With rising inflation rates and the talk of a possible recession, many organizations find it challenging to keep up with demand from workers in providing competitive benefits package.
As an employer, how do you balance your own benefits budget while still offering a comprehensive benefits package that attracts and retains employees? And how can employees make the most of their benefits to lower consumer costs?
This article will cover tips for both employers and employees to help lower costs without sacrificing benefits or pay.
How is inflation impacting employers and employees?
Throughout 2022, inflation increased across most consumer spending categories. While the rate of inflation has slowed—or even decreased—in recent months, it still impacts how employers and employees spend their money.
In a January 2023 news release, the U.S. Bureau of Labor Statistics1 announced that the Consumer Price Index (CPI) declined 0.1% in December 2022. However, the CPI remained 6.5% higher than in 2021. The most significant year-over-year price increases were for oil (41.5%), natural gas (19.3%), transportation services (14.6%), and electricity (14.3%).
However, inflation hasn't only affected consumer goods. Employee benefit costs are also on the rise.
According to a survey conducted by the Employee Benefit Research Institute2, a third of U.S. employees saw an increase in medical costs between 2021 and 2022. Moreover, 4 in 10 of those who reported increased health costs said they also have trouble paying their bills or covering basic living expenses.
But employees aren't the only ones struggling to pay for healthcare costs these days—employers are also bearing the brunt of rising costs. This is due to rising group health insurance costs.
According to KFF’s 2022 Employer Health Benefits Survey3, annual premiums for employer-sponsored health coverage reached $22,463. On average, employees paid $6,106 toward their coverage.
This increased cost has led some employers to reconsider their employees' benefits.
For employees, the impact of inflation can’t be overstated. When inflation increases, the buying power of workers' take-home pay shrinks.
The Bureau of Labor Statistics4 found that employees’ real earnings, or wages, fell 1.7% from December 2021 to December 2022. The average hourly earnings also decreased from $11.20 per hour to $11.01 per hour. This, combined with a decrease of 1.4% in the average workweek, results in an overall 3.1% decrease in weekly earnings.
With inflation likely to stick around for a while, many consumers can expect the costs of goods to remain high. This creates additional financial worries for many workers, as their pay can't keep up with their increasing costs.
Why is it important to offer employee benefits during periods of high inflation?
With employees facing higher costs of living due to inflation, they aren’t able to live their lives the way they used to, even with the same salary or benefits as before. Many Americans are cutting costs to try and save money for increasing rent, utilities, and healthcare costs.
Offering compensation packages and salary increases during periods of high inflation is essential for remaining competitive in a job seeker's market. Without a robust compensation package, your employees may look for better opportunities with your competitors. You'll need to balance your budget and benefit offerings carefully to continue to attract and retain top talent.
How to reduce employee benefit costs
So, how do you reduce the cost of your employee benefits while still supporting your employees? Personalized benefits allow you to offer a variety of perks your employees love while maintaining cost control compared to traditional employee benefits.
We’ll cover the specifics for each type of benefit in the sections below.
Health benefits tips for employers
Health benefits remain a critical part of any compensation package. To effectively retain your employees, you need to offer the health benefits that your employees want. However, the rising cost of traditional group health insurance has left many employers in a pinch.
Thankfully, personalized health benefits such as health reimbursement arrangements (HRAs) and health stipends can help supplement or replace your group health coverage while reducing your benefits costs.
Supplement your group plan with an integrated HRA
One strategy employers can implement to lower costs while extending coverage is to switch their group health plan to a high deductible health plan (HDHP) and supplement it with a group coverage HRA (GCHRA), also known as an integrated HRA. This may be an excellent option for your younger and healthier employees who don’t have as many healthcare costs. The benefit of an HDHP is the lower premiums for you and your employees.
If you're worried about the high deductible employees will have to meet, you can offer a GCHRA to help offset the out-of-pocket costs. With a GCHRA, you simply offer a tax-free allowance for your employees to spend on the healthcare expenses they incur before they meet their deductible or for items that aren't fully covered by the group plan.
Offer your employees an HRA instead
Instead of offering expensive group health insurance, you can switch to an HRA to save time and money. An HRA allows you to reimburse your employees tax-free for their individual health insurance coverage and qualifying medical expenses.
This enables your employees to purchase the individual health insurance plan that works best for them.
Two types of HRAs can replace your group health insurance plan:
- The qualified small employer HRA (QSEHRA)
- Specifically designed for organizations with fewer than 50 full-time equivalent employees (FTEs)
- The individual coverage HRA (ICHRA)
- An excellent option for organizations of all sizes. An ICHRA requires that employees purchase individual health insurance that meets the requirements for minimum essential coverage (MEC)
With an HRA, you set a monthly allowance. Then, your employees request reimbursement for their qualifying expenses. This gives you complete cost control and predictability, as your allowance won’t change year-to-year unless you choose to offer more money to your employees.
An HRA allows you to budget better and plan for the future while controlling your expenses.
Offer your employees a health stipend
A health stipend is another benefit option. It works similarly to an HRA, where you can reimburse employees for their medical expenses. However, health stipends are taxable and must be reported as income on your employees' W-2s.
Health stipends are great for organizations with 1099 contractors or international workers who can't receive traditional health benefits. They can also benefit employees who receive advance premium tax credits (APTC).
Like with an HRA, the employer chooses the monthly allowance for employees to use. This allows for greater budgetary control and planning.
Other health benefits options
Another way to support your employees’ healthcare expenses is by offering a health flexible spending account (FSA) or a health savings account (HSA). These are both benefits that allow for employer contributions and employee contributions. These accounts are funded with pre-tax dollars, which employees can then use on qualifying medical expenses.
