Small business owners want to offer benefits, but it often comes down to a question of cost—and many employers opt for raises in lieu of benefits. Here are three reasons to rethink your position.
When an employee gets a raise, both he and the employer take a tax hit. For the employer it means more payroll taxes for the higher salary. For example, a $2,000 annual raise could cost an employer $400 on top of that raise when you factor in the extra 10-20% in taxes.1 Meanwhile, the employee loses a portion of that extra cash to income taxes.
On the other hand, offering health insurance can provide tax advantages. As the employer, your contributions to employee health insurance are typically tax deductible. You can deduct your cost for employee health insurance, and employees can pay premiums with pre-tax dollars via payroll deductions. Your accountant will be able to offer guidance specific for your business.
Adding health insurance to your benefits package can boost your chances of landing top talent. In fact, 57% of workers say that benefits and perks are high on the priority list when they're looking at a new employer.2 And a third of organizations increased their benefits in the past year, primarily to stay competitive.3
When an employee walks out the door, it costs you. The price of turnover includes not only lost productivity from the employee’s departure, but also vacancy costs such as temporary help, advertising the position, along with time spent interviewing and training.
Employers typically spend about a fifth of an employee's salary to replace a worker who leaves. So for an employee earning $40,000 a year, it costs about $8,000 to replace him,4 versus an average annual health premium of $6,435 (of which the employee typically pays a portion).5