The Average Cost of Benefits Per Employee in 2024

As a business owner, I know you're always juggling priorities. But here's one you can't afford to overlook: the average cost of benefits per employee. It's not just about salaries anymore. Benefits packages are a major factor in attracting and retaining top talent.

But how much should you be budgeting? What's the "norm" out there? That's where this blog post comes in. 

We're diving deep into the world of employee benefits, exploring what influences their cost, providing benchmarks for different industries, and giving you the insights you need to craft a competitive and cost-effective benefits plan.

What are employee benefits?

Think of employee benefits as the cherry on top of a sundae. They're the non-wage compensation that sweetens the deal for your employees. These perks go beyond the paycheck and contribute significantly to an employee's overall total compensation.

Benefits come in all shapes and sizes, catering to various needs. Some of the most common ones include health insurance, retirement plans like 401(k)s, paid time off (PTO), and even a spending account for things like childcare or transportation.

Here is a non-exhaustive list of employee benefits you might consider:

  • Health insurance: Medical, dental, and vision coverage.

  • Retirement plans: 401(k)s, pensions, profit-sharing.

  • Paid time off (PTO): Vacation, sick leave, personal days, holidays.

  • Family leave: Parental leave, adoption leave, bereavement leave.

  • Flexible spending accounts (FSAs): Healthcare, dependent care, transportation.

  • Wellness programs: Gym memberships, fitness classes, stress management.

  • Life insurance: Term life, whole life, accidental death and dismemberment.

  • Disability insurance: Short-term and long-term disability coverage.

  • Education assistance: Tuition reimbursement, student loan repayment.

  • Professional development: Conferences, training programs, mentorship.

  • Employee discounts: Discounts on company products or services.

  • Stock options or equity: Ownership stake in the company.

  • Commuter benefits: Pre-tax deductions for public transportation or parking.

While not all benefits are mandatory, offering a robust benefits program can significantly boost your company's attractiveness to potential hires. This will also keep your team happy and engaged with their 40-hour work week.

Blocks of letters that say “Health Insurance”

Average benefit costs in the US

So, what's the going rate for employee benefits? The Bureau of Labor Statistics (BLS) is a great resource for this kind of data. In December 2023, they reported that civilian workers in the US receive an average of $14.13 per hour worked in benefits. This translates to roughly 31% of total compensation.

Meanwhile, the benefits cost for private industry workers is a bit lower, averaging $12.77 per hour worked (29.6% of total compensation). On the other hand, local government workers tend to receive more comprehensive benefits, with an average of $23.03 per hour work week (nearly 50% of their total compensation!).

Keep in mind these are just averages based on hourly rates. If you're like most business owners, you're probably thinking in terms of annual costs. Let's break it down further:

  • Annual cost (based on 2,080 work hours per year):

    • Civilian workers: $29,370.40

    • Private industry: $26,541.60

    • Local government: $47,862.40

This gives you a ballpark figure to consider, but remember, the actual cost for your business will depend on a variety of factors. It's also important to note that these numbers don't include the cost of unemployment insurance and social security taxes, which are additional expenses for employers.

Ultimately, understanding these averages is a starting point. By digging deeper into the factors that influence costs and comparing your own spending to industry benchmarks, you can make informed decisions about your benefits offerings and ensure you're getting the most bang for your buck.

A breakdown of the breakdown: where does the money go?

The cost of employee benefits isn't a one-size-fits-all figure. It's a complex calculation influenced by several key factors. 

Company size

One major factor is company size. Larger companies often have more resources to invest in benefits, leading to potentially higher costs per employee. I would cite again the BLS, which reported that, in December 2023, the average benefits cost per hour worked was:

  • 1 to 99 employees: $10.69

  • 100 to 499 employees: $12.33

  • 500+ employees: $17.46

Human resources staff reviewing employee benefits

This shows a clear trend where larger companies tend to offer more comprehensive benefits packages, contributing to higher hourly costs.

