Benefits Guide
Employee benefits: A guide on common and best benefits
Employee benefits are added perks offered and provided by employers on top of compensation and can include extended medical insurance, paid time off, profit sharing, learning and development strategies, retirement benefits, and more. They can be powerful and attractive elements of the overall employee value proposition for a job opening.
Employee benefits have become an essential part of any competitive compensation package. From law-mandated insurance to free snacks, benefits and perks can play a big role in talent attraction and employee retention.
So if you’re thinking of building effective benefit plans or looking to boost your existing policies, we got you covered – we present the basics of employee benefits, including types of employee benefits, common benefits per location and insight on what candidates and employees truly want:
What are employee benefits?
Before we get into the nitty-gritty of employee benefits (or fringe benefits), let’s define the term:
Employee benefits are any kind of tangible or intangible compensation given to employees apart from base wages or base salaries.
This employee benefits definition points to examples of job benefits such as insurance (including medical, dental, life), stock options and cell phone plans. But, employee benefits can be much more than these, from training opportunities to startup perks (let’s not focus on the notorious ping pong tables, though).
Basically, any kind of non-wage gain attached to an employee’s position can be classified as an employee benefit, be it mandatory or voluntarily given by an employer.
Why do employers offer benefits to employees?
Benefit packages take a lot of time out of many HR professionals’ time. And with good reason: they’re one of the most basic employee engagement and retention strategies, and they support talent attraction as well.
The numbers speak for themselves about the importance of employee benefits. Extensive research by the Society of Human Resource Management (SHRM) indicates that 92% of employees consider employment benefits as important for their overall job satisfaction (in itself, a great element of retention and productivity). Almost one third of employees also cited work benefits as the top reason of looking for a job outside their organization; and for choosing to stay at their job, too.
Benefits are also among the top driving factors candidates look for in job ads – 63% of job seekers surveyed say they pay attention to what benefits a company offers. This means that offering benefits, and mentioning them in your job ads and careers page, is a great part of your employer branding efforts.
Employee benefits also help you take care of high-performing employees without the need to keep investing in exceptionally high pay raises. All employees should get paid enough to pay the bills and live comfortably, but they might accept less pay if they have strong health insurance, flexible hours and other benefits important to them. The practice of employees giving up a part of their salary for benefits is called salary packaging, and may also result in tax deductions or other gains for either party.
What are the four major types of employee benefits?
The major types of benefits are those categories of benefits that are more commonly met in companies across countries. Many cite these benefits as health insurance, life insurance, disability insurance and retirement plans. However, this view is focused on the different types of insurance, and neglects other equally major benefits. In an effort to expand our scope, we’ve grouped insurance benefits together and listed three other major types of benefits offered by employers:
- Insurance
- Retirement plans
- Additional compensation
- Time off
Insurance
This category includes health insurance (dental, medical, vision), life insurance, and disability insurance. Offering health insurance, or some kind of medical plan, is mandatory in many countries, and there’s often publicly available medical care sponsored by employers. However, many companies opt for private group or individual insurance in order to provide better options to their employees.
Life insurance shows that the company cares not only about the employee, but also about their family. If the employee dies, their family will get a sum to cover funeral and other related expenses, and their cost of living for a set time period. Life insurance may also be complemented by Accidental Death and Dismemberment (AD&D) policies which pay a sum to employees who either die or sustain injuries which render them unable to work.
Disability insurance may cover long-term and short-term disability or illness. For example, if an employee gets sick, they can receive payments for as long as their sickness lasts. In the U.S., some employers may sometimes use short-term disability policies to fund paid maternity leave for female employees.
Retirement
Retirement benefits help employees feel more secure about their future after retirement. In the U.S., for example, a common benefit is the 401(k) in which both company and employee make defined contributions to the employee’s account on a regular basis.
The 401(k) is a type of defined contribution plan which doesn’t guarantee employees a specific benefit amount at retirement. This is because the money invested from the account may be lost if investments fail. Employees choose how to invest contributions, or how much to contribute from their paycheck through pre-tax deductions. Employers may also contribute, in some cases by matching a certain percentage of employees’ contributions. At retirement, employees receive the balance in their account. Before you decide whether to implement a 401(k) plan, learn about its different forms.
There’s also the defined retirement plan which is entirely funded by the employer, so employees can receive a specific monthly benefit at retirement. The amount may be determined based on retirement age and tenure at the company.
Time off
In many countries, paid time off is mandated by law, like in the European Union (Austria, for example, has a legal minimum of 22 paid days for vacation and Finland has five weeks). Employers in countries like the U.S. may not be obliged to offer paid vacation leave, but those that do it voluntarily can get a competitive advantage in talent attraction and retention – 9 out of 10 employees reported that paid leave is important to their overall job satisfaction, according to SHRM.
For similar reasons, employers around the world may choose to extend law-mandated leave, such as giving extra days for sickness. In the U.S., 71% of all workers in the private sector had paid sick leave as a benefit, according to a 2018 report by the Bureau of Labor Statistics.
The same goes for other types of leave such as parental or bereavement leave. For example, the law in the UK doesn’t provide for bereavement or compassionate time off, so offering a few days of this type of leave can be an important benefit.
Other time-off benefits may include training days and sabbaticals, which are usually voluntary for employers, but can have just as much impact on employee engagement.
Additional compensation
This category refers to any money offered to employees apart from their regular compensation. This money includes bonuses, commissions, awards and gifts, as well as indirect compensation, like stock option plans and profit-sharing.
Bonuses can be contractual or discretionary and may include:
- Sales commissions
- Individual or company-wide performance awards
- Lump sum gifts (e.g. for exemplary actions on the job)
These compensations are usually part of incentive programs that motivate employees to produce more and better quality results. They may also help keep morale high. Often, bonuses are determined by union contracts.
There are some arguments against monetary benefits though; financial rewards may sometimes spur unethical behavior or create envy among coworkers. For example, a salesperson who knows that the most successful salesperson of the month will get higher commission might resort to stealing prospects from coworkers or otherwise contributing to an unhealthily competitive atmosphere in the office. To prevent these outcomes, make sure you give everyone the same chances to earn bonuses and make the criteria for those bonuses transparent to all, and be suspicious of discrepancies in employee results.
If you want to formulate a clear and transparent bonus policy, here’s our policy template to get you started.
Common and best employee benefits
Apart from the major categories, there are several other types of benefits that appear frequently in company benefits plans.
Here are the top 10 employee benefits worldwide:
- Private Health Care Plan (Medical, Dental & Vision)
- Retirement / Pension plans
- Training and Development
- Stock option plans
- Work From Home and/or flexible hours
- Food and snacks
- Life insurance
- Extended leave (Vacation, Sick)
- Bonuses / Awards / Gifts
- Company equipment (including vehicles, laptops, phones)
Note that the most popular benefits vary per location and there are also benefits that are exclusive to certain areas. For example, Australians can receive novated leasing as a benefit, enabling them to lease cars with their employer taking on the contract’s obligations.
In the U.S., where paid parental leave isn’t federally mandated by law like in other countries (although it exists at the state level in some jurisdictions), time off for mothers and fathers is a popular company-offered benefit.
In four English-speaking countries, employee benefits may include: (this list isn’t exhaustive for any of these areas and the order of items isn’t significant)
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