Foster a healthy workforce
Lastly, fostering a healthy workforce is another way to help save on health benefits costs for you and your employees. After all, the healthier your employees are, the less likely they are to have extensive healthcare costs.
A wellness program is a great way to attract and retain employees while helping them live healthier lives. While there are many different types of wellness programs, offering them all can often become expensive and time-consuming to manage. Thankfully, wellbeing programs don’t need to be expensive to be effective.
With a good mix of perks for nutrition, fitness, and stress management, you can help your employees live healthier.
A cost-effective way to provide wellness benefits while helping employees through periods of high inflation is through a wellness stipend. With a taxable wellness stipend, you reimburse your employees for their wellness costs like gym memberships, home exercise equipment, wellness mobile apps, and more. Simply set a monthly allowance for budget control, and your employees can request reimbursements for their most important wellness expenses.
How employee stipends can help you offer better benefits
In addition to health benefits, you should offer your employees a range of benefits that support their increasing financial needs.
With employee stipends, you can easily offer various benefits that support your employees' needs during high inflation without breaking the bank. Simply set monthly allowances for each stipend you offer, or use one allowance and let your employees choose how they use their benefits.
Employee stipends also allow you to save time and money by consolidating your various benefits programs into one program. For example, if you already provide an employee wellness program, gym memberships, internet access reimbursement, and other perks through various vendors, you can offer employee stipends instead. This reduces your administration time while reducing the overall cost of your benefits.
Other than the health and wellness stipends we’ve already discussed, let’s look at some popular additional benefits you can offer with stipends.
Transportation benefits
With rising gas prices, providing commuter benefits, also called qualified transportation fringe benefits, can help your employees financially. Commuter benefits such as a free or discounted parking pass, ridesharing, company shuttles, and mass transit passes can help alleviate stress and save your employees money while ensuring they have options to get to work as they return to the office.
Remote work expense reimbursement
If you have remote workers, you can help them financially by reimbursing them for their remote work expenses. This can include cell phone reimbursement, home internet access costs, and any tools or equipment they need to perform their job. In some states, you may be required to reimburse employees for their remote work expenses.
Professional development
With organizations being more frugal, it may be challenging to attract highly specialized talent without a stand-out benefits package. One way to close skill and knowledge gaps in your organization is by offering a stipend for professional development.
By offering opportunities for your employees to pay for training, courses, certifications, and more, you can help retain your current employees while leveraging your existing talent to fill high-level vacancies.
Other benefits tips for employers
There are other ways to reduce the cost of benefit programs at your organization and improve retention, helping you save money on hiring. This includes dropping any under-utilized benefits and offering small pay increases.
Drop your under-utilized benefits
Another option is eliminating the benefits you're spending money on but your employees aren't cashing in on. For example, if you offer a monthly gym membership but none of your employees have signed up, you can drop the benefit and spend those dollars in other places, such as a wellness stipend.
A great way to learn which of your benefits your employees are and aren't using is by sending out an employee benefits survey. Our template has free sample questions you can use!
Offer pay raises
With purchasing power decreasing month-over-month, offering a small pay increase can help your employees remain on track. After all, if you aren't giving your employees a raise during inflation, they're actually earning less than before.
Consider increasing your hourly wage or salary for all employees by 1.7% (the amount that wages have decreased over the last year). You can also raise your organization's minimum wages to accommodate increasing consumer costs.
According to the Wall Street Journal5, some companies are giving out pay raises more frequently than once per year to combat inflation.
Benefits tips for employees during high inflation
There are many steps employees can take to better utilize their benefits during periods of high inflation and economic uncertainty.Educate yourself on your benefits
The first step employees can take to lower costs is to ensure they fully utilize all their employee benefits. More importantly, as an employer, you want to ensure they understand how their benefits work so they can make the most of them.
Employees should reach out to their HR representative or benefits administrator to ensure they’re taking advantage of everything they qualify for as an employee, as this can help reduce their monthly expenses.
Negotiate your medical bills
A little-known tip about lowering healthcare costs is negotiating your medical bills. Many Americans don't realize that there are several handy tips to lower their medical bills, get financial assistance, and even negotiate a more reasonable payment plan with their healthcare provider. This can help employees reduce their medical debt for expenses their insurance company may not fully cover.
Take care of your health
Lastly, one of the simplest things employees can do to lower their rising healthcare costs is to take care of their health. The healthier they are, the fewer trips they’ll need to make to the doctor and other expensive specialists. This also benefits employers, as better employee health generally results in a more productive workforce.
While easier said than done, making simple changes like switching to flavored water instead of sugary drinks or going for a walk on lunch breaks instead of watching TV or using their cell phones can make a big difference in your employees’ health.
Conclusion
While consumer costs are steadily rising thanks to inflation, there are several ways you can help lower your employees' costs while maintaining your budget. While reducing your benefits offerings during periods of inflation may be tempting, it doesn't have to be that way. By following the tips in this article, you'll be able to provide benefits without compromising value to your employees.
If you're ready to offer personalized employee benefits to your employees, PeopleKeep can help! Our HRA and employee stipend administration platform helps organizations like yours manage their benefits in just minutes each month.
With customizable employee stipends through WorkPerks, you can create benefits to reimburse employees for expense categories like health, wellness, remote work, transportation, and professional development.
This blog article was originally published on January 19, 2022. It was last updated on January 31, 2023.
1. https://www.bls.gov/news.release/cpi.nr0.htm
2. https://www.cnbc.com/2021/10/07/1-in-3-workers-saw-higher-health-costs-this-year-survey-finds.html
