Employee Benefits Strategy: A Complete Guide

What Is An Employee Benefits Strategy?

An employee benefits strategy refers to an organization’s approach to designing its benefits package. The ultimate goal is to use benefits to improve recruitment, retention, and productivity.

A successful benefits strategy is tailored to the needs of the workforce and aligns with the organization's financial capabilities and strategic objectives.

While benefits vary from company to company, some common benefits types include:

• Health insurance 
• Dental and vision insurance
• Retirement accounts
• Paid vacation and sick time
• Flexible working conditions.

Why Is An Employee Benefits Strategy Important?

Designing a benefits package that meets your organization’s and employee’s needs takes planning. 

When done right, an effective employee benefits strategy can:

• Attract and retain talent
• Boost employee morale
• Increase productivity
• Lower absenteeism.

As a seasoned benefits analyst, I’ve witnessed firsthand the impacts of an efficient benefits strategy as well as the downfalls of an ineffective strategy. 

I’ve seen an organization reduce the time to hire by 35% within 5 months by offering attractive benefits such as unlimited PTO and flexible working arrangements. 

On the opposite end of the spectrum, I’ve also seen employee attrition increase by 20% within 3 months of the removal of a popular benefit such as a 401k. 

In that instance, a proper cost analysis wasn't done during planning and the company was overwhelmed by the cost of the benefit due to headcount growth.

Ultimately, organizations without a clear benefits strategy wind up choosing benefits that don’t meet the needs of their population and business.

This can result in poor resource management, financial challenges, increased employee attrition, and loss of competitive edge in the candidate market.

Companies should weigh any fringe benefit expenses against these proven benefits.

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How To Develop Your Employee Benefits Strategy

Developing a coherent benefits strategy means balancing what’s best for your organization and workers.

Using one of the top payroll software solutions during the development of your benefits strategy can also provide accurate payroll data and help aid in informed decision-making.

Follow these steps to help you with your benefits planning:

1. Assess needs and preferences

A good starting place is reviewing your existing benefits package and assessing its effectiveness. 

Some methods to achieve this:

• Analyze benefit utilization data: Asses enrollment numbers and usage rates of different benefits and request regular utilization reports from benefits providers. A list of top benefits administration software solutions can help you here.
• Conduct surveys: Gather feedback from current and potential employees to understand what benefits are most valued and how they’re feeling overall.
• Analyze workforce demographics: Consider the needs of your workforce, including age, lifestyle, and family status, to tailor your benefits package.
• Benchmark against industry standards: Research the industry and benchmark your benefits package with industry standards and competitors.
• Assess other HR metrics such as turnover, engagement, and absenteeism.

The aim is to determine where your existing package is and isn’t contributing to business goals and success.

2. Set goals

Now you’ve got the lay of the land, determine what you want to achieve with your benefits strategy.

Establishing measurable goals that align with your long-term business strategy leads to sustainable practices that grow with your company.

If you’re finding it hard to attract talent or absenteeism is high, could employee benefits help with these issues?

Common goals of benefits are:

• Help attract the right talent
• Aid in employee retention
• Support employee health and well-being
• Keep you compliant.

Think about the results you want to see and establish some KPIs that you can later use to help monitor the effectiveness of your benefits package. Commons KPIs you should keep track of are:

• Benefit enrollments/changes
• Total cost of employee benefits
• Cost per employee
• Benefit utilization. 

3. Establish a budget

Offering generous benefits can help sway talent toward your organization, but they come at a cost.

According to the Bureau of Labor Statistics (BLS), employee benefits for private industry workers averaged $12.77 per hour worked in December 2023. This works out to 29.6% of total employee compensation ($43.11 per hour).

So benefits cost management is crucial when building your strategy and sustainability goes hand in hand with this. 

The biggest mistake I see organizations make is offering a benefit without the proper cost analysis and consequently realizing that it's too costly an investment and having to take it away.

When forecasting benefit spend and its impact on your overall payroll, consider:

• The current costs of benefits
• Historical trends
• Headcount planning
• Employee and employer cost-sharing budget.

Familiarize yourself with PEPM cost (Per Employee Per Month) as this is the most common benefit pricing model and the easiest to use when allocating funds for benefits.

4. Research and select benefits

The employee benefits industry continues to grow and every year we see enhancements as well as new benefit offerings. 

While this is exciting, it can lead to choice overload and FOMO. Stay true to your planning and let your previous assessment guide your conversations with benefit providers. 

Prioritize by need vs want and, above all, make intentional decisions by asking yourself which benefits will have the greatest impact on your employee population.

When getting started, think of the following:

• Core benefits: Start with core benefits such as health insurance, dental and vision insurance, retirement savings plans, and paid time off.
• Additional benefits: Consider adding other benefits based on employee feedback and your objectives, like life insurance, short-term and long-term disability, pre-tax savings accounts (HSA & FSA), flexible working hours, wellness programs, and professional development opportunities.
• Legal requirements: Ensure your benefits package complies with all local, state, and federal laws.

Leverage your brokers to guide the conversation and connect you with providers in the market that may fit employee needs and your budget.

5. Monitor and evaluate

Now you have your strategy in place, regularly review it to assess its effectiveness in light of the goals.

Keep track of the KPIs established during your goal setting. Review enrollment data and benefits utilization, has previous employee behavior changed? Are you seeing new trends? 

One of the most helpful data points is employee inquiries through a ticketing system or email.

For example, if people are reporting issues with a vendor that is something to flag and will be useful in next year’s planning.

This also covers keeping informed about changes in laws and regulations that could affect your benefits obligations.

6. Adjust as Needed

Be prepared to adjust the benefits strategy based on feedback, changes in your workforce, and financial considerations.

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