Benefits for 2011: It’s Decision Time for Owners and CEOs

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Benefits for 2011

Benefits are differentiators for small businesses.

Mike McKean, CEO of new-product development and founder of The Knowland Group, wants his company to be an employer of choice in all four of its U.S. locations. For his 60 employees, he offers dependent-care cost reimbursement, tuition reimbursement, and 401(k) plans as well as health, vision, dental, and wellness benefits.

That’s a significant array of benefits, but McKean has two guidelines for the choices he offers. One, he wants to ensure that The Knowland Group’s package is comparable to, and “perhaps even better” than, what similar businesses in the area offer. Two, some choices are in the mix because they fit with the company’s core values. A subsidized gym membership, annual fitness challenge with prizes, and regular visits to HQ by a personal trainer—as well as those child-care and dependent-care subsidies—fall in that category.

McKean’s company, which provides business-development services to the hospitality industry, is growing quickly, and McKean believes that the benefits package has helped.

“If someone is comfortable that their children are being well cared for, they are going to be better employees. If someone is going to the gym, they’re going to be more alert.”

McKean had about 15 percent of employees using the gym at the peak, but he adjusted his offer of health club memberships since the recession.

“Now we require that our employees prove that they go to the gym for us to reimburse them completely,” he said. Employees who go to the gym five to nine times per month receive a 50 percent discount on their memberships. Those who go 10 times or more per month have their memberships paid in full.

McKean realizes business benefits from providing employee benefits. The Small Business Authority asked him to calculate his benefits costs using the standard yardstick, percentage of payroll.

“The benefits are average for a company our size,” he said.

Result: The benefits run 16.7 percent of payroll. Health insurance alone (dental and vision are excluded in this definition) takes a 4 percent bite. That’s actually much better than average spending.

What Percent of Payroll Should You Spend?

For this, we need to look at health care alone, because other benefits are not easily comparable. The Bureau of Labor Statistics shows health insurance costing 6 percent of total compensation for companies with one to 49 workers, 7.2 percent of total compensation for companies with 50 to 99 workers, and 8.5 percent of total compensation for companies with 100 or more workers.

Mercer, the benefits consulting company, held webinars on health reform and in July conducted a survey of employers who registered for the webinars. The survey, “Health Care Reform: Getting Ready for 2011,” was published in August. The survey gauged employers’ thoughts about the impacts of the 2011 provisions of the Patient Protection and Affordable Care Act.

In the survey, employers with fewer than 500 employees responded that they expected their “change in total health benefit cost before making changes to plan design [except as required by PPACA]” to be nearly 12 percent. Those employers also expected their “increase in total health benefit cost due only to 2011 PPACA provisions” to be 3 percent.

Employers responded that by making changes in their coverage, they felt they could keep the increase down to 6 percent. The survey included 1,092 employers of all sizes, 299 of whom had fewer than 500 employees.

One way that employers may hold their costs to just 6 percent above 2010 levels is by increasing the share that workers pay for dependent coverage as opposed to employee-only coverage—56 percent of the respondents said that they would raise the contributions.

According to Beth Umland, Mercer’s research director for health and benefits, 44 percent of the respondents will be looking to reduce health-care costs by offering wellness and health-management options.

Inverse Benefits
Because every dollar a small company spends on benefits reduces the pot that could be used to beef up salaries, companies that employ two or 10 or 60 workers may think hard about the array of benefits they will offer.

“The cost is a huge deal,” said Stephanie Cathcart, a spokesperson for the National Federation of Independent Business.

“When a small business makes the decision to offer [a particular package or benefit], they’ve run the numbers and realize they can do it this year and in the future. They don’t want to drop it once they offer it.”

Yet sometimes, they may have to scale back or shoulder less than the full cost.

Business owner Lori Rosen runs two small businesses: an ecommerce site called Blacksocks.com, which has three employees, and a public relations firm, The Rosen Group, which has 20 employees. She started the latter company in 1984 with full health care that was 100 percent employer-paid.

“Unfortunately, it’s a bit of an inverse benefits model,” she said.

Costs were a lot less then, and when young people joined the company, “We were not able to offer huge salaries, but with the health care, it brought it to the level playing field of market rates.”

Over the years, she had to restructure the plan to include an employee contribution to the health care. Employees now pick up 35 percent, with the company contributing 65 percent.

“We also have higher deductibles to keep the cost from going too high,” she said.

Rosen has done what many other businesses, large and small, have done as health-care costs have steadily climbed: She shifted a bit more of the cost year-by-year to employees. But a number of other benefits have been added to ease the pain. Discounts on mass transit, telephone plans, and discretionary purchases like movie tickets are part of her two companies’ benefits packages.

Three years ago, she started closing up for a week between Christmas and New Year’s.

“It’s a free week’s vacation,” Rosen said, though employees must check email and phone messages during that time. Plus, there’s a profit-sharing plan to which Rosen makes a contribution that varies annually—it could be $50,000 or $70,000 or $20,000.

She has not figured out the percentage of payroll that goes toward benefits. It’s simply a cost of doing business, and the choices she offers are ways to differentiate her company on the playing field.

Another benefit that Rosen offers is a group discount at a health club in New York City, which a few employees take advantage of. Initially, Rosen paid $400 per year toward employees’ memberships at various clubs. She scaled that back during the recession.

A Small Advantage

According to MetLife’s “8th Annual Study of Employee Benefits Trends,” when it comes to benefits, business owners rated controlling costs as their biggest concern, followed by a desire to have a good package that will help retain employees, then productivity. Small businesses are in a good position to use benefits programs to engage their workers, thereby improving productivity and job satisfaction. This is because small-business owners have more personal relationships with employees and can more easily tailor benefits to suit them.

“Ironically, the larger companies are not offering that many better benefits,” Rosen said. “Their policies are really no different than ours in terms of vacation. Maybe they have sick days and all that, but the truth is when you have a small company, you can be more flexible. You can allow things if there are extenuating circumstances.”

Tags: Insurance, Payroll

This entry was posted on Wednesday, April 6th, 2011 at 4:15 am and is filed under Business Tips, Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.