What’s the Average Employer Benefit Contribution?

Dear Bud,
I own a design agency, and we aren’t typically in the practice of comparing ourselves to other agencies. However, there’s one area in which I’m really curious about how we stack up. Can you reveal some data about average employer benefit contribution? Not to sound immodest, but I think we offer an excellent employer benefit contribution for both employees and dependents. I just don’t really have any comparison points to prove it. I’d appreciate your input.
Thanks,
My Company’s Contributions Outshine Yours

Hi M.C.C.O.Y.,

Almost weekly, a business owner asks me how much other companies contribute to their employees’ benefit programs. The questions inevitably turn to: “What’s the average employer benefit contribution?” “What’s expected?” And of course: “What’s the least amount with which I can get by?” I usually respond with a number of questions:

• What’s your turnover experience? Are you losing key employees to the competition?
• What feedback are you getting from current and former employees? Do you do exit interviews?
• And a question for new hires: What did your former employer pay on your benefits?

My finding, most of the time, is that the answer to the average employer benefit contribution is less important than the answers that come out of asking these follow-up questions.
Other than old-fashioned curiosity, I suspect most of the business owners asking about the average employer benefit contribution already know—or have a good indication as to—what the answer is. Departing employees are usually quite willing to say why they’re leaving, and one of the most common reasons (after gross pay) is benefits contributions. The people responsible for HR in most companies will readily admit if they have complaints or negative feedback from active employees about contributions.
Another sure bet to determining if your contributions are too low is the level of participation by employees in the offered plans. In fairness, low participation can also reflect a lack of affordability caused by low pay, or it can also be poor plan selection versus employee wages. The latter occurs when the plans offered have too rich benefit schedules and higher monthly premiums. Previously, I’ve addressed why a variety of plan selections should be offered.
So, what’s the average employer benefit contribution, and how much is enough? Let’s look at contributions for employees and then contributions for dependents. The national average employer benefit contribution for small business employers (100 employees or less) is around 80-85%. Truth be known, this percentage is probably polarized between about half of employers paying the minimum of 50% and the other half paying 90-100% of the premiums for employees. Growing startup companies tend to be in the 80-100% category—necessary to retain existing and attract new employees. Employers at the 50% end tend to be those employers who began contributing the minimum in industries with high normal turnover, low or very tight profit margins, and companies in which the majority of workers are young, low paid, and part time. Newer companies tend to build higher contribution levels into budgets and overhead.
As far as dependents’ contributions are concerned, higher contribution levels are reflective of the overall average age of the workforce of a particular company. Companies that have a large population of families will normally contribute 35-60% of the dependent portion of the premium. The phenomena associated with this circumstance is that these companies often get great employee retention by paying higher percentage contributions for dependent premiums, while paying lower salaries. The more common dependent contribution levels are 0% (two thirds of companies) and 30-50% (one third of companies).
So now that we know the national average employer benefit contributions, how does your company compare, M.C.C.O.Y.? What advantages could your company experience if you raised employee contributions by 10-20%? What perceptions would your employees adopt if you raised dependent contributions? How important is a stable workforce to the future of your company? How much more can you afford to invest in your employees? I’ve now asked you a bunch of questions in this column. My inbox is always open for your inquiries.

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