How to Determine the Employee Benefits ROI For Your Company
The pandemic didn’t just take a toll on your business; it also impacted the lives of your most valuable business asset -- your employees. On the cusp of a secondary health crisis and a mental health crisis, 98% of business leaders plan to expand or offer new employee benefits this year to better meet the needs of their employees, according to Harvard Business Review.
The need for action is inarguable, but the fact remains that now more than ever your stakeholders want proof that further investments in employee benefits programs are worth their weight, which brings HR leaders back to an age-old problem. How to measure employee benefits ROI? To answer this question, leaders must first understand the value of an employee. This requires an evaluation of some key cost factors.
Primary Cost Factors in Determining Employee Benefits ROI
Zenefits published an article on the primary costs involved in hiring a new employee. What their research revealed is that the value of a new hire far exceeds that of their base salary. Here’s the breakdown:
Recruiting: costs as much as $4,129 per new hire.
Training: costs about $1,286 per employee, on average.
Employee Benefits: costs between $10.58 and $19.82 per hour, per employee, plus their average salary wage (depending on whether the employee is a civilian worker, state or government, or private industry).
Add these up with the cost of free office perks and the upfront cost of your company’s investment is typically 1.25x to 1.4x the actual cost of a new hire’s base salary. To put that into perspective, if an employee’s base salary is $60,000, their actual value is closer to $75,000 - $84,000. Whoa!
Secondary Cost Factors in Determining Employee Benefits ROI
Determining the value of an employee also involves a number of indirect costs.
Time-to-Productivity
This refers to the time it takes a new hire to reach a level of performance and productivity equivalent to their peers. This calculation depends on various elements, including the quality of your onboarding process and ongoing internal support via a strong organizational culture and community. The formula for this valuation (like most formulas) is not straightforward but deals with the same basic components:
The average cost of retaining an employee (per week).
A process for measuring employee productivity.
The cost of mistakes and lost productivity.
The number of weeks required to reach peak productivity.
Annual Increases In Health Costs
U.S. companies expect costs for health care to increase by 4.4% in 2022. PwC says medical costs could go up by as much as 10%! Yet, most business leaders say they are not raising employee copays or deductibles. This, in addition to other changes, such as fluctuations in benefits status across the workforce (i.e., employees that change status from single to married with kids) will raise the cost of healthcare for employers, and impact your ROI figures.
Cost and Time to Administer Benefits
To determine this amount, HR leaders need a thorough understanding of the cost and value of their processes and operations, including software, tools, communication platforms and other technologies involved in the administration of benefits.
It’s also important to consider the cost of not having an optimized employee benefits administration process. For example, the cost of common human error due to lack of standardization and automation, which can result in compliance fines and penalties. Or, the cost of poor communication, which results in low participation numbers, benefits misuse and overall underappreciation for employee benefits, which can negatively impact turnover and retention.
Employee Turnover
It costs employers about 33% of a worker’s annual salary to replace that worker. However, factoring in benefits causes this figure to jump significantly!
Based on our findings above, if an employee’s base salary is $60,000, and their actual value is closer to $75,000, then the cost to replace that employee will be roughly $24,750. That’s really about 41% of their base salary! As you can see, there is a great incentive for employers to support retention efforts, and offering the ideal employee benefits package is a key driver to achieve this goal.
The Value of a Strategic Health Benefits Admin
According to research, 78% of employees are more likely to stay with their employer because of their benefits, and 50% would leave their job for better benefits.
This stat should pique the interest of every HR and business leader across every industry! It proves just how much weight rests on the quality of not only the benefits program itself but also the strategy involved in delivering and administering that program.
According to an article by SHRM, companies that use advanced health care benefits strategies spend $3,548 less annually per employee on health care. That’s some serious cost-savings to help generate a nice ROI. How do they do it?
Customized health plans that address the current needs of the employee population.
Pharmaceutical programs aimed at lower drug costs.
Greater investment in wellness programs to improve financial, physical, and mental wellbeing.
Quality assurance and a control process that analyzes data, such as claims history and employee feedback to gauge whether or not initiatives are working.
Promotion of healthcare consumerism and other initiatives that empower employees to make informed benefit and healthcare decisions.
Help Employees See and Appreciate The Value of Their Benefits
According to The American Institute of Stress, nearly two-thirds of workers were ready to quit their jobs prior to the pandemic due to workplace stress. About 80% of workers attributed poor or ineffective company communication as a primary influencer of their stress, but the deeper issue is more likely the disconnect between how work affects financial, mental and physical wellbeing, and how employers show that they care about these qualities of life.
Framed differently, if HR leaders fix the communication component involved in their benefits administration strategy, they could dramatically improve employee benefits ROI.
Why Communicating The Value of Employee Benefits Is Key
Through strategic and consistent employee benefits communication and education, employers can teach employees how to control their healthcare costs and results, thus helping employees become intentional and effective health care shoppers. Employees that take control of their healthcare journey and make conscious decisions based on price and quality can dramatically lower out-of-pocket and premium costs.
Furthermore, these employees are more inclined to enroll in High Deductible Health Plans (HDHPs) and other similar products that lower the cost of premiums for employees and employers alike.
The bottom line is that calculating employee benefits ROI requires a holistic approach, including evaluating direct and indirect costs, and good ol’ effort! However, this exercise is incredibly valuable to help you determine how to improve administrative strategies to ensure that ROI increases over time.
When employees see positive results related to their benefits, they become aware of the value of those benefits. They also understand how to use their benefits differently to improve financial, mental and physical wellbeing, driving stress levels even further down and significantly reducing turnover rates.
However, a cascade of positive outcomes is not as easy as it sounds. Only about half of employees understand employee benefits, which means education must start with the basics.
At brand28, we create short, simple, engaging videos to break down employee benefits terminology and explain important details in less complicated ways. In doing so, we help ensure that your organization’s investment in a first-rate benefits program sees the return it deserves. Check out our BeneBits™ bite-size, binge-worthy benefits videos that would be the perfect addition to your internal communication strategy!
Okay, are you fired up and ready to parlay your internal communications strategy into positive employee benefits ROI? Let’s talk! Contact us today to discuss.
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