Are Benefits Breaking Your Employees' Budgets?

Anyone who has done the math on how much they take home per year versus their salary has  likely noticed a stark difference between their total earnings and the amount that gets deposited in their bank account. Of course, a good chunk of that difference goes to taxes and other required deductions that employees have little-to-no control over. But sometimes a significant portion of that difference is spent on benefits that they do have a say over. Because these benefits are deducted from employees’ paychecks, they tend to stay out-of-sight, out-of-mind, but if an employee is consistently coming up short on cash each month, it’s worth examining what they are paying for—and whether they should continue to pay for it.

Supplemental Life Insurance

About 60% of workers are offered life insurance benefits from their employers and 98% of eligible employees participate. While employers often cover this benefit up to 1x of their employees’ salaries, many also allow employees to purchase additional coverage, which they may or may not need. For example, a young, single recent college graduate doesn’t need to pay for supplemental life insurance. Someone who has chosen an individual policy outside of work with their life insurance needs in mind also doesn’t need to shell out extra cash for more coverage.

HSAs & FSAs

Health savings accounts (HSAs) & flexible spending accounts (FSAs) are useful pre-tax benefits for employees with medical expenses, but they can take a big chunk out of employees' paychecks that may be better spent paying down debt or padding an all-purpose emergency fund. FSAs in particular are tricky because that money is “use it or lose it” and employees can’t typically change their contribution elections during the year. Employees who have other pressing short-term financial needs should contribute just enough to an FSA to cover the medical expenses they know they will have and put the difference into an emergency fund. HSAs are more flexible because employees get to keep the money they’ve deposited in them and can change their contributions throughout the year. But it’s still possible that employees would be better served by keeping that cash in their budget for their short-term needs, especially once they’ve stashed away enough to cover their deductible.

401(k) Match

We always encourage employees to contribute enough to get their employer’s 401(k) match when they can afford it, but sometimes it’s just not in the budget. This problem is exacerbated by partial employer matches that require employees to contribute more of their own salary to get an equivalent employer match as they would receive with a full matching policy. For example, under a full 3% employer match, an employee making $100,000 annually needs to contribute $3,000 annually to get $3,000 from their employer match. Under a 50% matching policy up to 6% of an employee’s salary, that employee earning $100,000 would need to contribute $6,000 annually to receive the same $3,000 from their employer. That’s nearly $200 per month after taxes that this employee could have in their paycheck with the full match.

Health Insurance

While many employees don’t have control over their health insurance premiums, some employees do have choices between different plans. A mismatch between plans and healthcare needs can unnecessarily cost employees. Some employees do not choose a comprehensive plan and end up paying more out of pocket. Others are paying for more coverage than they need.

Pet Insurance

An increasing number of companies are offering pet insurance as a corporate benefit. The average cost of pet insurance is $20-$50. Just like with human health insurance, employees need to fully understand what their policies cover and what they could be on the hook for to determine whether the cost is worth it. Some companies may fully cover the cost of the premiums, but if not, employees should do their own comparison price shopping to make sure they are getting the best price for their needs.

Final Thoughts

Figuring out how whether one can afford these benefits (or can’t afford not to have them) isn’t an easy task. While providers are a great resource for understanding the ins and outs of each benefit, it’s best to get a non-biased opinion from a financial professional who can make recommendations based on the employee’s specific life circumstances, financial priorities, and other expenses. 

If your employees need help figuring out which benefits they should make use of considering their own financial situation, reach out to our team at enterprise@fingyms.com or submit an inquiry.