How do we balance benefits and profits? We’re not sure what to do about health care. We’re worried about getting hit with increases in premiums this year. It could eat into our profits. How do we sort it out?
Thoughts of the day: Every business should balance benefits and profits. Figure out what your company can and can’t afford to pay. Health care has been in constant change for the last several years. It’s time to discuss that reality with your employees. Considering encouraging employees to turn to your state’s exchange for insurance? Be sure you have someone lined up who can help explain all the policy options. Make sure you can explain what you’re doing and why.
Leading by example
Look at ratios. Set a target range for all salaries and benefits. Calculate and compare to revenue and gross profit. Add or adjust benefits. Pay out bonuses, make sure changes don’t blow the target ratio.
Ideally, any growth in benefits and bonus payouts comes from the growth of the company. Forecast increases in revenue and gross profit, and figure out if you’ll need any additional personnel. Deduct that increased personnel plus any material costs from the increase in forecasted revenue and gross profit. What’s leftover is the amount of income you can use to build up profits, pay additional benefits and bonuses, invest in savings and infrastructure, and use to pay taxes on profits.
Not sure whether your salaries and benefits are in line with your industry? Turn to your industry association for advice and benchmarks. Some industries have stats posted online, so check that as well. You can also contact peers in your industry across the country and ask them what they’re spending. Keep in mind that both coasts tend to have a higher cost of living.
Many companies struggle. Some take on additional health care costs, benefits, and pay increases without sufficient revenue growth. If that’s a problem your company is facing, be honest about what’s going on. before potentially sending the company into a financial black hole.
Balance benefits and profits what are the trade-offs?
Raises and additional benefits should happen as a result of increased profits. Over the past several years, companies have had to absorb a number of mandates regarding how employees are paid and what benefits they receive. The cost of these mandates is equivalent to annual cost-of-living pay raises and then some.
Many companies have taken on substantial increases in the cost of pay without seeing significant growth in revenue or improvement in profitability through increased productivity.
Show your employees how much the company pays on their behalf, above and beyond salary. Start with federal insurance and unemployment contributions; don’t forget to add in the costs of medical, dental, and life insurance, child care, time off from work, and any other benefit programs your company provides.
Have a rationale and set limits on how benefits are distributed and paid for. The simplest way to handle health care is to pay for the company’s individual premium or a percentage of that. Employees who want to elect more coverage for their families can do so and use a portion of their paycheck to cover the cost.
Bottom-line top-line growth
Be careful when considering higher benefit costs for managers. Keep in mind that managers tend to be more expensive in salary. Loading additional costs onto an already expensive manager may make that person so costly that they can’t prove they can deliver enough profits to allow the company to break even.
When getting ready to give out raises, calculate the raise as a percentage of the existing salary. One company decided to give employees an hourly raise, without realizing it was a 10 percent to 15 percent increase in pay across the board. They would have been better off giving this money as a bonus and making it clear to employees that it was only going to continue if profits stayed up.
There are some great reasons for providing employees with benefits. Employees who take time off regularly tend to be significantly more productive. Those who can afford to see a doctor regularly are more likely to be healthy and productive. Employees who can afford to stay home when they’re sick recover more quickly. Employees who know their children are safe are less distracted. The list goes on.
Looking for a good book? Try “The Employee Benefits Answer Book” by Rebecca Mazin.
