Explore Options for Reducing   Benefit Costs that Keep on Rising

Like a balloon full of hot air, the cost of employee benefits just keeps going up, causing profits at many companies to lose altitude. The Department of Labor's National Compensation Survey for 2008 shows that employers spend an average of $6.39 per hour worked for common employee benefits, compared with $4.87 five years ago. After adding in the cost of wages and salaries and legally required benefits, such as Social Security, employers pay their employees an average of $28.46 per hour worked today. 

Here's a breakdown of costs this year, compared with 2003:

Expense	2008	2003
Wages, salaries	$  19.83	$ 17.17
Life, health and disability insurance	2.40	1.77
Paid leave benefits, including vacations, holidays, sick leave, and personal leave	2.00	1.63
Employee retirement and savings plans	1.26	.85
Supplemental pay, including overtime, weekend, holiday and differential pay	.73	.62
Social Security, Medicare, unemployment insurance, and workers' compensation (legally required benefits)	2.24	1.89
Average Total Per Hour	$28.46	$23.93
Source: Department of Labor National Compensation Survey

With figures like these, you may be thinking of cutting employee benefits or shifting more of the burden to your employees. However, that could send some of your best employees to your competitors and impair your ability to recruit new talent.

Transportation Benefit Ideas

With gas prices so high, commuting costs have become more burdensome for many employees. Some ideas: Employers can offer qualified transportation benefits through a reimbursement arrangement funded with employee pre-tax dollars. Qualified transportation benefits can include transit passes, qualified parking, and rides to and from work in a commuter highway vehicle (also known as vanpooling). This type of arrangement can save employees money on federal, Social Security and (in most cases) state taxes, making it less expensive for them to commute to work. Ask your accountant how to get started. Help employees save on transportation costs through scheduling changes that make it easier for them to carpool, or when possible, by permitting work-at-home arrangements on a part-time or full-time basis. Consider flexible work schedules, if this is possible for your business. Some businesses allow a four day, 10 hour per day work week. This saves the employer energy costs and the employees transportation costs. Plus, many employees appreciate the extra free day.

Don't waste money on benefits that employees don't use or appreciate. Consider conducting a survey to find out the benefits employees value most. Determine what they're using and make adjustments to meet staff members' needs and win their loyalty.  Provide education, so employees understand their benefits and how to use them.

Before reducing benefits, explore your options and find out what other companies are doing.

Health Care

In most companies health insurance costs represent the largest item in the benefits budget, and therefore can provide the most potential for cost cutting. If it's been awhile since you put your plan out to competitive bid, take a look at what is available for your current coverage, as well as different plans that might offer a better value. Focus on plan features that can reap hefty savings, such as prescription drug programs that demonstrate a track record of high generic use.

Take advantage of the ways your company and your employees can get the most out of health care dollars.

Flexible spending accounts (FSAs). At a reasonable cost to your business, FSAs can be part of an employer-established cafeteria plan.

Employee FSA contributions are considered salary reductions, which means they are exempt from federal income tax, Social Security tax, and Medicare tax. So they allow your employees to pay out-of-pocket medical expenses (including their share of health premiums) with pretax dollars. Your company's taxes are also reduced, because the salary reduction amounts are exempt from the employer's share of Social Security and Medicare taxes.

Depending on the specifics of your plan, both employers and employees may be able to contribute to an FSA.

Health Savings Accounts (HSAs). Recent tax laws included new advantageous provisions for Health Savings Accounts (HSAs). Essentially, HSAs operate like this: Individuals and businesses buy less expensive health insurance policies with high deductibles and also contribute to HSAs set up for each employee. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax free, and be withdrawn tax free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance.

Since funds that are not used can remain in the account, there is an incentive for participants to spend wisely, rather than going to an emergency room for minor medical needs or insisting on brand name drugs instead of generics.

Many employers take the concept a step farther by contributing to individual HSAs in order to offset employee deductibles, and they still see substantial savings.

Here's an example from the National Small Business Association: A business with 15 employees now pays $72,000 a year in health insurance premiums for a policy with a low deductible. By switching to an HSA plan with a deductible of $2,500 per employee, the company cuts its premiums to $40,000 a year. The business then contributes $1,000 to each of its 15 employees' HSAs, bringing the total cost to $55,000 -- a $17,000 savings.

Self-funded insurance.  A number of companies have turned to self-funding, or self-insurance as an alternative that still allows for high-quality coverage.

Here's how they work: Rather than buying a prepackaged plan and paying premiums for insurance that may or may not be used, employers with self-funded plans pay health claims as they arise, out of their own pockets. They generally use a third-party to handle the claims. Most self-insurers also carry a stop-loss policy for major medical expenses to protect them if catastrophic illness or injury occurs.

Obviously not all companies can do this. Self-funded insurance requires a healthy cash flow and there is risk involved. But for some employers, the savings can add up. Instead of paying premiums that insure against what could happen - and throwing that money away if medical expenses don't arise - self insurers pay only for what does happen. In addition, self-funded plans may be exempt from state insurance laws and mandates that inflate costs.

Voluntary Benefits

Voluntary benefits are those employees pay for themselves. The cost to the employer for offering them can be little or nothing, but employees enjoy savings and convenience because they purchase the benefits at a group rate and pay for them via payroll deductions. Studies show that six of ten employers offer at least one voluntary benefit. Some do it to soften the blow of other cutbacks, but many offer them because their employees asked.

Common voluntary benefits include life insurance, disability coverage, dental and vision care, long term care insurance and financial planning.

What Other Companies Are Providing

Many employers are adjusting their benefit offerings, according to the 2008 Employee Benefits Survey from the Society for Human Resource Management (SHRM).

The number of employers providing certain benefits declined in 2008 including stock options, legal assistance and paid family, adoption and paternity leave. Meanwhile, the number of employers offering certain benefits increased in 2008 including personal use of company-provided cell phones and communication devices, on-site vaccinations, Roth 401(k) plans and fitness center membership reimbursement or subsidy.

Other benefits offered by SHRM survey respondents:

• Health care coverage for same-sex partners (36 percent); dependent grandchildren (36 percent); and foster children (30 percent).
• Long-distance calls home during business travel (62 percent).
• Compressed work week (37 percent).
• Wellness resources and information (72 percent); Smoking cessation assistance (40 percent) and weight-loss programs (31 percent).

Make Staff Members Aware of the Value of Benefits

Don't overlook the important step of communicating to employees the dollar value of their benefits. Many employees view the cost of their insurance as what they pay out of pocket. They have no idea their employers are paying a substantial amount to make health insurance available. Take time to create a "Report of Your Benefits," to summarize to each employee how much your business is paying.

As you know, benefits are a sensitive issue. Before pulling out the surgical knife, explore other health insurance options, as well as consider voluntary benefits and other perks.