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What are employee benefits?

Health Benefits • October 17, 2022 at 8:30 AM • Written by: Elizabeth Walker

Given today’s tight labor market, quality compensation packages are becoming more crucial to an organization’s success. Employee benefits and perks help keep workers happy, and a quality compensation package can be a valuable tool in attracting and retaining employees.

Employee benefits come in many forms. Some are required by law, while others are optional. If you’re responsible for employee benefits at your company, it’s good to be familiar with the wide variety of benefits that are out there.

In this blog, we’ll explain what employee benefits are, why they’re important, and how much they cost. We’ll also go over the popular types of employee benefits and how to manage them effectively.

Check out more fringe benefits you can offer in our complete guide

What are employee benefits?

Employee benefits are any forms of perks or compensation that are provided to employees in addition to their base salaries and wages. A complete employee benefits package may include a health insurance plan, life insurance, paid time off (PTO), profit sharing, retirement benefits, and more. Basically, any form of indirect pay offered to an employee, either mandatory or voluntary, can be classified as an employee benefit.

Some employee benefits are required by law. For example, employers must contribute to their employees’ Social Security and Medicare. Additional benefits beyond the requirements are often called perks or fringe benefits.

Each state’s benefit requirements differ, such as the rules regarding sick leave or covering remote work expenses. However, there are standard benefit regulations all employers must follow.

Federally required employee benefits include:

  • Provide employees time off to vote, serve on jury duty, and perform military service
  • Comply with all workers’ compensation requirements
  • Pay state and federal taxes toward unemployment insurance
  • Contribute to state short-term disability insurance
  • Comply with the Family and Medical Leave Act (FMLA)

Employers aren’t federally required to provide the following benefits:

  • Health insurance
  • Retirement plans
  • Dental insurance or vision plans
  • Life insurance plans
  • Paid time off (PTO), such as paid vacation and holiday leave
    • According to a PeopleKeep survey, while only 79% of employers offer a PTO policy, 93% of employees say that PTO is a vital component of a benefits package.

When considering an employee benefits package, think about the type of employees you want to attract, what perks they would enjoy most, and what voluntary benefits your budget can allow. No matter your choice, benefit coverage is an impactful way to entice employees and create a positive workplace culture.

Why are employee benefits important?

Offering employee benefits has several advantages for businesses of all sizes, and the numbers prove it. Our 2024 Benefits Survey Report found that 81% of employees say an employer’s benefits package is an essential factor in whether or not they accept a job.

Simply put, if you want to attract and retain top talent, show your organization’s worth, and increase morale, you must offer an attractive benefits package.

Recruit and retain employees

A generous benefits and perks package is crucial to have if you want to recruit and retain top talent, especially because of the Great Resignation1. According to TriNet2, 63% of companies say retaining employees is harder than hiring them. If you’re struggling with your retention rate, boosting your benefits package is an excellent place to start.

The Society of Human Resource Management3 (SHRM) also found that 92% of employees say their benefits are important for their overall job satisfaction.

In a related article, 63% of job seekers4 surveyed say they pay attention to what benefits a company offers. This means that providing benefits for employees, and listing them in your job ads, is an integral part of successful hiring efforts.

While all benefits aren’t mandatory, you should add various types of employee benefits to your compensation package. Outside of health plans, employees, particularly younger employees, find fringe benefits, such as PTO, flexible work schedules, and professional development to be “very important” benefits to include in your company’s benefits package.

Highlight your organization’s values

Today’s successful companies know that to attract and retain employees, they must define and instill great company values. Your employee benefits package can reflect your company values and entice top talent who share the same core values as you.

For example, you may launch a corporate responsibility initiative offering PTO to your employees so they can volunteer in their community.

Ultimately, the benefits you offer send a message about your organization’s beliefs. A good benefits package shows that you recognize your employees’ needs outside the workplace and want to support their overall well-being.

Show employees you care

Coverage through benefits is an active way to make employees feel rewarded and appreciated, making them more likely to stay at your company. Showing your employees that you care about their personal needs can also improve employee morale, leading to a better workplace environment.

77% of employers believe the benefits they offer are worth the cost to their employees. For example, benefits that improve work-life balance, such as vacation time, a flexible schedule, and the ability to work from home, can help lower employee stress and prevent burnout. Your staff is likely to be more productive at work with higher employee satisfaction in return.

How much do employee benefits cost?

One of the most important things to figure out when building out your benefits package is the cost. Examining the costs and value gained for each employee benefit can help you decide what to include in your plan.

According to a U.S. Bureau of Labor Statistics report5, employee benefits comprise 31% of total compensation costs. Insurance benefits made up 8.3% of compensation costs, and legally required benefits accounted for 7.1%.

What can seem like a financial burden at first might actually save you money in the long run. For example, a UnitedHealthcare survey6 found that 62% of participants in wellness programs say their productivity has improved, and 56% have had fewer sick days.

These programs are known to boost morale, but they also help you avoid indirect costs, like missed work due to illness and lower productivity.

What are popular types of employee benefits?

You may be asking yourself, “What employee benefits do people value the most?” The simple answer is that it depends on what type of employees you’re looking to hire.

Finding the right combination of benefits that will have the most impact while not breaking the bank is critical for your business’s success.

Popular benefits in the U.S. vary depending on employee makeup, industry type, and other factors. But checking out a list of common benefits most companies offer is a good start.

When designing your employee benefits package, it never hurts to investigate what your employees specifically want. Our 2022 survey found that 65% of employees even say they would value being able to choose their own benefits. Therefore, you may consider asking for employee feedback via an online survey to poll for customized benefit ideas.

Additionally, some employers create benefits packages according to the demographics of their workforce. For example, employers may offer a student loan repayment benefit to attract and retain millennials.

How to manage your employee benefits effectively

Employee benefits can vary depending on the type of organization you’re in. But regardless of the different kinds of benefits, employers must understand how benefits are structured.

Employers have two ways to structure employee benefits, including:

  • Organizational-oriented benefits
    • Benefits that are employer-owned and employer-selected, such as a group health insurance marketplace plan, a pension plan, or 401(k)
  • Employee-oriented benefits

Managing employee benefits can significantly impact your human resources team, especially when compliance issues are involved. But there are ways to effectively manage a benefit plan to save time and reduce the likelihood of errors.

Consider the following when managing your employee benefits package:

  • Hire a dedicated employee benefits specialist
  • Find the right benefits administration software, like PeopleKeep, for HRA health benefits
  • Measure benefits and costs carefully
  • Include a description of all benefits and perks in your employee handbook
  • Consistently monitor your employees’ wishes and needs regarding benefits

While employee benefits packages are typically discussed during the final interview or at the time an offer is extended, managing your benefits package is an ongoing process. The right benefits package can give you an edge over your competitors, so employers need to have the best tools in place to stay ahead of the curve.


A well-rounded employee benefits plan is essential for today’s workforce. Organizational-oriented benefits have traditionally been used by themselves, but many employers are incorporating employee-oriented benefits to meet their employees’ needs better.

Offering employee benefits may cost a bit more upfront, but the long-term advantages outweigh the costs by contributing to the success of your business. Comprehensive benefits attract better employees and retain them for the long haul—meaning employers benefit from a more productive and satisfied workforce.

This post was originally published on December 16, 2020. It was last updated on October 17, 2022.



3 SHRM 2018 Benefits Survey




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Elizabeth Walker

Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.