Many employers offer a wide range of voluntary benefits to employees, all at no cost, since their staff typically will pay all of the costs. Some employers, however, do choose to subsidize a portion of the premiums.
Life insurance is usually tops among voluntary employee benefits offerings. Companies can already deduct term insurance premiums they pay on employees’ behalf for up to $50,000 in death benefit per employee, under Section 7702 of the Internal Revenue Code. This death benefit is frequently too low for employees with families, so employers frequently offer additional life insurance via payroll deduction.
Other popular benefits include everything from dental and vision plans to long-term care insurance and dread-disease and cancer insurance plans, and from disability income insurance to gym memberships. In recent years, pre-paid legal services and privacy protection services have also become increasingly popular.
However, there’s nearly no limit to employee benefit providers’ creativity – and they have designed everything from auto and shopping discount plans to pet care programs to attract workers’ dollars.
Benefits to employees
For insurance-related products, employees benefit because if the pool and participation rates are large enough, they benefit from simplified or guaranteed underwriting. For example, many voluntary benefit life insurance companies will issue a policy based solely on a short questionnaire and a medical background check, with no medical exam necessary. These workers may have a hard time buying this coverage in the individual market, but are able to get coverage as part of a larger group.
The second way employees benefit is by group discounts. Staff can often get needed benefits and services as part of an employee benefits program at a significant discount as part of a group, compared to what they would have to pay as individuals.
Benefits for employers
Employers benefit as well, in a variety of ways.
First off, through tax savings. Employees who buy certain kinds of benefits via a Section 125 – or “cafeteria” – plan, do so pre-tax. This lowers the employer’s tax bill, because any dollars the employee contributes to a qualified plan benefit are not subject to Social Security and Medicare taxes.
Benefits can also help reduce absenteeism and increase productivity. For example, a worker whose family is receiving benefits from a childcare benefit program or long-term care benefits covering a dependent, is less likely to have to take unexpected time off work to deal with emergencies related to childcare or care for disabled dependents.
Some research shows a measurable increase in productivity compared to employees who do not have access to these benefits.
Lastly, a large package of employee benefits – whether they are employer-paid or sponsored as part of a voluntary benefits package or fringe benefits program – help build loyalty among workers, and help employers attract and retain talent in a competitive marketplace.
A 2005 survey by LIMRA International found that six out of every 10 employees believed that their line of voluntary and/or supplemental benefits was an important part of their total compensation package. They valued the convenience of paying via payroll deduction, and also the price discounts their employers were able to secure.