Which Benefits Can You Afford?

There's no point in trying to decide which benefits you want to offer until you figure out what you can afford. In theory, for most benefits, it won't cost you anything out-of-pocket to offer benefits to your employees because you could simply have them pay the entire cost through payroll deductions. If you take this approach, however, your employees may not see your benefits as particularly beneficial since they have to bear the entire cost.

Tax benefits. Remember that many benefits are tax-deductible to your business and tax-exempt for the recipient. The result is that Uncle Sam foots part of the bill for these types of benefits. The cost to you will be less than the cost the employee would pay if he or she purchased the benefit on his or her own. Thus, purchasing tax-deductible benefits can be more cost-effective than just giving the employee more pay.

If you want to share the cost of benefits with your employees, figure out how much per month per employee you are willing to contribute. You can then be a better benefits shopper because you'll know how much it's going to cost you and how much it's going to cost your employees.

Work Smart When shopping for benefits, keep your employees' wages in mind. If you think that their share of the cost of a certain benefit is going to be more than they can afford, there's no point in offering it.

How much do benefits cost? The cost of benefits is hard to determine because costs depend on so many factors. In the case of benefits related to insurance (such as health insurance or life insurance), those factors include:

• the number of employees in a group
• the levels of coverage/reimbursement in a plan
• the demographic statistics of your group
• the geographical area

When it comes to benefits that involve time away from work, while there are no premiums to deduct, there is still a cost involved. Things that affect that cost include:

• how much the employee is paid
• how long you can afford to have the employee be away from the job
• how much it would cost to replace the employee temporarily
• how much productivity would suffer