Here’s a closer look at mandatory and voluntary employee benefits, their costs, and how to decide which voluntary options are best.

Why Offer Employee Benefits?

Employee benefits are extra perks that employees receive in addition to normal wages. But why consider offering them? Is pay alone no longer enough? While some benefits are legally required, voluntary benefits can help your business in several important ways. “Offering benefits is a great way to attract and retain top talent and can also help improve employee morale and productivity,” Linda Shaffer, chief people and operations officer (CPOO) at HR technology company Checkr, told The Balance in an email interview. Imagine you’re an employee deciding between two employers offering similar pay. If one provides paid time off and child care assistance while the other doesn’t provide either, the benefits may win you over. “Businesses of all types can benefit from offering at least some basic employee benefits, such as health insurance, retirement savings plans, and paid time off,” Shaffer said. “In general, the larger your company, the more likely it is that you’ll need to offer employee benefits to attract and retain top talent.”

Common Employee Benefits

Private employers’ benefits costs are $11.42 per hour per employee, and account for almost one-third of total employee compensation, according to the March 2022 Employer’s Cost for Compensation Report from the U.S. Bureau of Labor Statistics. Your benefit costs will vary on many factors, including benefit type, location, industry, and employees covered. Here are the most common optional benefit types private U.S. employers offer, and average costs for employers per hour, according to 2022 BLS data and the percentage of employees with access:

Medical care benefits access: 58%Dental care benefits: 27%Vision care: 18%Prescription drug coverage: 56%

Typically, employees accrue paid time off as they work their normal shifts. Each pay period, time accrued is credited to their bank of paid time-off hours. Other employees accrue a set number of days per year. Employees apply the accrued hours to take time off for vacation, sick days, or other reasons. Among private industry workers, here’s how access breaks down:

Paid vacation: 79% in 2021Paid sick leave: 77% in 2021Paid time off (use for any purpose): 45% in 2021Paid family leave: 23% in 2021

Retirement Accounts

Employer-sponsored retirement accounts help employees save money for their golden years. Some employers match employee retirement contributions up to a certain percentage to speed up savings growth. Defined contribution retirement plans accumulate tax-deferred savings in employer-established individual employee accounts such as a 401(k). Defined benefits retirement plans are also known as pension plans, and are less common. Here’s the access employees had at small businesses (fewer than 100 employees) in 2021:

Defined contribution retirement plans access: 54% in 2021Defined benefit retirement plans access: 7% in 2021

Required Employee Benefits

While there are many voluntary benefits you can offer employees, the following are typically required by law and figure into your employees’ benefits as estimated by the BLS at $2.91 per hour for private employers:

Social Security and Medicare: Employers must pay Social Security and Medicare taxes on their employees’ wages to help with retirement, medical costs, and living expenses.Federal and state unemployment insurance: The Federal Unemployment Tax Act and many states require employers to pay an unemployment tax on employee wages to help employees receive unemployment insurance payments and job service assistance.Workers’ compensation insurance: This covers the costs of an employee’s medical expenses and lost income if a work-related illness or injury occurs.

Mandatory benefits may vary by state or city. For example, in Washington state, employers will soon be required to contribute toward a long-term care fund, which provides financial support to employees if they end up living with a short- or long-term disability. Research laws applying to employers in your state or city.

Other Insurance Benefits

Employers may purchase group life and disability insurance and share costs with employees who opt in; life insurance is also one of least expensive employee benefits available, according to BLS data. Life insurance pays a death benefit to someone the employee chooses upon the employee’s death. Life insurance costs $0.04 per hour for private employers and provides a benefit if the employee dies. Short-term disability costs $0.08 while long-term disability costs $0.05 per hour.

Other Important Employee Benefits

All businesses will want to consider which benefits their employees value most. According to 2022 research from the Hartford insurance company, employees express interest in critical-illness insurance, wellness benefits, and employee assistance program benefits, among others. Other benefits that are commonly offered, according to a 2022 Society for Human Resource Management (SHRM) survey, are:

Telemedicine or telehealth benefits: 93% of employersHybrid work model: 63% of employersAt-home office or work equipment subsidy or reimbursement: 62% of employers for an average of about $891New skill development coverage: 78% of employersDependent-care flexible spending account: 59% of employers

How To Set Up an Employee Benefits Program

Steps to set up an employee benefits program include the following:

Set your budgetChoose the benefits to offerFind the right benefit providersSet rules and requirements for each benefitCommunicate the benefits plan to employeesReview the benefits plan periodically

You can manage each of your benefit plans separately or work with professional employer organizations (PEO) or a benefits broker to manage your payroll and benefits administration. You’ll also need to consult with a tax professional to understand all tax implications (including tax credits) related to the benefits you’ll offer. Some benefits, such as qualifying employer-provided child care, offer tax credits for employers.

The Bottom Line

Your company’s benefits package will depend on factors such as your profitability, labor budget, and the needs of your employees. For those on a tighter budget, you’ll likely want to look into more affordable employee perk options. Benefits may also vary by industry—for example, the BLS found that 63% of administrative and waste service workers had access to paid vacations, while 93% of workers in professional and technical services could take paid vacations. To stay competitive, you may need to keep up.