Industry

Your industry also plays a role. Some industries, like healthcare and finance, are known for offering more generous benefits packages due to the competitive nature of attracting top talent. Here's how the average hourly benefits cost varied by industry in December 2023:

  • Finance and insurance: $21.25

  • Professional and technical services: $16.76

  • Manufacturing: $15.15

  • Retail trade: $9.33

  • Accommodation and food services: $5.44

The range is significant, emphasizing the importance of industry benchmarks in understanding one's own costs.

Workforce demographics

Your workforce demographics also factor into the cost of your benefits. An older workforce might require more robust health insurance plans or focus on retirement savings, while a younger workforce might value perks like student loan repayment or professional development opportunities.

Additionally, factors like geographic location, where local healthcare costs and cost of living can significantly impact your expenses, are also important to consider.

Of course, the specific benefit plans you choose will have the most direct impact on your costs. Offering attractive benefits to your employees and managing your budget effectively is a balancing act.

The high cost of health insurance

Let's discuss the elephant in the room: health insurance. In most cases, this is the single largest expense in an employee benefits program. And it's no wonder why—healthcare costs have been on the rise for years.

Several factors can influence the cost of health insurance for your company. The design of your plan is a major one. A plan with low deductibles and comprehensive coverage will naturally be more expensive than a high-deductible plan with limited benefits.

The health risks of your employee population also come into play. A workforce with a higher prevalence of chronic conditions will likely drive up insurance premiums. And don't forget about geographical variations. Healthcare costs can differ significantly from one region to another, impacting your insurance rates.

Kids at school as part of a company’s educational assistance program

The cost of saving for the future

Retirement plans are another major piece of the benefits puzzle. Employer-sponsored plans, like 401(k)s, allow employees to save for their golden years while enjoying tax benefits.

But these plans aren't free for employers. One of the biggest cost drivers is employer matching contributions. Many companies choose to match a percentage of their employees' contributions, which can add a substantial amount to the overall benefits cost.

The type of retirement plan you offer also impacts costs. Some plans may have higher administrative fees or investment expenses, which can eat into your budget.

Perks and additional benefits

Beyond the core benefits of health insurance and retirement plans, many businesses offer a variety of additional perks to attract and retain talent. 

While these perks can be a valuable investment in your workforce, they also contribute to your overall employee benefits cost. It's important to strike a balance between offering attractive benefits and staying within your budget.

How benefits attract top talent

In today's competitive job market, a strong benefits package can be really attractive to top talents. Job seekers often prioritize companies that offer comprehensive benefits, and a good benefits program can make your company stand out from the crowd.

By investing in employee benefits, you're not just offering perks – you're investing in your employer brand. A company known for taking care of its employees is more likely to attract top talent and retain valuable team members.

Plus, a robust benefits package can give you a competitive edge, especially when vying for skilled workers in high-demand fields.

The return on investment in benefits

It's easy to focus on the cost of employee benefits, but it's equally important to consider the return on investment (ROI). While benefits do come with a price tag, they can also yield significant benefits for your business.

A man working out in a gym as part of his employee benefits package

Improved employee morale and productivity

For starters, a good benefits program can boost employee morale and job satisfaction. Studies have shown that companies with strong benefits packages tend to have higher employee engagement rates, which can translate to increased productivity and innovation.

Reduced turnover and recruitment costs

Benefits can also help reduce employee turnover. Replacing employees is expensive, with estimates suggesting it can cost up to two times an employee's annual salary to hire and train a new one. Retaining your top talent through attractive benefits can save you money in the long run.

Also, a comprehensive benefits package can make your company more attractive to potential hires, reducing recruitment costs and allowing you to attract top talent more easily.

Enhanced employer brand and reputation

Offering competitive benefits can enhance your reputation as an employer that cares about its employees' well-being. This can lead to positive word-of-mouth marketing, making it easier to attract skilled workers and build a strong company culture.

