Employers are spending significant sums on employee benefits. According to the U.S. Bureau of Labor Statistics, employee compensation for civilian workers averaged $39.01 per hour in March 2021. Of that total, only $26.84 went to wages and salaries. The rest – that’s $12.18 per hour – went to benefits. Some of these benefits are required by law. Many of the benefits, however, are considered discretionary benefits – benefits that are optional under the law and that employers offer at their own discretion.
Discretionary benefits are an important part of an employee benefits package. Here’s a look at what to include and why.
Discretionary Benefits vs. Legally Required Benefits
Employers are legally required to offer certain benefits under state or federal law. For example, employers have to pay Social Security and Medicare taxes, and most employers also need to provide unemployment insurance and workers’ compensation insurance. Under the Family and Medical Leave Act, eligible employers must offer job-protected time off for certain medical and family reasons – although they aren’t required to offer paid time off.
Certain requirements apply to some employers but not to others. For example, under the Affordable Care Act (ACA), employers with 50 or more full-time or full-time equivalent employees are considered Applicable Large Employers (ALE), and they are required to offer health insurance under the employer mandate. COBRA also requires employers with 20 or more employees to offer health coverage continuation when coverage is terminated.
Individual states may create additional requirements. For example, many states have health coverage continuation laws that apply to employers with fewer than 20 employees. States may also create requirements for paid family and medical leave, disability insurance or other benefits.
These requirements are also subject to change. For example, in response to the COVID-19 pandemic, the Families First Coronavirus Response Act created temporary federal paid leave requirements. Other legislative changes could create new benefits requirements on the state or federal level.
In other words, what’s legally required will vary significantly depending on the size of the employer and the location. But when employers go beyond the legal requirements to offer additional benefits, they are offering discretionary benefits.
Why Do Employers Offer Discretionary Benefits?
Many employers offer discretionary benefits for the same reason they offer wages that are above the minimum wage. To attract top talent, employers need to provide top compensation.
The recent labor shortages have made this abundantly clear. According to AP News, even though the federal minimum wage is only $7.25 an hour, $15 wages have become common as businesses struggle to find enough workers.
Raising salary and wages is one way to attract workers. Offering good benefits can be another way. According to a Glassdoor survey, 60 percent of respondents say they strongly consider perks and benefits before they accept a job offer, and 80 percent of employees prefer additional benefits over a pay increase.
Benefits can improve the employee’s quality of life and financial security. This may help the employee become a more productive, more focused and more loyal worker. Increasing compensation through benefits instead of wages may also offer certain tax advantages. For all of these reasons, although employers do not have to offer discretionary benefits, doing so can be a smart strategy.
What Types of Discretionary Benefits Can Employers Offer?
Because discretionary benefits are the ones that are not required by law, there’s a wide range in what employers can offer. Some of these benefits are insurance products, while others are services and perks.
- Paid Time Off. Paid time off can come in many forms, including vacation time, holidays, personal time and sick leave. Paid parental leave is another important benefit, and one that many people have been pushing for. Some employers also offer volunteer days that give employees time to volunteer at the charity of their choice. Paid time off strategies vary widely. Instead of giving employees a set number of allowable days, some employers offer unlimited paid time off. And to help employees resist the urge to check in on their day off, some companies have started taking company-wide vacation days.
- Remote Work. The pandemic started a remote work trend, and there may be no going back. Employees have different reasons for wanting to work from home. Some hate commutes and office dress codes. Others need flexibility to juggle parenting and work. Some have moved away from the office. Regardless of the reason, companies can offer either remote work or hybrid schedules to accommodate the remote work demand.
- Supplemental Health Benefits. Depending on the size of the company and whether it’s subject to the requirements of the ACA, health insurance may or may not be required. Regardless, offering it can be a good way to attract employees. Employers can also offer related benefits, including vision insurance, dental insurance and critical illness insurance. Companies that offer high-deductible health plans should also consider offering HSAs.
- McKinsey & Company shows that telemedicine usage has stabilized after an early pandemic surge and is now 38 times higher than before the pandemic.
- Retirement Plans. Many workers are behind on their retirement savings. A solid retirement plan can be an effective way to help them achieve their goals while earning their loyalty.
- Life Insurance. Life insurance is a popular benefit. Employees with young children may be especially interested in this offering.
- Disability Insurance. Like life insurance, disability insurance is another product that can give employees and their families peace of mind.
- Financial Wellness. In addition to insurance products like life insurance and disability insurance, employers can support financial wellness through education and tools.
- Employee Assistance Programs. These programs are designed to help employees deal with a wide range of personal and professional challenges.
- Mental Health. During the pandemic, mental health issues have been in the spotlight, and many employers are responding with additional mental health benefits. According to Employee Benefit News, offerings have included free therapy, courses, app subscriptions and more.
- Student Loan and Tuition Assistance. Given the high cost of tuition and the prevalence of student loan debt, these can be attractive benefits.
- Other Voluntary Benefits. Many benefits can be offered on a voluntary basis, meaning that the employee pays for them, often at a lower group rate using the convenience of payroll deduction. These benefits can include things like life insurance, disability insurance, vision insurance, dental insurance and critical illness insurance, as well as additional offerings like pet insurance. This is a good way to let employees personalize their benefits packages.
- Memberships, Discounts and Subscriptions. Employers can also offer perks like gym memberships, app subscriptions and discounts with various other companies.
Creating Your Discretionary Benefits Package
A good benefit package will consider the needs of your workers and the benefits offered by industry peers. At Higginbotham, we can help you design an attractive benefit package that will help your company achieve its goals.