Small Business Hiring Guide

15. How Much do Benefits Cost Per Employee?

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How Much do Benefits Cost Per Employee?

Jul 19, 2023 • 6 min read
Employee benefits and employee handbooks
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      When an employer hires a new employee, they must consider more than the cost of their base salary. Benefits provided to that employee can be costly and must be included in the calculation of the new employee’s value to the company.

      An overall benefits package will include a base salary, as well as many other costs. Some employers pay a portion or all of healthcare, offer paid time off (PTO) and sick leave, parking and transportation costs, and more. These benefits should be carefully calculated to ensure the new hire will bring equivalent value to the organization.

      Average employer costs for employee compensation.

      In the United States, employers must consider the overall compensation package that they will be providing to an employee.

      According to the U.S. Department of Labor Bureau of Labor Statistics (BLS), the average cost for civilian workers was $43.07 per hour worked. Of that amount, $29.70 was the average wage and salary, and $13.36 made up benefit costs. Thus, approximately 31% of total employer costs went to benefits.

      Compensation costs for private industry workers averaged $40.79 per hour, with $12.02 being made up of benefits expenditures. For private industry workers, approximately 29.5% of the employers’ total costs went to benefits.

      The overall benefits package for most employees is quite costly. When hiring a new employee, employers should consider the total cost to be between 1.25 and 1.4 times the salary being offered. However, that amount may be higher when considering training, bonuses, and other items.

      For example, an employee who makes $100,000 per year could actually cost the company between $125,000 and $140,000, once benefits are considered. Companies must calculate total costs when hiring individuals to ensure they are making the best decisions for their organizations.

      Types of benefits provided by employers.

      The BLS broke down costs of benefits according to several categories, including:

      • Paid leave (vacation, holiday, sick, and personal)
      • Supplemental pay (overtime and premium pay, shift differentials, and non-production bonuses)
      • Insurance (life, health, short-term disability, and long-term disability)
      • Retirement and savings (defined benefit and defined contribution)
      • Legally required benefits (Social Security and Medicare, federal unemployment insurance, state unemployment insurance, and workers’ compensation)

      Of these, the most costly for employers was insurance, legally required benefits, and paid leave, all coming in at more than $3.00 per hour per employee on average.

      Other voluntary benefits some employers provide.

      The BLS does not track all benefits offered by employers. There are some in-demand benefits that employees commonly seek from employers that should also be considered, including:

      • Childcare benefits
      • Paid parental leave
      • Pet care benefits
      • Senior care benefits
      • Employee discounts
      • Personal well-being benefits (such as gym memberships)
      • Family-forming benefits (such as fertility treatments and adoption assistance)
      • Streaming subscriptions
      • Onsite fitness classes
      • Free coffee and snacks
      • Company car, laptop, or phone
      • Student loan paydowns
      • Time off to volunteer

      These benefits can help employers attract top talent and retain the best workers. Otherwise, employees may seek employment from a company with more attractive benefits.

      Low or no cost benefits employers can offer employees.

      While most benefits cost the employer on the front end, there are some benefits that a growing number of employees seek. Those may include remote work availability and flexible work hours. In fact, more than 50% of employees currently seeking jobs are looking for remote or hybrid work opportunities.

      Over the last several years, employees have started asking for more flexibility regarding where and when they work. This can be a major perk for employees with disabilities, families, and those who simply want to avoid traffic every day.

      Total cost to hire a new employee.

      In addition to ongoing benefits costs, there are initial costs that companies must consider when hiring a new employee. This includes hiring bonuses, onboarding costs, training, new equipment, and more. According to the BLS, the average cost to hire a new employee is between $4,500 and $5,000. Many companies add these costs into the overall compensation of an employee.

      Why it’s important to offer benefits to employees.

      Not only are some benefits mandatory, but according to a study by the Society of Human Resource Management (SHRM), more than 90% of employees consider employment benefits to be crucial to overall job satisfaction. Benefits provide employees with what they want and need for overall job satisfaction. Without them, employees will seek jobs elsewhere. In fact, the same SHRM study indicated that nearly 30% of all employees cited benefits as the reason they started looking for a new job.

      Benefits can be costly, but worthwhile.

      Providing mandatory and voluntary benefits to employees is essential and should be considered when calculating the actual cost of an employee. When hiring a new employee, employers must evaluate the total compensation package they decide to offer. The more employers can provide, the happier employees tend to be.

      Growing a business by hiring additional employees is a positive step forward. However, it should be taken carefully and with an understanding of the total costs.

      Lendio can help small businesses move forward with growth. Learn more about small business loans from Lendio.

      About the author
      Brandy Abalos

      Brandy Abalos is a licensed attorney, content strategist, and marketing consultant for small businesses. She uses SEO tools to develop strong digital content for audiences who are learning how to navigate complex topics in law and business. When she is not writing, she seeks adventures with her three children, partner, and two corgis in Ohio.

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