What are employee benefits?

Offering quality compensation packages that include robust benefits is crucial to an organization’s success. Employee benefits help keep workers happy, making them a valuable tool in engaging your workforce.

Employee benefits come in many forms. Some are mandatory under the law, while others are optional. It’s good to be familiar with a wide range of benefits and perks if you're responsible for employee benefits at your company.

In this blog post, you’ll learn:

• The definition of employee benefits and which perks are mandatory and voluntary.
• How a competitive benefits package can improve recruitment, retention, and workplace morale.
• Strategies for designing and managing your benefits packages.

What are employee benefits?

Employee benefits are any form of perks or compensation that an organization provides workers in addition to their base salaries and wages. In short, any indirect compensation that employers offer their staff, either mandatory or voluntary, can be an employee benefit.

A robust employee benefits package may include non-wage compensation like:

• Health insurance benefits
• Life insurance
• Paid time off (PTO)
• Profit sharing
• Retirement benefits
• Flexible work arrangements
• Pet insurance

The law requires business owners to offer certain employee benefits. For example, employers must contribute to their employees’ Social Security and Medicare. Additional benefits beyond the mandatory requirements are often called employee perks or fringe benefits.

Each state’s benefit requirements differ, such as the rules on sick time or remote work expenses. But, there are some standard benefit regulations all employers must follow.

Under federal law, employers must do the following:

• Provide health insurance if you have 50 or more full-time equivalent employees (FTEs)
  • Under the Affordable Care Act (ACA), only applicable large employers (ALEs) must provide eligible employees and their dependents with an affordable health insurance plan that meets minimum essential coverage (MEC).
• Provide employees time off to perform military service
• Follow all workers’ compensation insurance requirements (except in Texas)
• Pay state and federal taxes toward unemployment insurance
• Comply with the Family and Medical Leave Act (FMLA)¹

Employers aren’t federally required to provide the following benefits to employees:

• Retirement plans
• Dental insurance or vision plans
• Life insurance plans
• Paid time off (PTO), such as paid vacation and holiday leave
  • Our 2024 Employee Benefits Survey found that 64% of employees “often” or “always” use their employer’s PTO benefits.
• Wellness benefits

Even though many employee benefits aren’t mandatory, it’s still a good idea to incorporate them into your team’s compensation package. When designing your benefits package, consider the type of job seekers you want to attract. What employee perks would they enjoy? You’ll also want to ensure the benefits meet your budget. No matter your choice, benefits are an impactful way to entice potential employees and create a positive company culture.

Why are employee benefits important?

Offering employee benefits has several advantages for businesses of all sizes, and the numbers prove it. Our PeopleKeep survey found that 81% of employees say an employer’s benefits package is an essential factor in whether they accept a job.

Simply put, you must offer an attractive benefits package to showcase your organization’s worth and increase morale.

It helps you recruit and retain employees

A generous benefits and perks package is crucial for recruiting and retaining talented employees. A recent survey found that 41% of HR leaders reported difficulty keeping workers on staff in 2024². If you’re struggling with your retention rate, boosting your benefits package is an excellent place to start.

More than 90% of employees tie their job satisfaction to their benefits³. In a related survey, 59% of job postings advertised at least one employer-provided benefit in May 2024. This is up from less than 40% in early 2020⁴. This means that providing benefits for employees and listing them in your job ads is an integral part of successful hiring efforts.

According to our PeopleKeep survey, employees find the following five benefits to be important:

1. Health benefits
2. Dental insurance
3. Paid time off
4. Retirement plans
5. Vision insurance

These employee perks aren’t mandatory for all organizations. But, adding voluntary benefits to your compensation package can give your company a competitive edge.

You can highlight your organization’s values

Today’s successful companies know that they must instill great company values to engage employees. Your employee benefits package should reflect your company values to entice top talent who share the same core values as you.

For example, you may launch a corporate responsibility initiative offering PTO to your employees so they can volunteer in their community. Or you can offer medical benefits that support your employees’ mental and physical health while providing financial stability.

The types of employee benefits you offer send a message about your organization’s beliefs. A good benefits package also shows you support your employees' well-being outside the workplace.

It shows employees you care

Comprehensive benefits are an active way to make employees feel rewarded and appreciated. Showing your employees that you care about their personal needs can also improve employee morale. Improved morale can lead to a better workplace environment.

