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How to Design an Employee Bene�ts Program

Managing employee bene�ts is an important and costly endeavor for employers. Though most employers are required to provide

mandatory bene�ts such as Social Security contributions, worker's compensation insurance and unemployment insurance, most other

bene�ts are voluntary in nature and determined by the employer. Bene�ts programs vary greatly, but typically they include medical

insurance, life and disability insurance, retirement income plan bene�ts, paid-time-o� bene�ts, and educational assistance programs.

Bene�ts selection and design are critical components in the total compensation costs. In some cases, bene�ts account for 40 percent or

more of total compensation costs. Due to the employer cost investment and the importance of employee bene�ts in recruiting and

retaining, employers should have a well-thought-out bene�ts plan design that meets both employee needs and employer objectives.

Step 1: Identify the Organization's Bene�ts Objectives and Budget

An important �rst step in designing an employee bene�ts program is to identify its objectives. This will provide overall guidance in

establishing the selection and design of the bene�ts program. Generally, this process does not result in a list of speci�c bene�ts o�ered but

rather provides an overview of the organization's objectives of o�ering bene�ts that re�ect both the employer and employee needs. The

organization's business and/or HR strategy will help guide the development of the bene�ts objectives, as these objectives should help

achieve the overall strategic goals. Factors such as employer size, location, industry and collective bargaining agreements should be

considered in the development of the bene�ts objectives. Some employers choose to have general bene�ts objectives, whereas others

incorporate the objectives in their total compensation philosophy. The bene�ts objectives are not static and should be evaluated and

revised to re�ect the current employer strategy and employee needs.

Sample objective: To establish and maintain a competitive employee bene�ts program based on employees' needs for paid time o� and

protection against the risks of old age, loss of health and loss of life.

Equally important is determining the budget available for spending on bene�ts, as most employers have cost constraints in o�ering

bene�ts to employees. If a current bene�ts plan exists, organizations should analyze current bene�ts costs and projected costs and create

a budget spreadsheet outlining annual bene�ts costs. The rising cost of o�ering bene�ts such as health insurance will greatly a�ect the

bene�ts an employer may o�er.

If there is no current bene�ts program, the employer may need to obtain quotes for a few key bene�ts to estimate a bene�ts budget. A

bene�ts broker (www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/selectingabene�tsbroker.aspx) may be helpful in this

process.

Step 2: Conduct a Needs Assessment

A needs assessment should be conducted to determine the best bene�ts selection and design based on the needs and wants of the

employees. The needs assessment may include an employer's perception of employee bene�ts needs, competitor's bene�ts practices, and

tax laws and regulations. But a more recent trend is to take a market research approach to employee bene�ts planning. Common market

research techniques include employee inquiries in the form of personal interviews, simpli�ed questionnaires or sophisticated research

methods. Although employee feedback will most likely result in higher employee motivation and satisfaction with the bene�ts package, this

is true only to the extent that the employer is committed to using the feedback in bene�ts selection and design.

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If a current bene�ts plan exists, the employer may also conduct a utilization review of each plan to determine actual employee use.

Knowing the frequency a particular bene�t is used and to what extent may help the employer determine cost-saving design practices. For

insurance plans such as a medical plan, the carrier will often provide a utilization review for the employer.

Organizations should analyze the existing workforce demographics to assist in determining the needs of various categories of employees.

Younger employees may value paid time o� more, whereas older employees may place a higher value on retirement income plans.

Employers can analyze the needs assessment results and compare them with any existing bene�ts and against available bene�ts to

prioritize which bene�ts will be most helpful in achieving the objectives of the bene�ts program.

Employers will also need to consider any legal requirements regarding bene�ts o�erings. Some employers may have obligations to o�er

bene�ts by law, such as the A�ordable Care Act, which requires employers with 50 or more employees to choose to provide a�ordable

health insurance to employees or pay a penalty. Employers will need to determine if they are covered by this act and the impact this will

have on the decisions and design of employee health insurance plans.

Another consideration is that of bene�ts for domestic partners. Since same-sex marriage became legal in all 50 U.S. states as of the

Supreme Court ruling on June 26, 2015, some employers may choose to no longer o�er bene�ts to domestic partners, unless required to

do so by state or local law.

Paid sick leave is another bene�t that is quickly becoming a mandatory o�ering for many employers. State and local laws are regularly

being passed that require employers to o�er paid sick leave to employees, and employers should be aware of state and local

requirements.

Step 3: Formulate a Bene�ts Plan Program

Once the needs assessment and gap analysis are complete, the employer will need to formulate the new bene�ts plan design. Using the

data collected from all resources in Step 2, the employer can begin to formulate bene�ts o�erings in order of priority. Then the employer

will determine the cost of providing the prioritized bene�ts and evaluate it against the bene�ts budget.

This step is complex and may take many factors into consideration: Can changes be made to the current plan design to induce cost

savings? Can bene�ts that are underused or not valued by employees be eliminated? What are the administrative costs for the bene�ts?

What cost-containment features can be put in place? Will employees have to contribute, and how much? Are there resources to administer

in-house, or will a third-party administrator and broker be necessary for certain plans? These are among the evaluations an employer will

make in determining whether to add, change or eliminate bene�ts o�erings.

Step 4: Communicate the Bene�ts Plan to Employees

The communication strategy is a critical component to the bene�ts planning and management. Some resources and samples are available

to assist employers. See Communicating and Leveraging Bene�ts (www.shrm.org/resourcesandtools/hr-

topics/bene�ts/pages/communicating-leveraging-bene�ts.aspx).

Employee understanding of the bene�ts is critical to employee buy-in. Without buy-in, the employer's e�orts, no matter how perfectly

designed to meet employees' needs, may be futile. If employee input was obtained and used in the bene�ts design process, employers

should be sure to share this with employees and let them know how their feedback in�uenced the bene�ts program's design. The positive

impact on recruiting, retention and employee morale may be lost without e�ective communication plans. Although the employer is

obligated to provide communications to comply with laws regarding disclosure of various bene�ts plans, such as a summary plan

description, communications should go beyond the legal requirements. Good bene�ts communication objectives should include:

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Creating awareness and appreciation of the new or existing bene�ts and improving employee �nancial security.

Providing a high level of understanding of the bene�ts o�ered.

Encouraging wise use of bene�ts.

Step 5: Develop a Periodic Evaluation Process to Determine E�ectiveness of Bene�ts

Periodically reviewing the bene�ts plan program is another important step in the bene�ts management process. The bene�ts program must

be assessed on a regular basis to determine if it is meeting the organization's objectives and employees' needs. Changes in the business

climate, the economy, the regulatory environment and workforce demographics all create dynamics that a�ect bene�ts o�erings.

Employers should consider developing goals and measurements to assess the bene�ts programs and make adjustments as necessary.

Employers may also consider using external trends and benchmarking data to evaluate the e�ectiveness of the bene�ts plan or conduct

employee surveys or a full-�edge needs assessment on a recurring basis.

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