Organizations have always used attractive compensation packages to attract and retain top talent. In the current hiring market, with its high attrition rates, it’s more important than ever to pinpoint which types of employee benefits are the most appealing to current and prospective employees.
If you’re involved in the hiring process, in charge of creating your org's compensation philosophy, or interested in how you can improve the employee experience, keep reading to find out what employee benefits are, why they’re important, and to learn about the different types of employee benefits with examples of each type.
What Are Employee Benefits?
In short, employee benefits refer to the many forms of non-salary/non-wage compensation an employer might offer employees in addition to their regular financial compensation.
Employee benefits are generally included in job listings and serve as a way to attract talented employees to an organization. They can also be used to improve the well-being of employees, for example fostering healthy habits such as exercise.
Benefits are stipulated in the employment contract and may be renegotiated and updated, making them a powerful employee retention tool.
Why Are Employee Benefits Important?
Employee benefits are an important tool in the human resources toolkit as they help to attract and retain employees by making the overall compensation package more appealing. They also offer the company certain tax benefits that don’t come with regular compensation.
Additionally, as we’ll discuss in more detail below, some employee benefits are required by federal or state law, which means organizations are mandated to provide these benefits to remain compliant.
Let’s take a closer look at the main types of employee benefits out there, with some examples of what these look like in practice.
Types Of Employee Benefits
Broadly speaking, there are three primary types of employee benefits:
Employee benefits that are required by law
These are legally-required minimum employee benefits. Labor laws vary by country and/or state. For this article, we’re discussing benefits required by U.S. federal law.
Employee benefits that are considered an industry standard
While some employee benefits are required by law, others are not legally required but are so common as to have become the expected standard in certain industries.
When this happens, companies that don’t offer this “industry standard” benefit lose some of their bargaining power and may have to offer additional compensation to make up for the discrepancy.
Organizations increasingly offer another type of employee benefit called “fringe” benefits, which refer to niche or emerging benefits that are neither legally required nor yet considered standard or expected. These “nice-to-have” types of employee benefits aim to differentiate organizations from rival employers.
In the next section, we dive into each of these three employee benefit types in more depth and explore some of the more common examples of each type of benefit.
Type 1: Employee Benefits Required by Federal Law (in the U.S.)
The following types of employee benefits are standardized across industries and states. This means that organizations must offer them to their employees to remain compliant with U.S. labor laws.
Keep in mind that labor laws may vary slightly by state. While this list serves as a field guide to the various types of federally-enforced employee benefits programs, we advise you to consult a labor lawyer when constructing your employee benefits packages.
1. Social Security and Medicare Contributions
Social Security and Medicare contributions are long-term employee benefits to which both employees and employers contribute.
- The U.S. Social Security Administration’s Old-Age, Survivors, and Disability Insurance (OASDI) program limits the percentage of an employee’s earnings that are subject to taxation for a given year.
- The OASDI tax withholding rate for 2022 is 6.2% for both employees and employers, given the employee’s wages amount to $147,000 or more per annum.
- Under The Patient Protection and Affordable Care Act (PPACA), employers with more than 50 full-time employees are required to offer medical insurance as part of their employee benefits program.
- Employers with 50+ full-time employees are also required to offer family and medical leave (FMLA).
- FMLA-eligible employees are entitled to up to 12 weeks of unpaid leave during any 12-month period to care for a new child, a sick family member, or any family-related emergency without risking their employment.
2. Workers' Compensation Insurance
Workers' compensation insurance (also known as “workers’ comp”) is a mandatory benefit that provides employees with income protection and medical cover in the event of illness or injury resulting from their work.
3. Unemployment compensation contributions
Similar to Workers’ Comp insurance, unemployment insurance seeks to provide employees with a safety net.
Employers contribute to an unemployment trust fund in accordance with a combination of federal and state laws, regardless of whether the employee is part-time or full-time.
Employees who become involuntarily unemployed may be eligible for partial income replacement for a limited period of time.
4. Minimum Wage and Overtime Pay
In the U.S. the federal minimum wage is $7.25 per hour, while individual states may have higher minimum wage requirements. Note that there are some exceptions to this law based on the type of employment as well as specific state laws.
Federal overtime laws also require that employees be compensated at higher rates for hours worked over their normal weekly hour threshold (generally set at 40 hours per week). As with minimum wage laws, there are some exceptions to this rule.
Type 2: Employee Benefits Considered Industry Standard
The employee benefits covered below are not required by law but have become an accepted standard across industries, with most companies offering some version of these benefits as part of their standard compensation package.
5. Medical Insurance
As mentioned above, employers with more than 50 full-time employees must offer medical insurance packages.