Calculating the ROI

While the ROI of employee benefits can be difficult to quantify precisely, there are ways to estimate the financial impact. 

Employee turnover rates

A decrease in turnover after implementing a new benefits program could indicate that employees are more satisfied and less likely to leave, saving you recruitment and training costs.

Absenteeism

If employees are taking fewer sick days or personal days due to improved health or better work-life balance, this can lead to increased productivity and reduced costs associated with absenteeism.

Productivity levels

Measuring output per employee can reveal whether enhanced benefits are contributing to higher performance and efficiency. You can track metrics like sales figures, project completion rates, or customer satisfaction scores to gauge productivity changes.

Healthcare costs

If your new benefits program includes wellness initiatives or preventive care options, you might see a decrease in healthcare claims and costs over time.

A female employee on her paid time off waking up in the morning

By comparing these metrics before and after implementing a new benefits program, you can get a sense of how your benefits are impacting your bottom line. Remember to consider both quantitative and qualitative data when assessing the ROI of employee benefits.

Remember, the ROI of employee benefits extends beyond just financial gains. It also includes intangible benefits like improved employee morale, increased loyalty, and a stronger company culture. These factors can be just as valuable as monetary returns in the long run.

Communicating your benefits effectively

Let's face it: even the most generous benefits package won't make a difference if your employees don't understand or appreciate it. Effective communication is key to ensuring your team knows the value of their benefits and how to use them.

Why communication matters

Clear communication about your benefits package can increase employee satisfaction, improve morale, and raise utilization rates. 

When employees understand the value of their benefits, they're more likely to feel appreciated and engaged. Plus, a well-informed workforce can make better decisions about their healthcare, retirement savings, and other benefits, leading to better outcomes for everyone.

Strategies for effective communication

Start early and often

Introduce your benefits package during the onboarding process and provide regular reminders throughout the year. Use a variety of channels, such as emails, newsletters, intranet posts, and in-person meetings.

Keep it simple

Avoid jargon and technical terms. Explain benefits in plain language, using examples and real-life scenarios to illustrate their value.

Highlight the total value

Don't just list the benefits. Explain how they contribute to an employee's total compensation and financial well-being. Show them the bigger picture.

Personalize the message

Tailor your communication to different employee groups based on their age, life stage, and interests. For example, younger employees might be more interested in student loan repayment assistance, while older employees might prioritize retirement planning.

An old employee reviewing his retirement plan from the company

Answer questions and address concerns

Provide opportunities for employees to ask questions and get clarification. Hold Q&A sessions, offer one-on-one meetings, or create an online FAQ resource.

Encourage enrollment and utilization

Enrolling in benefits and using them should be easy for employees. Provide clear instructions, deadlines, and contact information for support.

Get creative

Use visuals like infographics and videos to explain complex benefits concepts. Consider hosting webinars, lunch-and-learns, or financial wellness workshops.

By following these strategies, you can ensure your employees understand and appreciate the value of their benefits package. This will lead to increased satisfaction, engagement, and, ultimately, a healthier bottom line for your business.

Planning for the future

Budgeting for employee benefits can seem daunting, but with careful planning, you can make informed decisions that benefit both your employees and your bottom line.

Start by considering cost trends. Healthcare costs, for example, have been rising steadily, so it's important to factor in potential increases when budgeting. Analyze your workforce demographics to understand your employees' specific needs.

Benchmarking against industry standards can also be helpful. See what similar companies are offering and use that information to gauge where your benefits package should fall.

Understanding your company's costs

While national averages provide a good starting point, they might not accurately reflect your company's specific employee benefits cost. That's why it's crucial to analyze your own data.

By reviewing your spending patterns, you can identify areas where you might be overspending or where you could potentially offer more robust benefits. You can also track how your benefits spending changes over time, allowing you to adjust your budget as needed.

With a clear understanding of your company's unique costs, you can make strategic decisions that align with your business goals and the needs of your workforce.

