You’ve hired top talent — now what? The best way to retain quality employees is with a comprehensive compensation package. Unemployment is at an all-time low, meaning it’s a job-seeker’s market, and a great salary isn’t enough to attract and retain the best talent.
In recent years, startups have reached for more creative, alluring perks including catered meals, dog-friendly offices, ping-pong tables, nap pods and even kombucha on tap. This stuff can indeed attract talented millennials looking to jump start their careers, but at the heart of it, workers don’t really care. They want real benefits that extend beyond an all-you-can-use Keurig machine (though throwing in a break-room Keurig never hurt employee morale).
Most competitive benefits packages include great health insurance, retirement options and paid time off along with other perks. That sounds expensive, but it doesn’t have to be. All you need for an attractive compensation package is to prioritize the benefits workers appreciate the most and weigh your options carefully. The most desirable compensation packages include a competitive salary, health insurance, retirement savings plans and paid time off.
What Makes a Competitive Compensation Package?
According to the U.S. Bureau of Labor Statistics, compensation packages for private industry averaged $34.77 per hour worked in September 2019, and about 30% of that went toward benefits. Those in retail and leisure/hospitality generally had the smallest total compensation packages, while those in utilities, information, financial activities and education had the highest.
Some benefits are required by law, but generally, these are the bare minimum and potential employees don't consider them when fielding job offers. In other words, they don't give you a competitive edge. You must legally:
- Comply with workers’ compensation requirements.
- Pay FICA taxes (i.e., Medicare and Social Security taxes). This essentially provides some base-level retirement and disability benefits.
- Pay state and federal unemployment taxes. This provides unemployment benefits.
- Contribute to state short-term disability where required.
- Comply with the Federal Family and Medical Leave Act. This essentially provides base-level paternity/maternity leave.
- Give employees time off for jury duty, military service and voting.
- Provide overtime pay for employees making an hourly rate.
If you want to actually have a competitive compensation plan that will attract and retain talent, you have to include more than what’s required by law. Typically, competitive benefits include:
- Health insurance (and sometimes dental and vision insurance)
- Retirement savings plans, like a 401(k)
- Additional insurances, such as life insurance or disability insurance
- Paid vacation days, sick days and personal days
- Paid maternity/paternity leave
- Tuition reimbursement
Some companies also offer gym memberships, day care assistance, free snacks, pet-friendly offices and company trips and retreats. These are mostly low-cost benefits that create a strong company culture and a great workplace environment.
Start With a Competitive Salary
What makes a compensation package competitive varies from industry to industry, but it starts with salary. A low annual salary is a surefire way to drive away the most experienced talent, but you can find out the average base salary for your industry by checking out salary reporting websites like Glassdoor or PayScale. Beyond that, 80% of employees reported that they would rather receive additional benefits than a salary increase.
In addition to base pay, some companies also provide employee compensation in the form of stock options and bonuses. Other companies provide company-owned assets like cell phones and cars, which can save employees hundreds or thousands in the long run.
Health Insurance Is Key
Though life insurance and disability insurance are attractive, health insurance is a must for companies that want a competitive edge. Unfortunately, it's often the most expensive benefit to provide, which is why it’s only offered by 55% of companies that have less than 100 employees (it's a legal requirement for companies with 50 or more full-time employees).
According to Harvard Business Review, companies paid an average of $6,435 per employee for individual health coverage and $18,142 for family coverage, but it's one of the most desirable benefits overall. A whopping 88% of employees said they'd give “some consideration” to a job with better health, dental and vision benefits. Small businesses generally choose from four types of health insurance:
- Health Management Organizations (HMO)
- Preferred Provider Organizations (PPO)
- Point of Service Plans (POS)
- Exclusive Provider Organizations (EPOs)
Each have their own pros and cons, and there’s no one-size-fits-all solution. For example, HMOs are good on the wallet but bad if you need specialized care, and PPOs are more expensive but better for people who need to see specialists.
