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How Much Do Benefits Cost Per Employee?

A comprehensive breakdown of the cost of employee benefits, according to the latest available data.

Matthew Speiser
October 18, 2023

In the modern job market, employee benefits are increasingly important to attracting and retaining top talent. Perhaps this is why the cost of benefits per employee has gotten progressively more expensive every year. We know this thanks to the Bureau of Labor Statistics (BLS), which publishes a periodic report detailing costs for various benefits categories across the public and private sectors. We combined data from the latest BLS report (which pulls from 16k+ public and private organizations in the U.S.) with our own research to better understand how much benefits cost per employee. Here’s what we found.

Overall employee benefits costs

On average, it costs $13.39 per hour to offer a civilian worker in the U.S. employee benefits (excludes federal government workers and self-employed workers). This number is slightly lower for private sector workers, and significantly higher for public sector workers (state and local governments) due to the fact that public sector workers tend to be older and more educated, and because cost-sharing is more common in the private sector.

Assuming a 40-hour work week, the latest BLS figures estimate a monthly per employee benefits cost in the range of $2.2k. 

Next, let’s look at how these costs break down across all the major employee benefits categories. 

Insurance costs per employee

Amongst civilian workers (both public and private), health insurance comprises the lion’s share of all insurance costs in the U.S. Similar to overall compensation, the cost of health insurance per hour is slightly lower amongst private sector workers ($2.84), and significantly higher amongst public sector workers ($6.43). BLS data reveals that health insurance is the single largest individual benefits expense by employers, comprising roughly 26% of all benefits-related costs per employee. 

Legally required benefits costs per employee

There are a handful of benefits employers in the U.S. are legally required to give employees, including social security, medicare, workers’ compensation insurance, and unemployment insurance (in certain regions, employers are also required to grant additional benefits, such as commuter benefits). Among these benefits, social security makes up the bulk of the cost for employers. 

BLS also notes the difference in cost of legally required benefits by occupational group (e.g., management-level employees, service workers, etc.), with these benefits considerably more expensive ($4.53 per hour worked) for employees in management-level positions, and lower ($1.89 per hour worked) for service-level workers. At the same time, legally required benefits make up a larger percentage of a service worker’s total compensation (8.4%) vs. a management-level worker (6.2%). 

Additionally, BLS notes that legally required benefits become more expensive per hour worked for larger organizations, while simultaneously making up a smaller portion of the employee’s total compensation:

Retirement costs per employee

Retirement costs tracked by BLS include pension plans and retirement contributions (e.g., when an employee contributes a portion of their pre-tax earnings to an employer-sponsored 401(k)). Within this category, pension plans make up a slightly larger share of the total per employee cost of the benefit, at $1.30 per employee hour worked. 

Paid leave costs per employee

Paid leave costs account for vacation days, federal holidays, sick leave, and personal leave. Among all benefits costs BLS tracks, paid leave is the second most costly expense to employers after insurance. Within this category, vacation days make up the largest cost to employers, at $1.57 per employee hour worked, with holidays second at $0.95 per employee hours worked. 

Supplemental pay costs per employee

BLS defines supplemental pay as income given to employees in addition to base income. Within this category, employee bonuses make up the largest cost to employers, at $0.96 per employee hour worked. Shift differentials, which refers to pay for employees tasked with working undesirable hours, makes up the smallest portion at $0.07 per employee hours worked. 

Transit benefits costs per employee

While BLS does not collect data on the employer cost of offering transit benefits, the cost per employee typically falls in the range of $3.50 - $4.50 per month. This range is based on our own conversations with employers. Of course, this number can vary based on a handful of factors, such as the transit benefit provider, the size of the organization, and the types of transit benefits provided.

How Have Employee Benefits Costs Changed Over Time?

As previously mentioned, employee benefits have become increasingly more expensive over time. Although the cost of employee benefits dipped during the pandemic, in the past two years the cost has jumped by $2.56 per hour worked. While a variety of factors play into the rising cost of employee benefits, one of the most noteworthy causes is the increasing cost of healthcare. A recent PwC report found that medical costs are expected to rise by 7% in 2024, after rising by 6% in 2023. 

What Affects Employee Benefits Costs?

While BLS gives us a baseline we can use to determine benefits cost per employee, there’s generally variation from company to company based on the following criteria:

  • Company size: Generally speaking, the larger the company, the lower per employee cost because employers can negotiate better rates by buying in bulk. 
  • Types of benefits offered: The more benefits offered, the higher the premium paid by the employer. 
  • Inflation: Most benefits providers will adjust an employer’s rate annually based on external factors like inflation or healthcare costs. 
  • Admin errors: Managing employee benefits is complex, and common mistakes like missing an enrollment date or forgetting to terminate an employee’s coverage can add unexpected costs. 
  • Locale: Studies have found employee benefits are more expensive in major metropolitan areas like New York and San Francisco, with the cost per hour worked often $2 - $3 higher compared to other areas of the country. 
  • Implementation fees: Some benefits providers charge a one-time fee for setting up an employer’s benefits and onboarding employees.

How to Reduce Employee Benefits Costs

Employers shouldn’t skimp on benefits, as they’re a proven recruitment and retention tool. However, to ensure you’re getting the most bang for your buck, consider the following strategies to manage the cost of employee benefits:

  • Survey employees on which benefits matter to them. Asking for feedback may help employers uncover benefits employees underutilize that can be removed from the benefits package. 
  • Cost share with employees. For insurance plans that are expensive, it's common for employees to pay into the plan out of their own paycheck. 
  • Try not to change your benefits offerings too frequently. Insurers sometimes see frequent changes as a sign of instability, which could prompt them to raise an employer’s premiums.
  • Employee education. Educating employees on utilizing their health insurance or retirement plans can lead to cost savings. For instance, if employees understand how their health insurance plan works, they may be less likely to file frivolous claims that cost the business money. Some benefits providers also offer training materials to educate an organization’s employees. 
  • Offer a wellness plan. This could come in the form of a gym membership, mental health access, or a stipend to be used towards wellness-related activities (e.g., yoga, health food, etc.). While a wellness plan will raise the cost of an employer’s benefits offering, it may ultimately lower it over the long run because it can reduce insurance costs.
  • Benchmark employee benefits. Compare your benefits program against programs offered by similar employers in your industry to understand market expectations. This can help employers uncover areas where they’re overspending on benefits.
  • Learn which benefits come with tax advantages. Employers can save money on taxes by offering programs like a health savings account (HSA), flexible spending account (FSA), 401(k), or commuter benefits.
  • Use Jawnt for commuter benefits. Jawnt helps get employees into the office by making it easy for them to access public transportation in their city. We work directly with employers of all sizes to implement our transit benefits program and get employees onboarded. Employers who work with Jawnt see increased employee attendance, engagement, and retention, meaning they get more out of their workforce. To learn how Jawnt can help your business, visit our website.

The True Cost of Employee Benefits

While the BLS data is subject to change, a good rule of thumb for employers is that an employee’s benefits cost anywhere from 20-40% of their salary. Small, private organizations are likely to pay less, while large, public companies typically pay more. While there are strategies to optimize the cost of employee benefits, it’s also important to keep in mind that they’re often worth the cost. As the old adage goes, take care of your employees and they’ll take care of you.

Matthew Speiser

The Jawnt blog

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