I.            The Cost Of Providing Benefits

There has been a slow growth of the cost of benefits in the last years. On average, employee benefits costs range from 18 to 28 % of total salary cost, therefore any change in the cost of benefits would significantly affect compensation costs. According to Employee Benefit News (2), in 2001 benefits costs rose 5% in private industry, while compensation costs grew only 4.2%. (For a graph of rising benefits costs, and costs of providing benefits per employee, see Appendix III.) The largest rise in cost was marked in insurance, medical care and prescription drugs. Despite this rise, employers continue to increase their payments instead of asking more from their employees. Thus they are trying to keep their strategy of attracting new workers and retaining current ones.

“It is total compensation costs that really matter, because as benefit costs go up, employers economize in other areas,” economist Gordon Richards at the National Association of Manufacturers in Washington, D.C., says. “They reduce wage increases or hire fewer new employees.” (2) However, if unemployment rose, employers could pass more of the cost on to workers without fear of worse work force.

There are basically two ways of providing benefits- offering each employee the same benefit package, or offering a cafeteria plan, in which a base core of benefits is given and then the employee can choose what benefits he wants to add to his package. Concerning cost, the cafeteria plan provides more ways how to save money. It allocates a certain amount of credits to each employee, who can then use them to purchase additional benefits. However, purchasing benefits this way allows the employer to offer less than under a traditional plan, yet leaving the employees satisfied that they have chosen what they believe are the best benefits for them.

I.            Conclusion

In a modern competitive labor market, attracting the best available employees for an organization can prove quite hard. Benefits were introduced as a way of achieving this purpose. Most organizations nowadays provide some form of benefits, whether it is medical coverage (as most popular in USA) or subsidized food tickets (as most widely known benefit in Slovakia). Even if benefits may seem expensive for the employer, the cost is returned in higher workers’ productivity, job satisfaction and company loyalty.

Benefits can be offered as a package to all employees, or in a cafeteria plan, where employees can choose which benefits they want. If a company wants to seem more concerned with employee satisfaction, and also want to cut some costs on benefits, it might choose the cafeteria plan. However, most large US companies still choose to offer an unchangeable benefit package.

There has been a rise in the cost of benefits, mainly due to an increase in the cost of medical coverage. However, this increase is slightly lower than the increase in total compensation, and therefore employers needn’t worry about the cost of benefits getting out of control. Still, if an employer thinks that the costs are too high, he can ask employees to cover part of these costs, or can choose to offer benefits based on the workers’ productivity and total profit of the organization (profit-sharing).

The overall positive impact of benefits is higher than the costs, thus making employee benefits a must-have for an organization which wants to retain and attract high-quality workforce. There is a variety of employee benefits to be offered, the companies just have to choose which will serve their human resources strategy best.