How Much Are Benefits Worth Per Hour

average cost of benefits

Budgeting for employee benefits is a challenging yet crucial task for HR teams. Balancing an attractive benefits package with reasonable expenses requires careful planning and analysis.

In this comprehensive guide, we’ll dive into the average cost of benefits per employee, how to calculate the average monthly cost of employee benefits, and strategies for maximizing the return on investment (ROI) of your benefits program. Additionally, we’ll explore benefits as a percentage of compensation, and provide insights into how much benefits add to an employee’s salary.

What Is the Average Cost of Benefits to Employers?

A common question among employers is: How much do benefits cost per employee? According to the latest released data from Bureau of Labor Statistics (BLS), the average hourly cost of employee benefits varies by sector:

  • $14.41 per hour for civilian workers
  • $13.02 per hour for private industry workers
  • $23.37 per hour for state and local government workers

Using a standard 35-hour work week, the average monthly cost of employee benefits is approximately:

  • $2,185.51 for civilian workers
  • $1,974.70 for private industry workers
  • $3,544.45 for state and local government workers

On an annual basis, the cost of benefits per employee is:

  • $26,226.12 for civilian workers
  • $23,696.40 for private industry workers
  • $42,533.40 for state and local government workers

These figures demonstrate how significant the cost of employee benefits to employers can be, especially when considering both mandatory and voluntary benefits.

Benefits as a Percentage of Salary

Benefits make up what percentage of total compensation today? On average, benefits constitute about 30-38% of an employee’s total compensation. This varies by sector:

  • For civilian workers, the average compensation cost is $46.14 per hour, with 31% allocated to benefits and 69% to wages.
  • In the private industry, the cost is $43.78 per hour, with 30% for benefits and 70% for wages.
  • For state and local government workers, the cost rises to $61.27 per hour, with 38% allocated to benefits and 62% to wages.

Understanding employee benefits as a percentage of salary is essential for effective budgeting. For example, if an employee earns $50,000 annually, the cost of employee benefits could add approximately $15,000-$20,000 to their total compensation.

employee benefits definition

How Much Are Employee Benefits Worth?

Many employers and employees ask: How much are benefits worth in salary? On average, benefits increase an employee’s total compensation by 30-40% when factoring in mandatory contributions, healthcare, retirement plans, and additional perks.

For instance, an employee earning $25 per hour in wages could receive benefits worth an additional $7.50-$10 per hour, raising their total hourly compensation to $32.50-$35. This highlights how much employee benefits are worth per hour and their significance in overall compensation.

How Do Benefits Platforms Structure Pricing?

When evaluating the cost of employee benefits for a small business or a large organization, it’s crucial to understand how pricing models work. Common structures include:

  • Per Employee Per Month (PEPM): A straightforward model where costs are calculated by multiplying the PEPM fee by the number of employees.
  • Tiered Pricing: Offers discounts as the workforce grows, making it suitable for scaling businesses.
  • Customized Pricing: Tailored packages based on specific needs and workforce demographics.
  • Pay-As-You-Go (PAYG): Pricing adjusts based on real-time payroll data, often used for workers’ compensation.
  • Usage-Based Pricing: Charges depend on the usage of specific benefits, such as healthcare or retirement plans.

Why Has the Average Benefits Package Increased?

The average cost of benefits per employee has risen due to several factors:

Expanded Care Options

The pandemic, cost-of-living increases, and growing mental health needs have driven employers to expand benefits packages. Mental health services, childcare support, and wellness programs are now staples in many organizations.

Expensive Renewals

Rising costs for third-party benefit administrators and healthcare providers contribute to year-over-year increases. For instance, some insurance providers report renewal fees increasing by up to 20%.

Changing Work Models

With 28% of the global workforce working remotely, benefits such as home office stipends, online fitness subscriptions, and grocery allowances are increasingly common.

What Employee Benefits Should You Budget For?

employee benefits percentage salary

When calculating the cost of employee benefits, employers should consider both mandatory and voluntary offerings:

Mandatory Benefits

  • Social Security and Medicare: Employers contribute 7.65% of an employee’s salary for these programs.
  • Unemployment Insurance: Typically 0.1-0.4% of total compensation, depending on state laws.
  • Workers’ Compensation Insurance: Roughly 1% of total compensation covers workplace injuries and illnesses.

Healthcare Benefits

  • Private Medical Insurance: Costs range from $3-$6.73 per hour, depending on the sector.
  • Dental and Vision Coverage: Supplementary benefits that enhance employee satisfaction.
  • Disability Insurance: Covers an employee’s income if they’re unable to work due to injury or illness.