Medical insurance encompasses health insurance, dental insurance, and vision insurance. While some employers offer these three offerings bundled together, dental and vision plans are typically considered separate policies layered on top of standard healthcare insurance plans.
Below, we’ll briefly describe each type of insurance and what they typically cover. Keep in mind that the specifics will vary from insurance provider to provider.
Healthcare insurance plans cover general healthcare costs, such as
- Hospital accommodation
- Emergency ambulance fees
- Annual physicals
- Doctor’s fees
- Pregnancy and maternity care
- Antibiotics for minor infections like ear infections and strep throat
- Setting broken bones
- Laboratory services.
Coverage for each type of care can vary significantly by the insurance provider, network, and healthcare provider/institution. As such, it’s important to provide employees with detailed information about their options so they can make an informed decision.
Vision insurance covers medical benefits related to eyesight, including
- Annual eye tests
- Contributions toward prescription spectacles or contact lenses
- Medically-necessary (non-elective) eye surgery.
Dental insurance covers dental care costs, such as
- Preventative care (routine exams, cleanings)
- Tooth extractions
- Restorative care (fillings, root canals, crowns, etc).
- Gum disease treatment
- Orthodontic care (braces, retainers, jaw surgery, etc.)
- Cosmetic dentistry (tooth whitening, implants, etc.).
The extent to which specific dental procedures are covered will vary from plan to plan.
Employee health insurance benefits packages can include a health savings account (HSA), flexible spending account (FSA), health reimbursement account (HRA), or a combination.
It’s important your organization explains the difference between these medical insurance options, and the benefits of each one, to your employees.
6. Pension, Retirement, 401(k) Match
Many organizations offer contributions toward employees’ retirement as an employee benefit.
There are two main mechanisms for this, namely pension plans and 401(k) programs. While some companies still offer pension plans, 401(k) plans are by far the more popular retirement planning option today.
- A 401(k) fund is a tax-advantaged retirement savings plan with automatic deductions from the employee’s paycheck.
- A 401(k) match means that the employer matches the employee’s contributions either partially or fully.
- 401(k) funds are generally less expensive than other retirement plans
- Employees have more control over fund contributions with a 401(k) than with a pension
- Employers are not required to contribute to their employees’ 401(k) plans
- Pension plans often have rules about which employees are eligible based on tenure.
Whichever option you decide to go with, most job seekers expect contributions to their retirement savings as an employee benefit.
7. Life Insurance
A growing number of companies are offering accidental death and dismemberment cover as part of their compensation package, either as individual or group term policies. According to Investopedia, some 85% of U.S.-based companies now offer their employees access to group life insurance options.
8. Disability Insurance
Disability insurance is a type of income protection often offered as an employee benefit. It’s designed to provide the employee with income continuity in the event of unforeseen circumstances preventing the employee from being able to work either short-term (e.g. injury, surgery recovery) or long-term (serious illness, disability, mental illness, etc.).
While disability insurance is not federally mandated, some states (plus Puerto Rico) require that employers offer disability insurance in one form or another. These states are New York, New Jersey, Rhode Island, California, and Hawaii.
9. Paid Time Off
Whether it’s offering more paid vacation time or paid sick leave days, paid time off (PTO) is one of the most widely occurring types of employee benefits.
Some of the types of paid time off include:
- National holidays and religious observances
- Vacation days
- Sick leave
- Mental health or personal leave days
- Volunteering or service days
Some organizations are doing away with the distinction between sick leave and other types of time off altogether, and unlimited PTO is becoming increasingly commonplace.
While paid time off is not federally mandated, employers in some states may be liable to pay out the monetary value of accrued/unclaimed PTO in certain states when an employee quits or retires.
Type 3: Fringe Benefits
Fringe benefits are less mainstream employee benefits that help companies to differentiate themselves from other employers.
10. Work Flexibility
In part thanks to the pandemic, remote and hybrid work have become mainstream, and employees and jobseekers increasingly expect flexibility in terms of either where or when they work—or both.
A 2021 EY survey of more than 16,000 employees from 16 countries, and various industries and roles, found that 54% of workers would consider changing jobs if they weren’t afforded flexibility in terms of location and/or hours worked.
Which type of flexibility is more important? A 2021 FutureForum survey found that 76% of employees want location flexibility, while 93% want flexible working hours.
11. Home Office Setup
If you do offer employees the option to work remotely, you might consider creating a benefits package that helps employees to get their home office set up.
For instance, you might allocate each employee a budget for an ergonomic chair, desktop monitor, video conferencing equipment, and other home office essentials.
