A Guide on the Average Cost of Employee Benefits
Learn about the costs of the most popular employee benefits to build a package that your employees will value and that fits your budget.
The labor market is hot right now for candidates, and there are currently more job openings than unemployed workers. When people are looking for their next move, they’re considering many factors, including compensation, location, and various benefits (vacation, leave, healthcare, flexible working arrangements, etc).
Employee benefits are more important now than ever, with COVID-19 making people reconsider what it means to be part of the labor force. While compensation will always be important, employees are also looking for a company that values them as people with a life and needs outside of the workplace. Below we list sought after benefits and their average cost, so you can build a package that your employees will value — and your company can afford.
The cost of employee benefits (national average)
The average cost of benefits per employee was $12.06 per hour for civilian workers, $20.50 per hour for state and local workers, and $10.76 per hour in the private industry.
Before we dive into the cost of different popular benefits, it’s helpful to understand the cost of an average package. The United States Bureau of Labor Statistics found that in June 2021, the average cost of benefits per employee was $12.06 per hour for civilian workers, $20.50 per hour for state and local workers, and $10.76 per hour in the private industry.
| wdt_ID | Sector | Average pay cost | Average benefits cost | Average healthcare cost | Total hourly cost |
|---|---|---|---|---|---|
| 1 | Civilian workers | $26.85 | $12.06 | $3.09 | $38.91 |
| 2 | State and local workers | $33.09 | $20.50 | $6.10 | $53.59 |
| 3 | |||||
| 4 | Private industry | $25.89 | $10.76 | $2.63 | $36.64 |
Top benefits and what they cost
Providing employee benefits is crucial for both attracting and retaining top talent, especially given the labor shortage that many companies are grappling with. Solid benefits can help increase productivity, and keep your employees happy. So what types of benefits are people looking for, and how much do they cost? We cover some of the most in-demand benefits below.
Pay/compensation
Average cost: $25.89 – $33.09 per employee per hour (Industry/state/position-dependent)
Compensation will always remain a top consideration for people when looking for their next career move. While the federal minimum wage is $7.25 an hour, states have their own minimum wage laws. Compensation packages should also consider bonuses, commissions, and overtime pay. Different types of bonuses to factor in include:
- Signing bonuses
- End of year bonuses
- Referral bonuses
When determining a compensation package, employers should also be looking at the market average and competitors to reduce turnover.
Healthcare
Average cost: $7,470 for single coverage and $21,342 for family coverage
1 out of 6 workers stays in a job they dislike to keep their healthcare benefits, and 70% of respondents in our survey said they wouldn’t accept a job that didn’t provide health benefits.
Healthcare is a top benefit for job seekers when looking for work. In fact, 1 out of 6 workers stays in a job they dislike to keep their healthcare benefits, and 70% of respondents in our survey said they wouldn’t accept a job that didn’t provide health benefits. Healthcare is among one of the most expensive benefits companies can provide: According to the Kaiser Family Foundation‘s research, “in 2020, the average annual premiums for employer-sponsored health insurance are $7,470 for single coverage and $21,342 for family coverage.” 2021 results will be released later this year, but are likely to increase.
There is a large gap, however, between what larger firms cover, compared to smaller firms: While employers pay ~83% of health insurance for single coverage and ~73% for family coverage, smaller firms cover significantly less. For example, 28% of covered employees in smaller firms contribute more than half of the cost for family coverage, compared to only 4% of employees in large firms.
While expensive, there are many advantages to offering healthcare coverage: Workers are healthier, retention is higher, and you’ll have access to a stronger pool of applicants.
Paid time off
Average cost: $2.70 – $4.03 per hour, per worker (but very variable, depending on your company policy)
Paid time off includes vacation days, sick days, and paid holidays (e.g. Christmas and Labor Day). Employees are looking for companies that provide more flexible paid time off policies, vacations, and sick days. Given how much priorities have shifted over the last few years, the average PTO of 10 days likely won’t cut it anymore when trying to attract top talent.
People are looking for as much flexibility as possible, and many companies (41%) offer a PTO policy, versus a traditional leave policy. With a PTO policy, employees have a group of days they can use as they please. On the other hand, a traditional policy provides days that can be used specifically for vacation or sick leave. In terms of cost, a PTO policy could be more expensive for employers, since you might end up paying out more towards the end of your year. Some companies have moved to an unlimited vacation policy to avoid these types of payouts.
Leave
Average cost: $0.25 – $0.69 per employee per hour
Leave, in this case, refers to sick leave and personal leave (e.g. parental leave). While there are no federal laws that require employers to give workers paid leave, there are companies that are subject to the Family and Medical Leave Act (FMLA). These companies include “all public agencies, all public and private elementary and secondary schools, and companies with 50 or more employees.”
Your company might not be subject to the FMLA. Hhowever, it’s a good idea to provide some type of parental, sick, and bereavement leave to attract prospective employees.
Parental leave in particular is a hot topic in the American labor market (and in the political world) because the U.S. is one of the only countries in the world (and the only Organisation for Economic Co-operation and Development member) to not have mandated parental leave. Workers in the U.S. job market who plan on becoming parents are actively seeking out companies that offer parental leave, with 40% saying they would give heavy consideration to employers that provide paid parental leave. Read our guide here on how to set up a successful maternity and paternity leave program.
Workers in the U.S. job market who plan on becoming parents are actively seeking out companies that offer parental leave, with 40% saying they would give heavy consideration to employers that provide paid parental leave.
Life insurance
Average cost: $0.4 – $0.7 per employee per hour
Providing a life insurance policy to your workforce gives your employees reassurance that their families would be cared for, in the event of their unexpected passing.
Retirement account
Average cost: $1.25 – $6.74 per employee per hour
Because many workers are not saving for retirement, offering a retirement plan can be a safety net for them. One JP Morgan study found that almost half of small businesses offer a retirement plan, and most of those are 401(k)s. Language and rules around 401(k)s can be confusing, so we cover your questions here.
Flexible schedules, growth opportunities, trust, support
Average cost: Invaluable
The way employees view work has evolved drastically over the last few years, particular since the COVID-19 pandemic shifted priorities and sought after benefits. People are looking for employers who provide flexibility and support, offer growth opportunities and trusts them to do their jobs, without micromanaging their schedules.
Other (almost) cost-free benefits that employees value include recognition of good work, transparency, mentorship programs, and showing appreciation for their efforts. Put simply, employees are looking for mutual respect and trust between themselves and their employers.
Why are benefits important?
Benefits are anything your company can provide, on top of the compensation, to keep your workers happy, and feel valued. Providing benefits your employees will appreciate will keep them from leaving, reduce turnover and training costs, and attract the best possible talent. Moreover, employees might simply not accept your job offer at all if you don’t provide benefits, or leave if another company provides a better package: In our survey, 28% of respondents left a job because of a poor benefits package. So it’s in your best interest to crunch the numbers, speak to your team, and determine the best benefits package for your people.
Benefits can be very confusing and can come with a hefty price tag. Zenefits has put together many resources to cover various benefits, including an extensive guide here to help you make the right decision.
