Employee Benefits

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The phrase "employee benefits" is an umbrella term that includes insurance programs, fully compensated absences (vacations, holidays, sick leave), pensions, stock ownership plans, and employer-provided services (such as child care) offered by employers to their employees. Employee benefits are also referred to as fringe benefits. Yet other benefits sometimes are treated by government as forms of income for tax purposes. These include bonuses, profit sharing, and the provision of a leased vehicle or housing. All "fringes" are by definition offered at the employer's option; thus employer contributions to Social Security, Medicaid, basic Medicare, Workers' Compensation, and other programs are not viewed as fringe benefits; they are required under law.

Certain categories of employee benefits may require that the employee pay a part of the cost of the benefit in order to receive the employer's contribution. For this reason, employees who have access to benefits outnumber employees who actually participate in the benefits offered. Young employees, for instance, may opt out of retirement programs. An employee may choose not to participate in a medical insurance program because he or she may already be covered by the spouse's participation in a family program elsewhere.

THE NATIONAL SURVEY

The U.S. Bureau of Labor Statistics (BLS) conducts an annual compensation survey as part of which it collects data on the major categories of employee benefits. Benefits tracked include paid leave, health insurance, retirement plans, life insurance, and disability benefits. The highlights of the BLS March 2005 survey follow:

  • Paid Leave was the most common employee benefit offered; 77 percent of employees had both paid holidays and paid vacation time. Sixty-nine percent of workers had paid jury duty leave; 48 percent had paid military leave benefits.
  • Health Care Benefits. Seventy percent of employees had access to medical care benefits, 46 percent had access to dental care, and 29 percent to vision care. Sixty-four percent had outpatient prescription drug coverage. Because most plans required employee participation, participation rates were much lower: 53 percent of employees participated in medical plans, 36 percent in dental plans, 22 percent in vision care plans, and 48 percent in drug coverage. Employee contributions averaged $273.03 for family plans and $68.96 for single employee coverage.
  • Retirement Benefits. Sixty percent of employees had access to such benefits; 50 percent participated in such programs.
  • Life Insurance. Of all private employees, 52 percent had access to such insurance; 49 percent participated.
  • Disability Insurance. Forty percent of employees had access to short-term and 40 percent to long-term disability benefits. Nearly all employees participated in these programs.

TRENDS IN ACCESS

Trends in access to employee benefits in the six-year period 1999 to 2005 have been generally favorable from the employee's point of view showing either no change or a positive change. Thus access to retirement plans and medical care plans remained the same. The number of employees enjoying paid holidays, paid sick leave, and access to child care services and short-term disability programs increased. Child care access showed the strongest positive increase, from 6 percent of employees having access in 1999 to 14 percent in 2005—an 8 point increase. On the negative side, fewer employees had paid vacations—79 percent in 1999 and 77 percent in 2005. In 1999 67 percent of medical plans required an employee contribution; this number rose to 76 percent in 2005, a 9 point increase reflecting the continuing growth in healthcare—and hence in health-insurance—costs.

SMALL ESTABLISHMENTS

The BLS national survey provides breakdowns in its data by establishment size rather than company size, thus for establishments with 1 to 99 workers and those with 100 workers and more. Data on small businesses available from BLS are rather old; therefore this "small establishment" breakdown is the closest approximation to "small business" we now have available. Across the board, a smaller percentage of employees working for small establishments have access to benefits. Under medical programs, 59 percent of small establishment workers had access (versus 84 percent of large establishment workers); medical coverage was also the top-ranking programmatic benefit (ignoring time off) offered by small establishments. Data for other categories follow showing percent of workers having access in small establishments and, in parentheses, the percent in large establishments: Dental: 31 (65); Vision: 19 (41); Prescription Drugs: 52 (79); Retirement: 44 (78); Life Insurance: 37 (70); Short-Term Disability: 28 (55); and Long-Term Disability: 19 (44).

While small establishments offer fewer employees medical insurance, the costliest of the employee benefits, for single employee coverage small establishments paid nearly as high a proportion of such insurance as did large establishments. In 2005, small enterprises picked up 82 percent of the medical insurance premium; large enterprises 83 percent. Small establishments, however, required more participation from the employee opting for family coverage: they paid 66 percent of such premiums over against 74 percent paid by large establishments.

GOODS PRODUCERS AND SERVICES PROVIDERS

In every programmatic benefit category, goods producers offered more of their employees benefits than did establishments engaged in providing services. Among goods producers the leading category was short-term disability insurance, with 88 percent of employees offered such a benefit; medical coverage was a close second, with 85 percent of employees having access. In these two categories, service providers offered 36 percent of employees short-term disability coverage and 66 percent medical coverage. Data for the other categories follows in abbreviated format showing percent of workers in the goods producing sector having access and, in parentheses, the corresponding percentage for services producers: Dental: 56 (43); Vision: 36 (27); Prescription Drugs: 80 (59); Retirement: 71 (56); Life Insurance: 63 (48); and Long-Term Disability: 31 (30).

Goods producers also paid more of medical premiums than companies in the service sector: 84 percent for single coverage and 75 percent for family coverage. Corresponding values for service sector companies were 82 and 69 percent.

THE PROS AND CONS OF BENEFITS

A comprehensive benefits package can be an important and useful asset for a company in attracting and holding employees. A company with a reputation for excellent benefits—particularly a long history of offering and protecting such fringes—has competitive advantages and, indeed, can in part compensate for the cost of such benefits by paying somewhat lower salaries and wages.

Rich benefits packages, of course, also have a downside. They are costly. Cutting back on benefits in difficult economic environments can produce adverse effects on employee morale and productivity. In the U.S., where such benefits are available to a large percentage of the population and where the benefits (particularly medical care) are funded by the private sector, employee benefits can also reduce competitiveness over against employers overseas who either offer no benefits at all or where such benefits are paid from general taxes.

The two major forces at work affecting employee benefits are thus availability of labor on the one hand, which pushes up benefits in times of rapid growth, and the need to control costs, which causes benefits to be curtailed or their costs to be transferred to employees, on the other. Economic cycles, therefore—and international trade pressures—affect trends in benefits in a see-sawing fashion. Changes between 1999 and 2005, a period generally of economic downturn, illustrate this process: child-care programs were increasing, in part to attract a lower-paid female labor force; at the same time medical costs were being transferred to employees.

Small businesses tend to benefit from economically stressful times because cut-backs and layoffs increase the labor pool and small organizations with minimal benefit programs can compete more effectively for employees. In rapidly growing economies, large organizations improve their benefits programs to attract scare labor resources. These conditions suggest the optimum solution for the small business: it is to offer benefits sufficient to hold employees in good times but to keep benefits always affordable and modest enough to survive the downturns.

BIBLIOGRAPHY

"Easier Done than Said." Employee Benefit News. 1 December 2000.

EBRI Research Highlights: Retirement Benefits. Employee Benefit Research Institute. 2003.

Michael, Andy. "Playing a Pivotal Role." Employee Benefits. December 2000.

Simmons, John G. "Flexible Benefits for Small Employers." Journal of Accountancy. March 2001.

"Small Biz Balks." Crain's New York Business. 13 February 2006.

U.S. Department of Labor. Bureau of Labor Statistics. National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2005. August 2005.





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