Male employees having fun in their office

The average cost of benefits per employee in the future

The average cost of benefits per employee isn't static. It's a moving target, influenced by a complex interplay of economic, demographic, and industry-specific factors. As a savvy business owner, it's crucial to stay ahead of the curve and understand the trends that could impact your benefits cost.

One trend to watch is the rising cost of healthcare. As medical expenses continue to climb, health insurance premiums are likely to follow suit. This means you'll need to budget accordingly to maintain the quality of your healthcare offerings.

Another factor to consider is the evolving workforce. Younger generations may have different expectations for benefits than older generations. They might value student loan repayment assistance, flexible work arrangements, or mental health resources more highly than traditional retirement plans.

Industry benchmarks

Keeping an eye on industry benchmarks is also essential. If your competitors are offering more generous benefits, you may need to adjust your own offerings to remain competitive in the talent market. 

Regularly reviewing and updating your benefits program is key to ensuring it meets the needs of your workforce and aligns with your business goals.

By staying informed and proactive, you can navigate the ever-changing landscape of employee benefits and make strategic decisions that benefit both your employees and your company's bottom line.

More best practices to retain top talents

Beyond the basics of offering competitive compensation and benefits, there are several other strategies you can employ to attract and retain top talent in your company. 

After all, happy employees are productive employees, and they're less likely to leave when the next opportunity arises.

Create a positive workplace culture

A positive workplace culture is like a magnet for talent. When people feel valued, respected, and appreciated, they're more likely to stick around.

A female employee filing for a paid time off

This means fostering a culture of open communication, collaboration, and mutual respect. Encourage teamwork, celebrate successes, and create opportunities for employees to connect and build relationships.

Invest in employee development

Top talent craves growth and development. By investing in your employees' skills and knowledge, you're not only improving their performance but also showing them you're committed to their future with your company. 

Offer training programs, mentorship opportunities, and tuition reimbursement to help your employees reach their full potential.

Recognize and reward performance

Everyone loves to feel appreciated. Recognizing and rewarding employees for their hard work and contributions can go a long way in boosting morale and loyalty. 

A simple "thank you" note, a shout-out in a company meeting, or a small bonus can make a big difference.

Promote work-life balance

Burnout is a real problem in today's fast-paced work environment. By promoting work-life balance, you're showing your employees that you value their well-being both inside and outside of work. 

This could mean offering flexible work arrangements, encouraging employees to take their vacation time, or providing resources for stress management and mental health support.

Offer opportunities for advancement

Top talent wants to see a clear path for career progression within your company. Create a transparent career ladder and provide opportunities for employees to take on new challenges and responsibilities. 

This could involve promoting from within, offering leadership training programs, or creating special projects that allow employees to showcase their skills.

Listen to your employees

One of the simplest yet most effective ways to retain top talent is to listen to what your employees have to say. Conduct regular surveys, hold one-on-one meetings, and encourage open feedback. 

By listening to their concerns, suggestions, and ideas, you can identify areas for improvement and make changes that will benefit both your employees and your company.

Employees on a trip during their paid time off

Retaining top talent is an ongoing process. It requires a combination of competitive compensation, comprehensive benefits, and a positive workplace culture that values employee well-being and development. By investing in your employees, you're investing in the future success of your business.

The takeaway

As we've seen, the average cost of benefits per employee isn't a fixed number. It varies widely depending on your industry, company size, location, employee demographics, and the specific benefits you offer. Understanding these factors is key to crafting a competitive and affordable benefits package.

Remember, your benefits package is an investment in your most valuable asset – your people. By carefully considering your options and tailoring your benefits to the needs of your workforce, you can attract and retain top talent, boost morale, and ultimately improve your bottom line.

Don't be afraid to seek professional guidance if you need help navigating the complexities of employee benefits. A benefits consultant can help you analyze your specific needs, develop a cost-effective strategy, and ensure you're getting the most out of your investment.

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