In a competitive package, employers typically shell out 80% of the premiums, and employees pay the difference. If an employer offers a high-deductible plan, they’ll sometimes offset that with flexible spending accounts that allow employees to save pretax dollars for health care costs. Employers may also be able to integrate medical, dental, vision and pharmacy benefits into an overall health and wellness program that saves money. Make sure to ask your insurance representative.
SIMPLE or Bust
Less than half of small-business employees participate in retirement plans, but it’s always nice to offer. Companies that offer this type of benefit generally have increased employee retention and happier (read: more efficient and more pleasant) employees. Small businesses that offer retirement plans also get the added benefit of a tax credit mandated through the Economic Growth and Tax Relief Reconciliation Act of 2001.
Though there are a number of retirement saving plans, one of the most popular for small businesses is a Saving Incentive Match Plan For Employees. SIMPLE plans allow employees to set up a 401(k) or IRA, and employers either:
- Match employees’ contributions up to 3% of their annual salary.
- Contribute 2% for all employees regardless of whether they’re participating in a plan.
Other options include a Simplified Employee Pension Plan, which is like an IRA that allows you to contribute up to 25% of an employee’s compensation or $40,000, depending on which is less.
Paid Time Off
Nearly a quarter of all Americans don’t receive any paid time off, but it’s almost a requirement for a competitive compensation package. This can come in the form of paid vacation time, paid holidays, paid sick time and paid family or medical leave. On average, employees who do receive PTO get:
- 10.7 vacation days
- 6.5 sick days
- 4 personal days
- 6.5 holidays (some of which are mandated by law)
- 2 volunteering days (don’t underestimate a good deed)
Maternity and paternity leave is much less common. Only 11% of employers offer this luxury. Nonetheless, 70% and 56% of workers (respectively) consider those types of benefits extremely important.
In addition to the standard types of PTO, companies may offer sabbaticals or award additional vacation days to employees after they’ve worked a certain number of years. For example, Adobe Systems offers a four-week sabbatical to employees who have been with the company for five years, while Zillow offers six weeks (three paid weeks) to employees who have worked for six years.
A Good Work-Life Balance Will Save You Money
According to Harvard Business Review, better health, dental and vision insurances are the most desired employee benefits, but after that comes benefits that foster a greater work-life balance. This includes:
- Flexible work hours
- Work-from-home options
- More vacation time or unlimited time off
The former two options cost your company virtually nothing, and they may actually increase productivity, which means you’ll make more money as a result. Then, there’s unlimited PTO, which has become a trendy benefit among tech startups and major corporations alike, including General Electric, Dropbox and Sony Electronics.
Though it seems like unlimited PTO would be expensive, a 2019 study from Allianz Travel revealed that it could actually save money in the long run. A third of all workers were willing to trade higher pay for unlimited vacation, with just under half of those workers willing to give up 24% or more of their base salary. In addition, companies offering unlimited PTO don’t have to pay out accrued vacation, and studies have shown that employees generally take less time off than they would if you gave them a set amount of vacation days.
- Fundera: Small Business Health Insurance Options for 2020
- Harvard Business Review: The Most Desirable Employee Benefits
- U.S. Bureau of Labor Statistics: Compensation Costs in Private Industry Averaged $34.77 per Hour Worked in September 2019
- PeopleKeep: Does My Employer Have to Provide Health Insurance?
- Entrepreneur: The Basics of Employee Benefits
- T Sheets: How Much PTO Should I Give My Employees?
- Inc.: One Underused Perk That Keeps Top Talent Happy and Productive at Work
- QuickBooks: Guide to Employee Benefits for Small Business
- Glassdoor: The Complete Guide to Ensuring Irresistible Benefits
- Glassdoor: 20 Companies Offering Unlimited PTO
- The Guardian: Unlimited Vacation Isn't as Crazy as it Sounds – and it Can Save You Money
- Workforce: Unlimited Paid Time Off Is a Deceptive Ploy in Today’s Workplace