Have you heard of voluntary benefits but don’t really understand what they are or why they’re important? You’ve come to the right place. In this article, we’re going to cover everything you need to know about these perks – and why they matter so much.
Because of changes in the job market, including what has been coined the Great Resignation, finding and retaining top talent is becoming a challenge in many businesses.
Under the circumstances, companies are having to re-think how they can keep their employees happy – without spending a fortune. So, how is that done? One effective way is to re-examine what kinds of perks employees get in addition to their salaries.
Specifically, we’re going to explain why offering voluntary benefits is the best way to go.
What are voluntary benefits?
As the name suggests, voluntary benefits are non-mandatory employee perks that don’t cost the company much at all, if anything. In fact, the benefits go both ways: Employees get worker discounts, and employers are often able to cut their payroll taxes by offering these optional benefits.
Ultimately, voluntary benefits are a great way to give employees more options and incentives to stay with a company without putting a financial burden on employers. Though employers are responsible for making sure specific levels or carriers are available, it’s up to the employees to enroll or not.
What are some examples of voluntary benefits?
Voluntary benefits packages can include the following:
- Disability coverage
- Pet coverage
- Long-term care
- Identity theft protection
- Financial counseling
- And more!
If employees decide to opt-in, they pay for their own benefits – either partially or entirely – through payroll deferral.
Company advantages of offering voluntary benefits
Here are a few of the most attractive advantages of offering voluntary benefits from a business perspective:
- It gives top talent an added incentive to join the company.
- It helps retain current employees.
- It decreases 401(k) and 403(b) withdrawals and loans.
- It can help attract multi-generational talent.
- It increases employee satisfaction and commitment.
Different benefits categories available
Companies have the option of adding voluntary benefits to their existing benefits packages. And again, they can do this for little to no extra cost to themselves while giving their employees the extra coverage they want.
Here are some of the most popular perks employees choose:
Health: Unsurprisingly, a lot of employees value health-related benefits. These can include coverage for serious illness, cancer, or accidents and help give employees more security against unexpected medical bills.
Lifestyle/Wellness: This benefits category can include a range of different perks, from gym memberships to therapy and even legal advice.
Financial: When employees learn money-related skills, they’re better able to thrive in the workplace and in their personal lives. According to a recent survey, as much as 35% of Americans would struggle to cover an unexpected $400 expense, which makes these voluntary benefits relevant for many employees. Perks include a range of different topics, including investment advice, credit building, and budgeting.
Security: The main goal of security-related benefits is to protect against financial losses linked to theft. These losses can occur due to identity theft or the death of a policyholder, so having coverage can make a big difference for employees facing these challenges.
Personal/Miscellaneous: With personal benefits, employees can enjoy extra perks like pet coverage, a more flexible work schedule, and a 401(k) plan, all of which can help make their lives easier – at work and at home.
How voluntary benefits can help real people
Now that you’ve gotten an overview of popular voluntary benefits, you may be wondering: What do these bonus perks look like in real life?
Here are some examples of how voluntary benefits can make a big difference for your employees and your company:
- A small business decides to expand its benefits to include a flexible work-from-home option, which gives a struggling single parent the chance to be more present with his young children.
- A retail store upgrades its benefits package to offer eye care coverage, which gives a woman with vision loss the chance to get a new prescription.
- A large tech company offers financial education perks, which gives a young employee the chance to learn how to invest for retirement.
These are just a few examples that highlight how life-changing voluntary benefits can be, despite the comparatively small hassle involved for employers.
Voluntary benefits and tenure
Research suggests that there’s a cause-and-effect relationship between benefits enrollment (including voluntary benefits) and tenure. In fact, employees who are enrolled stay at their jobs as much as 2x longer than those who aren’t.
And, of course, it’s not hard to see why.
Having benefits options makes it easier for employees to find perks that address their unique needs and wants. This is getting more important as companies grow and bring on a diverse range of talent. Clearly, perks that might make sense for an employee who’s nearing retirement wouldn’t necessarily be attractive to an employee who’s just graduated from college.
With so many different options to choose from, voluntary benefits really can work for everyone, not just a particular employee demographic.
Pre-tax benefits
When money is deducted from an employee’s gross pay, it’s known as a pre-tax deduction. These deductions reduce an employee’s taxable income and can do the same for employers through various tax cuts.
Keep in mind, though, that the federal government can change the rules regulating pre-tax deductions from one year to the next. That’s why it’s a good idea to stay up-to-date on the latest information before making any payroll changes.
