Analyzing Employee Benefit Levels

 ANALYZING EMPLOYEE BENEFIT LEVELS

by John Jaques

Many agency managers spend a great deal of time reviewing and setting staff and producer compensation levels, but often understate, overstate, or ignore the impact of the agency's employee benefit package on profitability.

For industry comparison purposes, let's define employee benefits to include payroll taxes, Group insurance, and retirement plan contribution. The combined expense for these benefits should be 15% to 20% of base compensation. A higher-than-average benefit package (with expense levels well in excess of 20%) should be reviewed for its net impact on the agency; it rarely brings a higher level of employee productivity, loyalty, and quality of performance that would justify the excess. When looking at the total cost of personnel, it's generally more advantageous to put extra cash dollars into higher salaries to attract higher-quality, more productive employees, than in an above-average benefit program.

However, it's also important not to lag too far behind the industry in offering benefits. This could put the agency at a competitive disadvantage when attracting top talent. Most mid-size to larger agencies today offer something like the following benefit program:

• Group Health insurance is paid for the employee by the agency. Sometimes, a minimal monthly co-payment of $10 to $25 is deducted.
• Dependent Health coverage is fully paid by the employee.
• Long-Term Disability is paid by the agency for the employee.
• Dental and Vision coverages are provided by more than half of agencies, with the employee paying any coverage for dependents.
• Life insurance to the $50,000 maximum is paid by the agency, while voluntary Life to three times salary is typically paid by the employee.
• Retirement plans are limited to 401(k) programs in at least 70% of agencies. The agency contribution tends to be either a 50% payment matching the first 6% contributed by the employee, or a fixed 2% agency contribution. Only rarely do we see profit-sharing or pension plans (defined contribution or defined benefit) in today's marketplace.

Revisiting your employee benefit program should be a part of management's annual planning. Without a specific review of the plan's total cost from time to time, its expense can begin to add up fast, with little net benefit to the agency.