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Employee benefits

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Employee benefits (historically called fringe benefits, perquisites, or perks) have undergone a marked increase in scope, complexity & regulatory environment over the last twenty years. As a result, drawing a clear line between 'compensation' and 'employee benefits' is difficult, if not impossible. Of late, HR managers have begun to adopt the more generalized term 'Total Compensation (Total Comp)', with Total Comp being the sum of the Employer costs for each employee. The discussion below is an effort to clarify what has traditionally been referred to as 'Employee Benefits'.

Certain benefits, such as Paid Time Off (Vacation, Holidays, Sick days, Special days off, Bereavement) are paid as part of an employee's wages. Generally, an employer maintains 2 sets of Policies for the determination of the amount of Paid Time Off, one each for hourly and salaried, with Salaried often accruing more Vacation days than Hourly. Vacation days (or hours) & Sick days (if offered) are usually calculated based on an employee's Date of Hire or Seniority Date. Holidays & Bereavement days are nearly always uniform between these classes. Many employers are beginning to abandon Sick days as result the lack of flexibility and/or perceived employee abuse. These businesses often adopt a Policy of a more flexible, 'Personal Time' allotment.

Other Benefits

Other (formerly called "Fringe") benefits can include, but are not limited to:

  • Health insurance (medical, dental, vision)
  • Life insurance
  • Income protection (disability, salary continuation)
  • Retirement benefits (Pension plans (several variations), Defined Contribution Plans, Deferred Compensation Plans, 401k plans (with match)
  • Special benefits, which are typically unique (Employee discounts, tuition reimbursement, free parking, employee cafeteria, Holiday parties, EAP)

Statutory Benefits

In addition, nearly all employers provide 'statutory' or Federally mandated insurances as required by law. Social Security & Workers' Compensation would fall in this category as would New York State's Disability Benefits Law (DBL). The requirements and associated costs of Workers' Compensation vary widely between states.

Voluntary Benefits

Voluntary Benefits have expanded rapidly over the last 15 years. These benefits are Voluntary in that an employee may choose to participate. This ability to choose has now extended into the 'other' benefits such as medical care, resulting in significant overlap. Voluntary benefits may be either an employer/employee cost-sharing mix or strictly employee paid, typically via payroll deduction. These plans are offered by hundreds of insurance carriers, though could be any type of 'product'. Common, Voluntary (Employee Paid) plans include Voluntary Life Insurance, Critical Care Insurance & Supplemental Disability insurances.


The purpose of the benefits may be to increase the economic security of employees but nearly always, as an incentive to attract or retain workers. This incentive is often critical to the long term viability of a business as high turnover can be a serious financial penalty for a small business. Here are some of the reasons employers offer benefits:

  • To attract and hold capable personnel.
  • To keep up with competition.
  • To foster good morale.
  • To provide opportunities for advancement and promotion as older workers retire.

A combination of benefits programs is the most effective and efficient means of meeting employees' economic security needs. For many employers, a benefit plan is an integral part of total compensation, because employers either pay the entire cost of a benefit plan or have employees contribute a small portion of premium costs for their coverage.

Employee Benefit Communications

Employee Benefits are often a very serious financial commitment for a Small Business and may be well in excess of other employer outlays such as Marketing or Advertising. Communicating the importance & details of offered plans to employees, though difficult to measure, should impact 'success'. One possible approach is:

  • (1) Inform. Many employees do not know (examples follow) that their employer matches their own Social Security payments or offers deductible, Voluntary coverages. Simply Announcing can have a positive effect.
  • (2) Educate. Provide understandable, conceptual detail. Often done in combination with group presentations, printed materials and intranet (or web). Care should be taken that employees are not overwhelmed with an excessive amount of content.
  • (3) Personalize. Since each employee's Total Compensation and benefits are different, a greater level of understanding and appreciation is reached by personalization of their Total Compensation. This is usually delivered as a concise personalized & printed document that also references the more generalized Educational materials.

See also