Lifestyle Benefits

Voluntary benefits are crucial for retention and engagement. Examples include:

  • Paid Time Off (PTO): A key incentive for work-life balance.
  • Retirement Plans: Employer-sponsored plans like 401(k)s.
  • Life Insurance: Low-cost but highly valued by employees.
  • Wellness Stipends: Covering gym memberships, mental health apps, or yoga classes.
  • Work-from-Home Stipends: Supporting remote employees with necessary tools and technology.

What Affects the Cost of Your Employee Benefits Program?

No two employee benefits programs are alike—the amount you’ll pay depends on numerous factors, including the average cost of benefits per employee, the average monthly cost of employee benefits, and benefits as a percentage of compensation. Let’s explore the key factors that influence the cost of benefits and how you can optimize your spending.

Factors Affecting the Cost of Employee Benefits

  • Company Size- The size of your business significantly impacts the cost of employee benefits. Larger companies often negotiate better per-employee rates. Conversely, smaller businesses may access discounted plans through group policies or self-funded plans, reducing the cost of employee benefits for a small business.
  • Breadth of Your Benefits Offering- Offering a comprehensive package comes at a premium. However, consolidating various benefits into a flexible account can save money and provide employees with more choices. This approach can help manage the cost of benefits to employers effectively.
  • Annual Increases- Factor in price increases due to inflation, rising healthcare costs, and other externalities. These annual adjustments often raise the average cost of benefits over time.
  • Administrative Mistakes- Errors in administering benefits, such as missing open enrollment deadlines or incorrectly charging employees, can result in significant costs. Streamlining these processes can lower the employee benefits percentage of salary.
  • Geographical Location- The cost of employee benefits varies by location. Research indicates higher average costs in cities like San Francisco and New York. In states like Arizona, home to many Fortune 500 companies, the average monthly cost of employee benefits tends to be higher.
  • Changing Employee Needs- As employees’ personal circumstances evolve, so do their benefit requirements. For example, a single employee may later need family coverage, increasing the cost of employee benefits per employee.
  • Foreign Exchange Fees- If your benefits provider operates internationally, fluctuating exchange rates can impact the cost of benefits monthly, affecting budgeting predictability.
  • Implementation Fees- Benefits providers may charge setup fees. Negotiating these costs upfront can help manage the cost of employee benefits to employer.
  • Replacement Card Fees- Some providers charge for replacing lost benefits membership cards, which can add up over time. Understanding these fees is critical to estimating the average cost of benefits per employee accurately.

How to Maximize Your Employee Benefits Budget

Scrutinizing Costs

When calculating how much are benefits worth per hour or how much are employee benefits worth, focus on strategies to maximize ROI while controlling costs. Here are eight actionable tips:

Focus on the ROI of Your BenefitsEvaluate the perks and benefits that provide the most value to your workforce. Consider how they contribute to retention, satisfaction, and productivity. Understanding what percentage of total compensation benefits make up today will help prioritize spending effectively.

Choose a Transparent Benefits Provider

Ensure your provider is upfront about costs. Avoid hidden fees that can inflate the cost of employee benefits for a small business unexpectedly. Benchmarking against industry standards helps identify unnecessary spending. Compare your program to local, national, and global averages to ensure your employee benefits salary ratio remains competitive.

Streamline Benefits AdministrationSimplify processes by using a platform that consolidates all benefits, reducing administrative overhead. This can significantly lower the cost of employee benefits to employers. Use forfeiture policies to reclaim unspent funds from unused benefits. For example, if an employee doesn’t use their full stipend, the remaining amount can be reallocated, minimizing the average monthly cost of employee benefits.

Consolidate Point Solutions

Reduce fees by consolidating benefits programs into a single platform. This approach can cut down on the employee benefits percentage of salary allocated to administration costs.

Reevaluate Benefits Packages Annually

Adjust benefits offerings yearly to ensure they meet employees’ needs and align with your budget. Annual reviews help keep the average cost of benefits per employee in check while maintaining employee satisfaction. Utilize tax-advantaged products to reduce the overall cost of benefits. Automated spending data can simplify tax deductions, making these savings easier to capture.

Know Average Benefits Cost to Maximize ROI

Understanding the average cost of benefits per employee is critical for employers aiming to attract and retain top talent. By knowing the average percentage of employee benefits, factoring in both mandatory and voluntary offerings, and optimizing costs through strategic pricing models, businesses can ensure their benefits packages remain competitive and financially sustainable. Whether you’re a small business or a large corporation, evaluating how much do benefits cost per employee and how much are benefits worth in salary will help maximize the ROI of your investment in employee well-being.

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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