Benefits as a Percentage of Payroll Remains Consistent

Benefits as a Percentage of Payroll Remains Consistent

Over the past decade, the International Foundation has gathered benchmarking data on hundreds of benefit offerings through its Employee Benefits Survey. Data is gathered on all facets of employee benefits, including paid time off, retirement plans, health care benefits, disability benefits, life insurance and more.

The past decade has also marked a great transformation in the employee benefits arena. In health care offerings, the Affordable Care Act presented a new host of coverage requirements for employers. Mental health benefit offerings became more prevalent as employers embraced mental health parity and treatment options became more accessible. On the retirement side, employers attracted workers through the use of automatic enrollment and matching contributions as part of their defined contribution plans. In the paid leave arena, organizations offered more generous vacation and paid-time-off time sooner after date of hire. This is coupled with more generous paid sick and family leave laws being enacted across the country.

As part of the Employee Benefits Survey, respondents were asked to estimate their organization’s benefits costs as a percentage of their overall payroll. This includes the aforementioned offerings as well as statutorily mandated benefits such as Social Security, unemployment insurance, Medicare and workers’ compensation. Respondents were asked to include only employer costs, excluding participant contributions toward benefits.

Given the changing benefits landscape over the past decade, one would expect fluctuations in this metric. First, overall data was tracked over the last five survey offerings. As shown, there is little, if any, fluctuation on a year-over-year basis.

Benefits Costs as a Percentage of Payroll Overall Respondents

Next, an analysis was conducted of only the corporate/single employer survey respondents. While the proportions are slightly lower, the lack of fluctuation continues.

Benefits Costs as a Percentage of Payroll Corporate/Single Employer Respondents

Other Measures

In addition to historical comparisons, several other factors were analyzed, looking for variances in the 2020 corporate/single employer data.

Engagement and Productivity

Responding organizations were asked to rate their organizations on worker engagement and productivity—key goals of an employee benefit plan. Those that rated their worker engagement as “high” were compared to those that did not. Are workplaces with higher engagement and productivity measures spending more on benefits as a percentage of payroll? The data does not identify large discrepancies.

Benefits Costs as a Percentage of Payroll Engagement and Productivity Measures

Attraction and Retention

Similarly, responding organizations were asked to rate their organizations on their worker attraction and retention efforts. Those that rated themselves higher in these areas were asked to compare to those that did not. Again, discrepancies were minimal.

Benefits Costs: Attraction and Retention Measures

Respondent Region

In other data points of the Employee Benefits Survey, the region in which the employer is located has an impact on prevalence of specific offerings. In this case, employers located in the western U.S. (32.8%), on average, spend more on benefits as a proportion of payroll compared with respondents in the Northeast (29.4%). However, these differences are, again, relatively small.

Benefits Costs as a Percentage of Payroll Respondent Region

Respondent Employer Size

Finally, perhaps the greatest driver of benefit offerings throughout the Employee Benefits Survey is the size of the responding employer. Typically, respondents with 500 or more workers offer more substantial benefit offerings, while smaller employers tend to offer more flexibility around paid and unpaid leave benefits. Does employer size have an impact on benefit costs in proportion to payroll costs? Again, differences are minimal.

Benefits Costs as a Percentage of Payroll Respondent Employer Size

What accounts for the consistency in these figures, either historically or by various measures? Are benefit costs moving in tandem with wages? Are costs being passed on to workers? Are responding organizations working tirelessly to effectively manage benefit costs in proportion to wages? These trends echo findings from other sources. What factors account for these trends? What have you found?

Learn More

Employee Benefits Survey 2020 is the seventh comprehensive benefits benchmarking survey conducted by the International Foundation of Employee Benefit Plans. The report covers pension and retirement benefits, health care benefits, voluntary benefits, paid leave, work/life benefits and more. The full report is available at www.ifebp.org/BenefitsSurvey2020.

Justin Held, CEBS
Senior Research Analyst at the International Foundation 

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