How much do employee benefits cost?

Four initial considerations when looking into the cost of employee benefits

The cost of employee benefits will vary depending on a number of factors so will be different for each organisation. When looking at costs, getting quotes, and meeting with employee benefits providers, there are number of things to consider to ensure you are getting the most accurate idea of what's available to you, the price and whether the solutions are right for you. Before meeting with employee benefits providers, ask yourself: 

• How many people work at your company?
• Which employee benefits would be most useful to your employees?
• What level of automation do you want?
• What level of platform customisation do you want?
• Whether there are any opportunities to integrate with your existing HR software

Knowing the answers to these questions will give you some ideas to take into your meeting with the provider, so that they can get more of a sense of what you want and give you an accurate quote.  

Employee surveys are also a great way to understand your employee’s priorities so you can focus in on those.  

1. How much do companies spend on employee benefits?

Research has indicated that businesses typically spend 1.25 to 1.4 times each employee’s base salary on employee benefits, or simply add 20-50% to the employee’s salary to cover employee benefits. Other research suggests around 32% of salary cost is optimal for spending on employee benefits. 

Before you even start looking at your options, it is a good idea to have an estimate of how much you have available to spend on your employee benefits. Deciding on a range, from the lowest price to highest price you’re willing to spend can be useful because it gives you a bit more flexibility.

Cost of benefits per employee 

The typical cost of employee benefits per employee can range from anywhere as little as £2 to £11 per employee per month or higher. 

This can be influenced by the number of employees you have, the number of schemes you’re looking to implement, the platform or employee benefits technology you’re looking to incorporate and the provider you choose. 

It’s worth noting where an employee benefits platform can be integrated with your HR software and provided by the same vendor, as this can help reduce the cost of benefits per employee and help make your employee benefits more cost-effective, along with improving the employee experience and employee engagement with your benefits. 

Cost of employee benefits for a small business 

The typical cost of £2 to £11 per employee per month for employee benefits can apply to small businesses, but don’t be put off the higher number, as employee benefits can be incredibly cost-effective for small businesses and implemented for a lower cost per employee per month with the right provider. 

Compare, for example, the cost of introducing employee benefits with the cost per employee of handing out one-off monetary bonuses and it’s easy to see the cost-effectiveness and potential return on investment of employee benefits for a small business. 

Benefit schemes like employee discounts can help put more money into the pockets of employees, helping them save on essentials such as the weekly shop, while salary sacrifice schemes offer significant savings for both the employer and the employee. 

With all this considered, the cost of employee benefits for a small business should certainly be seen as an investment worth making. 

2. Individual scheme costs 

As mentioned, often employee benefits are charged at an individual rate. For example, through our recent acquisition Caboodle, we offer employee benefit schemes from £2 per employee per month. When you’re deciding which schemes to implement, its useful to get a quote of your overall employee benefits from a provider that also breaks down each individual schemes cost.  

If you’re having challenges with employee benefits engagement when live, speak to your provider to see how you can be getting the most out of your investment. They will also likely have ways to help you drive engagement like marketing materials and informational resources about schemes.   

3. Platform costs

If you’re looking at implementing more than one employee benefit, then one of the best ways to do this is to house them on an employee benefits platform. To do this effectively, your best bet is to go through an employee benefits provider.  

Platform costs are usually calculated per head. However, there are other ways that platforms costs can be calculated.  

Some providers calculate the overall cost, whilst a small amount don’t charge platform costs at all. Others will charge for companies in a particular sector and not for those in other sectors ie. Private vs public.  

Another option that suppliers offer is different levels of platform. Each level of platform offers a base package and then added extras depending on which level you pay for.

For example, we offer a basic platform that includes a range of employee benefits and reward and recognition options, and also, a higher level of platform that includes more flexibility and the opportunity to customise your offering to make it more bespoke.

There are options to suit all budgets and needs.

4. Cost of employee benefits to the employer: Funding options

For some schemes there are different funding options that can help you to make the cost fit your budget.  

The main two are self-funded and third party funded.  

Self-funded is where you as the employer fund the cost of the benefit. For some benefits like salary sacrifice schemes, this means that the repayment of the cost is taken from the employee's monthly salary.  

Third party funded is where your employee benefits provider reaches out to a panel of third-party funders to try and get them to fund the scheme. A finance agreement is then set up to fund your items. A good aspect of this type of funding is that there are no upfront costs to the company. The repayments by your employees will equal the monthly standing order or direct debit.  

