emergency childcare options so that parents can comfortably commit to work with less worry about the inevitable school closure or ill childcare provider.

Should you offer all 6 types of employee benefits?

Putting together an employee benefits package can quickly go from “What should we offer?” to “Wow, can we afford all of this?”

Of course, you don’t need to offer every single type of employee benefit out there. Many of them won’t be important or even applicable to some of your employees.

A good way to approach benefits packages is to have a wide variety of services that you can offer. This allows you to craft specific packages for each new hire that is a good fit for them. It's also a good practice to analyze your cost of benefits for the best return on investment. 

If you’re looking for other ways to improve organizational health and well-being, check out how BetterUp redefines employee productivity and engagement.

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Published August 2, 2021

Maggie Wooll

Managing Editor

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