Hiring and retaining talent is one of the most significant challenges small business employers face. 47% of small business owners reported being unable to fill job openings, according to a National Federation of Independent Business job report from March 2023. A key solution to this problem is providing substantial compensation and benefits packages.

It can be difficult for small businesses to significantly improve their pay packages, especially if operating on tight profit margins. But other factors such as benefits packages can help attract and retain strong talent. A 2022 study from Gallup revealed that more U.S. employees value pay and benefits when accepting a new job. And a TalentLMS survey found that 68% of employees are more likely to stay longer at their current occupation if provided with financial wellness benefits.

Below, we’ll review the basics of a competitive benefits package, such as the components and costs, and how you can strategically design your competitive benefits package to entice more employees to join your team.

What’s in a competitive benefit package?

A strong benefits package can significantly increase employee loyalty and satisfaction. A competitive benefits package typically includes a combination of required and fring benefits. A few examples of required and fringe benefits are:

• Health, dental, and vision insurance: Due to the high cost of healthcare in the United States, millions of Americans rely on employer-sponsored health insurance. According to the Kaiser Family Foundation, close to 159 million people are covered by employer-sponsored insurance.
• Paid time off: Paid time off can help improve employee productivity and mental health. Additionally, paid time off can help employers control unscheduled absences, which can be highly costly.
• Retirement benefits: Retirement benefits are the second most-wanted benefit after health insurance, according to a Human Interest survey from 2022. There are also certain tax advantages that come with offering a retirement plan, which can potentially make it more affordable for small business owners to provide more robust benefit packages.
• Wellness benefits: Wellness benefits remain highly sought after since the pandemic. Examples of wellness benefits include flexible work schedules, mental health care, and financial stipends for childcare or fitness programs.

How do you calculate the ROI of employee benefits?

To measure the ROI of offering employee benefits from a high level, it’s important to get a sense of your costs and returns.

First, assess the costs associated with your benefits program. This may include direct costs (i.e., salaries and wages, benefits, and administrative expenses) and indirect costs (i.e., productivity, turnover costs, and training costs). Next, identify any returns associated with your benefits program, including employee productivity, reduced turnover, and improved employee morale.

Below are a few ways to measure returns:

• Employee retention rates: Measuring your employee retention rate will help you understand the stability of your company because it measures the rate at which employees stay at your company.
• Employee satisfaction rates: You can directly measure how satisfied your current employees are with a benefits package by asking them to rate their satisfaction via an employee satisfaction survey.
• Job application response rates: Determining if there has been an increase or decrease in job applications to open jobs is another way to calculate the ROI of employee benefits.
• Offer acceptance rates: An offer acceptance rate is the measurement used to determine the percentage of candidates who accept a job offer. According to the National Association of Colleges and Employers, the average offer acceptance rate is around 69%. A strong offer acceptance rate indicates that an employer is successful in recruiting and attracting strong talent.

Once you’ve determined your costs and returns, you can use the following formula: ROI = (return – cost)/cost. For example, if an employee benefit program costs $100,000 and generates returns of $150,000, you can assume your ROI is 50% through the following equation: ($150,000 - $100,000) / $100,000 = 0.5 or 50%.It’s important to note that calculating the true ROI of a comprehensive benefits package may be challenging, as quantifying returns associated with benefits such as wellness programs or flexible work arrangements can be difficult. To make things easier, Human Interest has tools that help you estimate the cost of retirement.

Creating a comprehensive compensation and benefits package

To create a competitive compensation and benefits package, there are a few factors to consider:

• Budget: Whether you have a small or large budget, you will first need to understand how much you can allocate towards employee benefits. According to the Bureau of Labor Statistics, benefits typically accounted for 31% of an employer’s costs.
• Workforce needs: Depending on who your employees are, some benefits will matter more than others. For example, if your small business consists of older employees, providing a substantial retirement plan is likely more valuable. It may be helpful to survey your existing employees to determine what benefits are important to them.
• Costs: Some benefits can be more expensive than others. Healthcare insurance, for example, is usually the priciest benefit in comparison to paid time off and 401(k) benefits. We recommend carefully reviewing and researching several benefit plans in conjunction with a benefits consultant to help you better navigate the complexities of small business benefit plans.

Communicating and promoting your packages

Offering a robust benefits package is just the first step to attracting employees. Properly communicating your benefits packages to your employees is critical so that your benefits are not underutilized. For example, if your business offers a 401(k) plan and employer matching, employees can earn additional money into their retirement account from their employers if they contribute to their retirement account. However, if employees are unaware of the power of employer matching, they'll potentially miss out on maximizing their future retirement savings.

Consult with retirement benefit experts today

A comprehensive salary and benefits package can incentivize employees to join your team and reduce turnover rates. Additionally, benefits packages do not have to be costly. Including a 401(k) employer match can help you earn tax benefits and credits from the IRS.

Originally posted on HumanInterest.com