When we’re helping employers cultivate employee benefits packages for their workforce, we’re often asked to benchmark what their peers are spending on them. The answers vary widely based on multiple factors, including geography, industry, size of the workforce, health plans offered, and the overall health of the workforce population, just to name a few.
Employee benefits benchmarking is one of the best ways to figure this out. The best answer for each employer is determined through public and proprietary information, the latter of which can be quite costly, but it’s also quite necessary. Some of our favorite sources for benchmarking include Truven, Kaiser Family Foundation (KFF), Mercer, Windsor, the Society for Human Resource Management (SHRM), the International Foundation for Employee Benefits (IFEB), and the Bureau of Labor Statistics (BLS, who tracks this information and shares it quarterly).
The BLS report breaks data down into multiple categories, including various components of compensation by sector (public, civilian, government). Let’s take a moment to look at the most recent data from the BLS so you can compare how your employee benefits costs stack up.
Average Cost of Employee Benefits
As per data collected through December 2017, the average cost of employee benefits for employers per employee (including financial compensation and employee benefits) was $35.87 per hour. Of that amount, compensation accounted for an average of $24.49 (68.3 percent), with benefits accounting for the remaining $11.38 (31.7 percent).
In other words, employers spend an average of $11.38 per hour per employee on benefits.
From there, the BLS provides more detailed information about exactly what these benefits are, from insurance, to paid time off, retirement, and legally required benefits (like social security, workers’ compensation, and unemployment insurance).
Average Cost of Employer-Sponsored Insurance
According to the BLS report, the term “insurance” encompasses four different types of coverage: health, life, short-term, and long-term disability. How much employers spend on each varies widely across sectors and industries.
Civilian (Public Sector)
In the public sector, the average employer-paid portion of all insurance types is $3.14 per hour per employee, which is about 8.7 percent of compensation. Of course, this varies across industries. For example:
- Education and health services spend an average of $4.19 per hour per employee (about 10 percent of compensation).
- Colleges and universities spend a bit more ($5.90, or 11.6 percent), while primary and secondary education institutions technically spend more dollars on teachers ($6.73), but it makes up a slightly smaller percentage (11).
- Sales “and related” professionals are on the lower end of the spectrum, with just $1.52 per hour per employee being spent on insurance (6.3 percent).
There is far more data for the private sector because there are so many different industries and categories which the data is broken into. The private sector pays the smallest share of health insurance, coming in at an average of just $2.70 per hour per employee, making up about 8 percent of total compensation. Here are some additional points of interest:
- The service industry comes in at the bottom, with just $1.10 per hour per employee being spent on insurance, making up about 6.9 percent of compensation.
- “Management, professional, and related” came out on top in terms of dollars, at $5.28, making up about 7.7 percent of compensation.
- Generally, goods-producing industries paid more into insurance ($3.74, or 9.5 percent of compensation) than service-producing industries ($2.49, or 7.6 percent of compensation).
- And of course, there is a lot of variety within each type of industry, with food service being the lowest ($0.72, or 5.4 percent) and utilities being the highest ($4.00, or 10.1 percent).
State and Local Government Workers
Unsurprisingly, state and local governments spend a bit more than the public and private sectors. The average employer-paid portion of all insurance types is $5.82, or about 11.8 percent of compensation.
- Government-funded education and health services typically spend about $6.07 per hour per employee (about 11.7 percent).
- Likewise, the trend continues for government-funded colleges and universities, which spend a bit more — $6.42 per hour per employee (11.1 percent). Perhaps in part because of a strong union, primary and secondary education institutions spend about $7.42 (the highest in terms of dollars), which is about 11.4 percent.
- The lowest end of the government worker spectrum is (perhaps, surprisingly) in hospitals, where $5.10 is spent per hour per employee, but still makes up 11.1 percent of compensation.
Benchmarking Beyond Cost
When you’re trying to figure out how much your business should spend on employee benefits, BLS data can be a good place to start, but cost is just one of many facets of your employee benefits package which can and should be benchmarked.
While your entire benefits package doesn’t need to be subjected to benchmarking, there is an essential list you should measure. Here are the items we’d recommend:
Health Insurance offerings, including:
- Employee Premium Cost (Individuals & Family)
- Employer Premium Cost (Individuals & Family)
- Employee Premium Contribution Percentage (Individuals & Family)
- Employer Premium Contribution Percentage (Individuals & Family)
- Out-of-Pocket Maximum (Individuals & Family)
- Deductible (Individuals & Family)
- Prescription Drug Copay (Individual & Family)
- Coinsurance Percentage
- Emergency Room Copay
- Office Visit Copay
- Specialty Office Visit Copay
Voluntary Benefits offerings, including:
- Critical Illness Insurance
- Accident Insurance
- Cancer Insurance
- Pet Insurance
- ID Theft Protection
- Life Insurance
- Short-term Disability
- Long-term Disability
- Worker’s Compensation
- Salaries By Title
- Network Access
- Service & Medical Management Capabilities
- Total Program Cost
- Network Performance and Discounts
- Administrative or Unit Cost
- Financial Stability
- Performance Guarantees
Providing your employee benefits broker subscribes to Truven or some other reliable benchmarking resources, they should be able to help you determine if your offering is below, better, or on par with your competitors. In addition, it’s important to keep in mind that your competitors in this instance are not those whom you compete with for customers, but rather whom you compete with for talent.
If your employee benefits broker doesn’t seem able to help you with benchmarking the cost of employee benefits, we certainly can! Leave us a comment below or contact us. We’d love to hear from you!