Providing benefits that meet employee needs and mesh with all the laws isn't cheap--"benefits probably add 30 to 40 percent over base pay for most employees," says PRO's Silverstein--and that makes it crucial to get the most from these dollars. But this is exactly where many small businesses fall short because, often, their approach to benefits is riddled with costly errors that can get them in trouble financially, with their insurers or even with their own employees. The most common mistakes:
1. Absorbing the entire cost of employee benefits. Few companies nowadays foot the whole benefits bill, a fact underlined in a recent survey of California companies by human resources management consulting firm William M. Mercer. Mercer's research found that 70 percent of employers now require employee contributions toward health insurance, up from 47 percent in 1989, says Charles King of Mercer. Ninety-two percent of companies require employees to contribute toward the cost of insuring dependents, King adds.
The size of employee contributions varies from a few dollars per pay period to several hundred dollars monthly, but one plus of any co-payment plan is that it eliminates employees who don't need coverage. Many employees are covered under other policies--a parent's or spouse's, for instance--and if you offer insurance for free, they'll take it. But even small copay requirements will persuade many to skip it, saving you money.
2. Covering nonemployees. "This is a big mistake," Moyer says. Who would do this? Lots of business owners want to buy group-rate coverage for relatives or friends. The trouble is, "if there is a large claim, the insurer may investigate," says Moyer. And that investigation could result in disallowance of the claims, even cancellation of the whole policy. Whenever you want to cover somebody who might not qualify for the plan, tell the insurer or your benefits consultant the truth. "Often, coverage will be extended if you simply ask for it."
3. Sloppy paperwork. "This is a dumb thing we see so frequently," says Moyer. "In small businesses, administering benefits is often assigned to an employee who wears 12 other hats. This employee really isn't familiar with the technicalities and misses a lot of important details." A common goof: Not enrolling new employees in plans during the open enrollment period. "Most plans provide a fixed time period for open enrollment. Bringing an employee in later requires proof of insurability. What if [that person] fails the physical?" asks Moyer, who says that expensive litigation is sometimes the result.
The prevention is simple: Make sure the employee overseeing this task stays current with the paperwork and knows that doing so is a top priority.
4. Not telling employees what their benefits cost. "Most employees don't appreciate their benefits, but that's because nobody ever tells them what the costs are," says PRO's Silverstein.
"Annually provide employees with a benefits statement that spells out what they are getting and at what cost," says David Neikrug, president of Chicago-based The Hakol Benefits Group, a benefits consulting firm. A simple rundown of the employee's individual benefits and what they cost the business is very powerful.
5. Giving unwanted benefits. Such as? A work force composed largely of young, single people "needs life insurance about as much as a squirrel does," says Neikrug.
"Benefits work only when employees feel benefited," adds Lineberry at Aon. How to know what benefits employees value? In Aon's recent survey, workers were asked to rank benefits in terms of desirability. Heading the list were medical insurance, employer-paid retirement plans, matched retirement savings, medical plans for retirees, sick leave, and short-term disability. At the bottom of the list were on-site day care for children and referral services for child and senior care, benefits Lineberry says comparatively few employees need. "Medical and financial benefits appeal to a broader cross-section of workers," he says.
Of course, needs and desires vary depending on your workers, so find out what your staff is interested in. If workers' needs vary widely, consider the increasingly popular "cafeteria plans," which give workers lengthy lists of possible benefits plus a fixed amount to spend. Says attorney Meagher, "We're seeing more and more of these plans."