How Much Should I Spend on Benefits?

As a benefit specialist we are regularly asked by employers, who are looking to implement a new benefits plan, “how much should I spend”?  There are many anecdotal responses, driven from historical facts, however in my opinion the right answer is, how much can you afford to spend?

The needs for a benefits plan can vary depending on the business cycle of the company, the maturity of the business and the type of business they are in.  A company who is looking to rapidly expand may need to spend more money on their benefits plan to attract the necessary talent they need to succeed.  One that is in a highly competitive industry may need to spend more as a way of retaining valuable staff ensuring their valuable human resources do not leave.

A private business owner needs to find a balance between what they can afford, and what they need to spend.  They do not have a “money tree” in the back yard and most cannot draw from an endless supply of credit to achieve their results.  For a private business owner spending in excess of 15% of their payroll for a group benefits plan (which is not uncommon in the public sector) is just not feasible.

At the end of the day, our job is to align the best solution with the owner’s vision, objectives and pocket book.  There is no magic percentage of payroll number which must be spent on an employee benefits plan; there is only the percentage of payroll that works for that employer.