Have your employees been inquiring about starting a group benefits plan?
It’s important for employers to consider the role of employee benefits in supporting the success of their business.
There are many ways that employee benefits can benefit your company.
Here are 5 reasons to consider starting an employee benefits plan for your business:
1. Attract high-quality employees
Employee benefit plans are an important factor for top job candidates when evaluating employment opportunities.
After salary, employee benefit plans are often the next most desirable form of employee compensation. This is particularly true for employees who have young families or significant health issues within their families.
Group health and dental benefits plans can provide access to comprehensive insurance coverage that is difficult to obtain apart from employer-sponsored plans.
By offering employee benefits, an employer can differentiate themselves from competitors and make their company more appealing to the most promising candidates.
Apart from an employer-sponsored group benefits plan, it is very difficult for employees to get quality health & dental coverage.
2. Reduce costly employee turnover
Employee turnover can be disruptive and costly for any business. Aside from the expenses associated with recruiting, hiring, and training new employees, turnover can have a negative impact on the productivity and morale of a business.
“Great people are hard to find, so make sure you think about how to keep them.”
~ Ray Dalio
Employee benefits can help reduce employee turnover by providing existing employees with a compelling reason to remain loyal to the company. The fear of losing insurance coverage or other benefits if they switch jobs can act as a deterrent for employees to look for other employment opportunities.
In addition, offering employee benefits can improve morale and foster a sense of commitment among the workforce, which can contribute to lower turnover rates.
Overall, employee benefits can be an effective way for employers to retain their top talent and minimize the unwanted effects of losing employees.
3. Compensate employees in a tax-efficient manner
One advantage of offering employee benefits is that they can be tax-efficient for both the employer and the employee.
Other forms of employee compensation, including wages and bonuses, are subject to federal and provincial income taxes and payroll taxes such as Employment Insurance (EI) premiums and Canada Pension Plan (CPP) premiums.
However, many employee benefits are tax-free for employees and tax-deductible for employers, making them a cost-effective way to compensate and reward employees.
Salary Raises are Not Tax Efficient
For every $1,000 an employee is paid in salary, they will only receive a net amount of between $640 and $750 after income tax and payroll taxes are deducted. This can be disappointing for the employee, as they receive less than the full amount of their salary.
From the employer’s perspective, this can also be problematic, as the impact of the salary is reduced by the deductions.
In this case, both the employee and the employer may benefit from offering employee benefits, which can be tax-free for the employee and tax-deductible for the employer. This results in more cost-effective compensation and rewards for employees.
Non-taxable Group Health & Dental Premiums
According to the Canada Revenue Agency (CRA), group health and dental plans that are paid for by the employer are considered non-taxable benefits. This means that employees do not need to pay taxes on these types of benefits, and the employer can claim them as a tax deduction.
As a result, group health and dental plans are one of the most tax-efficient ways for employers to compensate and reward their employees.
This non-taxable treatment applies to:
- group health premiums
- group dental premiums
- contributions to Health Spending Accounts (HSAs)
As an example, if an employer pays $1,000 towards the cost of group health & dental premiums for an employee, the employee receives the full $1,000 of value. Nothing is lost because of taxes.
In addition, the employer still gets the advantage of having the full $1,000 expense be tax-deductible for the company.
Group health and dental insurance plans, including Health Spending Accounts, are a win-win for both businesses and their employees.
4. The cost is shared with employees
Employee benefit plans are a unique form of compensation in that the cost is typically shared between the employer and the employees.
Most small businesses split the cost of the group insurance premiums 50-50% with their employees. This arrangement results in the employer not having to fund the entire program.
While employees may see group insurance as a benefit offered by their employer, they also often contribute towards the cost of these insurance benefits. Despite this, group insurance is still considered a valuable perk by many employees.
5. Promote a positive workplace culture
Businesses wanting to establish a positive workplace culture must show that they are invested in the well-being of their employees and their families. This is particularly relevant for companies with employees who place a higher value on personal wellness such as millennials.
By prioritizing employee wellness, you can create a healthy and supportive work environment.
How Employee Benefits Can Promote a Healthy Workplace
There are various ways to demonstrate your commitment to employee health and wellness, including offering group health and dental insurance, promoting work-life balance, and providing resources that support physical and mental well-being.
Practical examples of workplace wellness initiatives include:
- health & wellness education sessions
- incentives to encourage physical activity (such as Wellness Spending Accounts)
- mental health awareness
- smoking cessation incentives
- Employee & Family Assistance Programs (sometimes called EAPs)
Supporting employees through life’s challenges not only provides a sense of security and reassurance but also promotes a desirable workplace culture, which can be beneficial for your business.
Helping Your Business Succeed
Employee benefits can play a significant role in the success of a company.
By taking the time to understand the value of employee benefits, you can make informed choices about the types of benefits to offer and how they can contribute to the overall success of your business.
Questions?
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This article is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to specific situations. Always consult with professional advisors.