Roughly 89% of employers plan to update their benefits package in 2025. Benefits that support a healthy work-life balance, such as vacation time and the ability to work from home, can help lower stress and prevent burnout. Your staff will likely be more productive at work, and in return, employee satisfaction will increase.

How much do employee benefits cost?

Cost is one of the most important factors to consider when building your benefits package. Examining the price and value gained for each employee benefit can help you decide what to include.

A U.S. Bureau of Labor Statistics report states that employee benefits comprise 31.2% of total compensation costs⁵. Insurance benefits comprised 8.1% of compensation costs, and legally required benefits accounted for 7%.

What can seem like a financial burden at first saves you money in the long run. For example, Zippia found that 72% of employers saw a reduction in medical expenses after implementing a wellness program.⁶

Not only do these programs boost morale, but they also help you avoid indirect additional costs, like missed work due to illness and low productivity.

What are popular types of employee benefits?

You may ask yourself, “What employee benefits do people value the most?” The simple answer is that it depends on the type of employees you want to hire.

Popular benefits in the U.S. vary depending on employee makeup, industry type, and other factors. But a good start is to check out a list of common employee benefits that most companies offer.

A few common types of benefits include:

• Education benefits, such as professional development opportunities
• Commuter benefits
• Employee stock options and discounts
• Flexible work arrangements
• Employee stipends
• Financial literacy programs
• Employee assistance programs

When designing your employee benefits package, it always helps to find out what your employees want. You can ask for employee feedback via an online survey to generate customized benefit ideas.

Additionally, some employers create benefits packages according to the demographics of their workforce. For example, employers may offer student loan repayment to entice Millennial job seekers.

Finding the right combination of benefits that will have the most impact while not breaking the bank plays a key role in your business’s success.

How to manage your employee benefits effectively

Employee benefits can vary depending on your company type. But regardless of whichkinds of benefits an organization is considering, employers must understand how they’re structured.

Employers have two ways to structure employee benefits, including:

• Organizational-oriented benefits
  • Benefits that are employer-owned and employer-selected, such as:
    • Traditional group medical insurance
    • Pension plans
• Employee-oriented benefits
  • Benefits that are employer-funded and employee-selected, such as:
    • Health reimbursement arrangements (HRAs)
    • Health savings accounts (HSAs)
    • Flexible spending accounts (FSAs)
    • Health insurance stipends
    • 401(k)s

Managing employee perks impacts your benefits administrator, especially if there are compliance regulations. But there are ways to manage a benefit plan to save time and reduce the likelihood of errors.

Consider the following when managing your employee benefits package:

• Hire a dedicated employee benefits specialist
• Find the right benefits administration software, such as PeopleKeep for HRAs
• Measure benefits and costs carefully
• Include a description of all benefits and perks in your employee handbook
• Track your employees’ wishes and needs regarding benefits
• Analyze benefits utilization data so you know where to make improvements

While most employers discuss their benefits packages during the final interview or after they extend a job offer, managing your benefits package is an ongoing process. The right benefits package can give you an edge over your competitors, so having the best tools in place is essential to stay ahead of the curve.

Conclusion

A well-rounded employee benefits plan is vital for today’s workforce. Organizational-oriented benefits are the traditional choice. But, many employers now incorporate employee-oriented benefits to meet their employees’ needs better.

Offering employee benefits may cost more upfront. But the long-term advantages outweigh the costs by contributing to your business's success. Comprehensive benefits keep your employees satisfied for the long haul, helping you reap the rewards of having a more productive workforce.

If you want to offer employee benefits to your team, a health benefit is a great place to start. Instead of offering traditional group health insurance, you can offer an HRA through PeopleKeep. Our administration software helps small and midsize businesses reimburse their employees for their qualifying medical expenses tax-free. Contact us today to get started.

This post was originally published on December 16, 2020. It was last updated on December 6, 2024.

1. Family and Medical Leave Act

2. Recruiting and Retaining Workers Survey

3. Intuit QuickBooks and Allstate Health Solutions Survey

4. Benefits Advertised in Job Postings

5. BLS - Employer Costs for Employee Compensation

6. Zippia - Employee Wellness Statistics