Cost neutral employee benefits vs cost effective employee benefits 

Whilst it’s important to look at the costs of implementing employee benefits, it’s also important to look at what your company will gain from having a good employee benefits offering.  

In terms of financial costs, two ways to look at this is whether your employee benefits are cost neutral or cost effective.  

For your employee benefits to be cost neutral, the costs must be covered by the return that your company gets from your employee benefits.  

For them to be cost effective, the benefits of providing them must outweigh the cost. This goes further than the revenue brought in though, and includes factors like increased employee engagement, higher employee retention levels and less turnover as all of this contributes to the growth of the company.  

Some schemes are known as salary sacrifice schemes. This is where employees sacrifice an amount of their gross salary (usually monthly) and get access to an item in return. For example, the Bike Scheme where employees can get a bike to cycle to work and pay for it through their gross salary.  

These types of schemes can be cost effective because the employee and you as the employer pay less in tax and national insurance due to the deductions from their salary.  

Flexible benefits

Flexible benefits allow your employees to shape the way they use their employee benefits. 

How expensive they are for your company depends on which schemes are implemented. 

However, as your employees are able to use the employee benefits that are most useful for them, the schemes used are more likely to have high impact.

Your employees will have a range of priorities, like taking care of a family and their own health and wellbeing. Managing these priorities alongside their work can sometimes make engaging with work fully, more difficult than usual.

There are a number of ways that organisations can support their employees’ financial wellbeing at work. Offering more flexible benefits for example, can help your employees manage their priorities and engage with their work at the same time, helping to reduce the financial burden and supporting them to be more productive. 

How to prove the worth of employee benefits internally

A challenge you might come across when implementing employee benefits is proving their worth internally. 

Once your employee benefits are implemented, the best way to prove their worth is by finding out how your employees are using them and the impact their benefit schemes are having.   

Employee surveys are a great way to gather this information. Combining these survey findings with quantitative data in your HR software around recruitment, retention and any other data around the employee experience can help paint a picture of the positive impact of employee benefits on your business.  

Using this data to prove the worth of employee benefits internally to the c-suite and higher-level management can be key to implementing the benefits that your business needs and getting budget approval. 

Admin savings

When it comes to the return of your employee benefits, one of the big savings will be the time HR spend on tasks.  

Using an employee benefits platform can help streamline a lot of these processes.  

Employee benefits can be somewhat confusing to understand and wrap your head around the ways they can be used.  

Benefits platforms can host scheme FAQs so that there is a place for your employees to go. This makes it easy for your employees to understand how their benefit schemes can support them.  

Another barrier that HR managers can face with employee benefits is keeping up with employee applications and data input.  

Having an employee benefits platform helps to automate a lot of this process which gives HR managers time back to do other work.  

This can be particularly useful if you have multiple schemes that require this admin.  

As we’ve discussed in this article, the cost of your employee benefits can be outweighed by the positives they bring to your company.  

To fully capitalise on this return, your employees need to understand what’s available to them and how to use it. 

An employee benefits provider can help provide scheme marketing materials to help drive employee engagement. 

Knowing the success of your employee benefits can be hard without the data.  

It's useful to know things like: 

• What schemes your employees are using  
• What schemes they aren’t using as much 
• Why they are using the schemes they are  
• How they are using them 
• What could improve uptake of low use schemes? 

An employee benefits platform can give you access to easy and quick reporting data with real-time engagement data.  

This alongside talking to your employees and gathering feedback can give an accurate look at the effectiveness of your employee benefits.  

Non-monetary return on investment

The monetary return on investment of implementing employee benefits is great but if you’re contemplating whether the cost of employee benefits is worthwhile, the non-monetary returns on investment are important to focus on too. They can help to give you an overall view as to if your employee benefits are adding the value to your company that you need.  

One big plus of employee benefits is that if they’re useful to your employees then they can help support a boost in employee engagement. According to research by Gallup, companies with high levels of engagement see:  

1. 22% Higher productivity  
2. 41% Lower absenteeism  
3. 59% Less turnover 
4. 48% Fewer safety incidents  
5. 10% Increase in customer ratings 
6. 20% Increase in sales 

The above is evidence that higher engagement levels can have a wide positive impact on your company overall. With a good employee benefits offering being hugely related to improved engagement levels, the costs of employee benefits can be balanced out by the positive impact it can have on your business overall.  

In this article, we’ve covered some of the costs that may occur when implementing employee benefits, but the final cost will vary depending on your company’s requirements.