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Which benefits have the biggest effect on employee retention and recruiting?

Written by: PeopleKeep Team
January 15, 2021 at 11:33 AM

Significant changes to employment rates in the last year have put employers in a unique position moving into 2021. While recent projections anticipate slow job growth in the beginning of the year, a rebound is expected in the second half.

Though unemployment rates are higher now than they have been in recent history, the market is still largely expected to become favorable to job seekers in 2021. In a job seeker’s market, retention is key. So how do you make your organization the place your employees want to be?

Benefits are one of the surest ways to improve employee satisfaction and thereby increase retention. But with so many types of benefits now available, how do employers with a limited budget choose which ones to offer?

In this post, we’ll go over the four best employee benefits that help increase employee satisfaction.

Health Benefits

1. Wage increases

Dismayed by the potential cost and complexity of traditional group health insurance, some employers may choose to raise employees’ wages instead. This is often called a taxable stipend.

Though wage increases for tenure, promotions, and cost of living are essential; a wage increase in place of health benefits has its drawbacks. The increase may be intended for employees to spend on benefits, but there is no guarantee they will.

The informal nature of this type of benefit can be both a pro and a con. It’s the easiest implementation and lowest-cost option, but employees tend to view the extra money as an addition to their salary or hourly wage. If that’s the case, it doesn’t feel like an actual benefit, which can have major consequences.

In addition, since this money is added to their wages, it’s taxed. Both employers and employees pay their share of payroll taxes (7.65% each), and employees must also pay income tax on the money. That adds up to hundreds or even thousands of dollars in taxes for each employee every year.


2. Traditional group health insurance

Customarily, a group health insurance policy is the most significant part of an organization's benefits package. Its significance isn’t only in its role in hiring and retaining employees, but also in the time and financial investment employers make to search for, administer, and purchase a plan.

It’s no secret that group health insurance has become the default employer health benefit. Depending on the size of the employer and the health benefits status of the organizations they’re competing with for talent, they may feel like they have no other choice than to bite the bullet and pony up for a group plan that’s going to increase in cost every year when it renews.But there are some considerations to make before pulling the trigger. If employers want to increase employee satisfaction and make it a true benefit, they need to offer the kinds of policies their employees want. Since many companies have employees of different ages, health statuses, and income levels, a one-size-fits-all group health insurance policy rarely makes that happen.While it may look nice on paper for an employer to say they offer a group health insurance plan, there’s another health benefit option that may work better for both themselves and their employees.

3. Health reimbursement arrangements (HRAs)

A benefit option that has gained popularity in the last several years is the health reimbursement arrangement (HRA). This type of health benefit has the same tax advantages of a group health insurance plan while giving employers complete control over their health benefits cost. It’s the health benefit Goldilocks would choose.

With an HRA, employers offer a monthly allowance that employees can use toward eligible medical expenses like health insurance premiums, prescription medications, and doctor’s visits.

Another benefit of an HRA is the flexibility to customize the benefit to your needs. Employers can decide which medical expenses they want to reimburse, which employees are eligible to participate, and how much money they want to offer their employees in the form of allowances This allows employers to offer a health benefit with nearly any budget.

Since employers offering an HRA reimburse their employees for premiums instead of choosing a plan for everyone, that gives employees the ability to go to the marketplace and choose the plan that works best for them and their specific situation. Everyone gets exactly what they need..

PeopleKeep offers three different HRAs, which include:

PeopleKeep offers an HRA for any organization. Take our HRA quiz to find out which one meets your needs best.

Retirement benefits

Retirement benefits, such as a 401(k) or defined benefits plan, are growing increasingly important in recruiting and retaining employees.

Like health insurance, improving retirement benefits has a positive impact on improving employee satisfaction.

Yet retirement benefits face many of the same problems as health benefits. When organizations face tighter margins, they look for ways to trim costs. As a result, both 401(k)s and defined benefits plans have felt the pinch. As a result, employee satisfaction has dropped.

Employees at organizations that don’t offer a 401(k) match are less likely to want to stay at that company until retirement.

Remote Work

One benefit consideration that will become more important than ever is remote work. In fact, as recent data shows, employees will expect remote work options to remain available now that it’s been proven to be effective for them. In fields and situations where employees must commute, transportation benefits will be important to help offset the time and cost.

Education benefits

Due to recent advances in technology, there is a seemingly unlimited amount of free learning resources from content curators like YouTube and other online course providers.

However, the need for university or continued education has not gone away. In today’s job market, it is still valuable to pursue higher education in order to qualify for executive-level positions.

The education benefits associated with the highest degrees of employee satisfaction are tuition reimbursement programs and paid job training. More than 40 percent of employees say paid job training is “very important” to their satisfaction, and tuition reimbursement is currently employees’ third-most-desired employee benefit.


In summary, each of the benefits listed above can contribute to employee satisfaction and increase the likelihood of retention. Though wage increases can be a simple way to provide a perk, they are often not viewed as an actual benefit. Retirement benefits are an important tool for employers to keep employees long term. It’s important to keep room for them in the budget when possible. After 2020, work from home policies will become an expected part of many positions. When that’s not possible, employers may need to provide additional transportation perks. Education benefits are also a very popular benefit that can help increase job satisfaction.

The most valued benefit among employees is a health benefit. While traditional group health plans are a good option for some, HRAs are an affordable health benefit option that can allow employers to control their budget enough to also consider additional benefits.

This article was originally published August 8, 2017. An updated version was posted on January 15, 2021.

Topics: Health Reimbursement Arrangement, Health Benefits, Employee Retention

Additional Resources

Get 11 insider tips on how small employers can retain employees.
Learn how to help your employees get their health costs reimbursed.