(FREE) Benefits Breakdown: Small Business Perks, Part 1
A variety of benefits. Estimating the cost. Turnover vs. benefits.
Commentary directly from the video (regular type)
My commentary (italics)
As I mentioned in my Note, this post is running a bit late. Apologies for that. Part 2 will be scheduled to post Monday, as usual.
Intro
Hiring is a major challenge for clients and small businesses. Benefits are crucial for staying competitive. Hiring is consistently among the top concerns for small businesses and their owners. Good help is hard to find, as the “cliche” goes.
Small business owners often think they can't afford benefits. The video aims to challenge that notion and discuss different benefits. Benefits can take many different forms, however. Between the video and the accompanying Benefits Breakdown… spreadsheet - hopefully, you’ll come away with a better idea of what you CAN and can’t afford.
What are employee benefits?
Employee benefits are offerings by the employer that enhance economic security and overall job satisfaction. They range from financial incentives to factors like dress codes. I think that employees have a difficult time tying a monetary value to most benefits.
For instance, say an employee’s health insurance coverage costs $1,000. And you decided to forego offering that coverage and simply paid a $12,000 higher salary for the position.
(Justifiably) You would think that the employee can purchase health insurance if they like. Or, they can pocket the higher salary. I think you would still run into a situation where candidates would be like “Sure the salary is great, but I need a job with health insurance.”
Conversely, if you paid $12,000 less in salary to cover your cost for health insurance, you would probably have candidates who were not thrilled with the salary - but would still take the position because they need health insurance.
These are oversimplified examples. But I think it illustrates what a balancing act wages and benefits can be for small businesses.
Many small businesses assume they can't afford benefits without evaluating the affordability. It's essential to do the necessary work to determine affordability before dismissing the idea. Run the numbers (using the Benefits Breakdown… spreadsheet). Look at the big picture - how does the entire compensation package look?
Cost of turnover
Employee turnover is costly, especially for small businesses. I imagine the video says “especially for small businesses” because small businesses don’t benefit from the same economies of scale (cost advantages from buying more) that big businesses do.
Studies show turnover costs range from 30% to 150% of an employee's salary. For example, if an employee earns $50,000 - turnover could cost,at a minimum, $15,000 to $20,000.
Consider the expenses of recruiting, lost training time, and onboarding new employees. Again, use the Benefits Breakdown… spreadsheet to calculate the rough costs and, if you like, the actual costs of turnover.
Here's a rough estimate of each recruitment cost for a salaried employee at $50,000 per year:
Job advertising expenses: $200 - $500 per job posting.
Recruitment agency fees: 15% - 25% of the employee's annual salary ($7,500 - $12,500).
Employee referral programs: Typically range from $500 - $2,000 as a referral bonus.
Background checks and pre-employment screenings: $50 - $200 per candidate.
Applicant tracking system (ATS) costs: $50 - $200 per month for small business software.
Interviewing expenses: Vary based on travel costs and accommodations, but estimated around $100 - $500 per candidate.
Onboarding and training: Approximately $1,000 - $2,500 per employee, including materials and resources.
Internal recruitment costs: Difficult to quantify precisely, as it involves internal resources and time allocation.
Please note that these are rough estimates, and actual costs may vary depending on location, industry, and specific business needs.
The cost of losing employees can exceed the cost of providing benefits. There is a wide range of benefits available…
It IS also worth noting, that turnover costs are paid one time, per employee. While benefits are paid perpetually…
Benefits
Paid time off
Paid time off (PTO) includes:
Personal leave
Paid holidays
Sick pay
Traditional earned PTO
Vacation pay
Parental leave
Family leave
Bereavement leave
Birthday leave
Time off doesn't cost additional cash on a monthly basis but can impact efficiency when employees take time off. Perhaps you have to pay another employee overtime to cover for someone taking PTO. Or, maybe you have to pull someone off of a sales-driving role to cover for them.
Consider the potential cost of paying out accrued PTO if an employee leaves. This WOULD affect cash. Maybe a lot. Consider policies that only let employees accrue a certain amount of PTO (use it or lose it).
Insurance
Insurance is a crucial benefit, particularly health insurance. Some employees won’t care because they are on someone else’s plan. For every one of those, I would guess that for another employee - health insurance is a deal breaker.
Other insurance categories (besides health) include dental, vision, life, and disability insurance. These too, can be “make it or break it” benefits for employees.
Health Benefits
Beyond health insurance, additional health benefits can include gym memberships or on-site gym access. Additionally, lifestyle benefits can be provided through stipends to support employee health and wellness. Health Savings Accounts (HSA), Employee Assistance Programs (EAP), and Flexible Spending Accounts (FSA) are non-insurance benefits that would probably fall under this category too.
Retirement
Retirement plans, such as a 401(k) or an IRA, can be offered to employees. Retirement incentives are not limited to large companies and are feasible for small businesses. Offering the ability to have a retirement account can be a valuable benefit. Typically, providing retirement benefits is only going to amount to a fraction of an employee’s salary.
Ownership
Ownership options like shares or employee stock ownership plans can be considered. Generally, offering employees ownership in your small business is discouraged. The reasons include:
Employee ownership in a small business can introduce complexities regarding ownership structure and decision-making processes.
Costs associated with implementing employee ownership plans, such as stock options or ESOPs, may be significant.
Limited liquidity can restrict employees' ability to convert their ownership into cash.
Conflicts of interest may arise between employee-owners and the management team.
Maintaining high levels of employee engagement and alignment with the company's goals can be a challenge.
Planning for exit strategies and succession becomes crucial to ensure a smooth transition of ownership.
Carefully consider offering cash instead of equity.
For instance:
Additional pay structures include bonuses, referral bonuses, and performance-based incentives. Commissions structures can also be implemented.
Read Part 2 here:
Comment below
Are you a small business that offers employee benefits? What are they?
How much does employee turnover cost YOU?