List of pre-tax benefits
Here are some examples of expenses that can be deducted from an employee’s gross income:
- Dental Insurance
- Short-Term Disability
- Long-Term Disability
- Medical Expenses
- 401(K) Contributions
- Health Insurance
- Health Savings Account Contributions
- Employer-Sponsored Accident and Health Plans
- Dependent Care Assistance Programs
- Parking Permits
- Child Care Expenses
- Commuter Benefits
- Tax-Deferred Investments
- Retirement Funds
- Vision Benefits
It’s possible to claim certain deductions and contributions as tax breaks before they’re paid. Here’s how to calculate a deduction before applying taxes:
A pre-tax benefits example
Let’s imagine that an employee earns $1,000 in gross salary for each pay period. They then get a $50 HSA deduction taken out of each paycheck. In this scenario, the employee’s taxable income will decrease to only $950 after deducting the pre-tax withholding. Once the HSA deduction is made, taxes can then be deducted from the employee’s earnings.
More deductions
There are more instances where pre-tax deductions can be made, including the following cases:
Retirement funds: Contributions to a traditional 401(k) are tax-deductible. In other words, the employee and the company can contribute to the account before the income gets taxed.
Health insurance: Pre-tax deductions may be made for contributions to health benefits plans like an HSA or FSA. Employees who pay out-of-pocket for participating in company-sponsored health insurance plans may be eligible for pre-tax deductions.
Commuter benefits: Employees can receive fringe benefits (which are a type of voluntary benefit) deposited into employer-sponsored accounts. These accounts are treated as pre-tax deductions. For example, a company could decide to deposit $75 into a designated account on a monthly basis to help employees cover their commuting expenses.
Make your benefits packages relevant to the modern workplace
These days, many companies are updating their voluntary benefits to better accommodate employees’ overall well-being. In fact, according to a recent survey, 68% of senior HR leaders who participated rated employee well-being and mental health as a priority.
This is a step in the right direction because employee well-being and productivity (at home and at work) are closely linked.
In the past, voluntary benefits were understood to include things like hospital indemnity or critical illness insurance. These days, though, voluntary benefits are much broader and can cover things like mental health services and financial advice.
In other words, there’s a growing awareness in the modern workplace that wellness concerns more than just physical health, so offering a wide range of voluntary benefits is a great way to accommodate employees’ needs.
Funding employee benefits: The pros and cons
If you’re still trying to decide whether offering voluntary benefits would be worth it in your situation or not, here are a few things to think about.
Pros
- As we’ve mentioned, a generous benefits package can make your company stand out to top talent. This is a huge advantage, especially because talented employees are the backbone of a successful business.
- Often, employees prefer having better benefits instead of a higher salary. This not only means higher savings for the company but also more satisfied employees. It’s a clear win-win.
- Research suggests that offering health insurance through benefits programs can decrease absenteeism at work and improve employee physical and mental health. One possible reason for this is that knowing they have a safety net reduces employee stress, which helps them focus on their work.
Cons
- If big mistakes are made in benefits packages, they could potentially lead to expensive legal disputes.
- Some employees might not be satisfied with their benefits package and may decide to quit anyway, even if it provides generous coverage.
- As with any workplace change, offering voluntary benefits takes adjustment and employee education to make sure everyone is aware of what the new perks are and how to enroll.
All in all, we think the pros considerably outweigh the cons, but it’s still important to look at the big picture when making business decisions.
Setting up a voluntary benefits plan
One great advantage of voluntary benefits is that, as an employer, you can offer them to your employees regardless of how big or small your business is.
Here are a few different plans available and how they work:
Traditional voluntary plans: With traditional plans, the employee pays for their benefits themselves, with no direct employer support. Employees get to choose what benefits they want while often benefiting from group discounts.
Voluntary buy-up plans: With buy-up plans, the employer must pay for basic coverage, but the employee can choose to buy more coverage if they want to.
Multi-coverage plans: With multi-coverage plans, employees get convenience and great prices rolled into one comprehensive plan. This makes selecting multiple benefits a lot easier.
Why it’s a smart move for benefits brokers to offer voluntary benefits
Today, benefits brokers are facing challenges from a variety of sources. From a floundering economy to low commission rates, times are tough. But even when circumstances are favorable, selling employer-funded benefits can be difficult.
So, what does that mean? It means brokers need to find ways to stay competitive in spite of all the macroeconomic problems that can affect this sector.
And, you guessed it: One effective way to do that is through voluntary benefits.
With rising costs and tighter bottom lines, businesses need to find meaningful ways to improve employee satisfaction and keep costs down. As we’ve demonstrated in this article, voluntary benefits offer an ideal way to accomplish those two goals.
Genius Avenue can take the hassle out of offering voluntary benefits
Now that you know all about voluntary benefits and how they can be a game-changer for your business, it’s time to partner with the pros who can help you get started.
At Genius Avenue, we think keeping your business competitive doesn’t have to be complicated or expensive. That’s why we make it easy for brokers and employers to create their own voluntary benefit storefronts, with a warehouse of products to choose from. Regardless of your business’s size, we’ve got you covered.
Plus, we can help you offer benefits to all your employees, whether they’re full-time, part-time, or anything in between.
With 9 out of 10 companies now offering voluntary benefits to their workers, making these perks available can help keep your business relevant while attracting and retaining top talent.
Ready to take your business to the next level? Contact our pros today to get started.