12. Employee Stock Options
Offering employee stock options (ESOs) that give employees the right to purchase the company’s stock at a set price has become a popular employee benefit in recent years.
Tech startups and larger corporations in particular often make stock options part of their compensation package. Generally, an employee needs to work for a company for a predetermined amount of time (typically at least a year) before they can exercise their options.
If the company has performed well in the interim, employees stand to make a tidy profit if the stock becomes significantly more valuable than what they’re paying for it.
Stock options and other profit share schemes can be an effective way to get employees to invest in the company—mentally as well as in the literal sense—seeing as they create a direct link between the employee’s performance and the company’s success. This type of benefit also encourages employees to stay with the company longer.
13. Tuition Reimbursement
Offering tuition reimbursement, assistance with student loan repayment, or subsidizing or sponsoring further education is an increasingly popular fringe employee benefit.
It makes sense that this type of benefit would appeal to jobseekers when you consider the fact that more than 46 million people in the U.S. carry student loan debt amounting to some $1.75 trillion and 81% of surveyed individuals report delaying key life milestones as a result of student debt.
Helping to relieve your employees’ financial burdens makes for better morale and employees that are less likely to quit in favor of a higher-paying job.
14. Education and Professional Development Opportunities
Investing in your employees’ development not only fosters loyalty but also empowers employees to unlock additional value in their role and career with your organization.
Some ways of doing this include budgeting for learning stipends and/or dedicated time allocated for personal and professional development.
You can also offer employees access to online courses, workshops, and other forms of training, or even offer subsidies for higher learning.
Further reading: how to create a learning and development strategy in 7 steps.
15. Financial Literacy Programs
Employer-driven financial literacy programs are a great way to combine employee education opportunities with initiatives to empower employees by lessening their financial stress.
From budgeting skills to navigating taxes to learning the fundamentals of investing, most people want to make the most of their finances and could benefit from dedicated training programs.
16. Employee Wellness Programs
As employees increasingly strive for better work-life balance, many organizations are implementing employee wellness initiatives that encourage employees to make healthy choices.
- On-site gyms
- Healthy snacks or catered food options
- In-office yoga and/or meditation sessions
- Subsidized or free gym memberships
- Free consultations with personal trainers, nutritionists, mental health professionals, etc.
- Company-sponsored massages and other stress-relieving activities
- Health challenges that reward employees for healthy choices
- Volunteer days.
Of course, encouraging healthy habits, both physical and mental, means healthier employees who take fewer sick days.
17. Mental Wellness Benefits
If the pandemic taught us anything, it’s that there is a much greater need for mental health support in the workplace than anyone had previously realized.
In response, a growing number of organizations are offering mental wellness benefits such as company-sponsored therapy sessions, as well as subscriptions to meditation and therapy apps such as Headspace and Betterhelp.
18. Commuter Benefits
For many office workers, the commute is the worst part of their day. In a recent survey, 79% of respondents said that the lack of a daily commute is the best part of remote work.
Offering employee benefits that reduce the unpleasantness of the daily commute can be an effective way to sweeten the deal.
Think fuel subsidies, cycle-to-work schemes, public transport or rideshare credits, free parking, company carpools or shuttles, free subscriptions to podcast or audiobook platforms, etc.
Contributions toward the cost of your employee’s daily commute can help ease their concerns about travel costs, and even reduce their payroll tax cost.
With TransitChek credits, purchased with pre-tax dollars, commuters can save up to $280/month for transit (subway, bus, train, ferry, car, or vanpool) and up to $280/month for qualified parking and save on taxes.
19. Relocation and Housing Benefits
Some companies—especially those located in “talent deserts”—offer relocation allowances and assistance or even housing benefits. These can be an effective means of enticing new recruits to join the company.
20. Childcare Solutions
Childcare can be a significant expense for parents in the workforce, prompting some employers to offer childcare solutions such as subsidies or on-site daycares as a fringe benefit.
Some 50 million American workers (about a third of the U.S. workforce) have a child under the age of 14 in their household.
Helping parents offset the high costs associated with childcare can encourage parents to return to, or remain at, work and reduce absenteeism.
Some companies are even offering assistance with fertility treatments, adoption procedures, and abortion assistance.
How Does Your Company Administer Employee Benefits?
With so many different types of employee benefits, keeping track of all of them and which employees qualify for what can be a complex job.
Luckily, there are a number of excellent benefits administration software solutions available to help businesses organize and automate much of the benefits administration process, regardless of company size or complexity.
To help, check out our pick of the best benefits administration software available on the market today.
Related read: Best CSR Software for Corporate Social Responsibility