The Critical Compensation Metric Most Small Businesses Ignore

If you focus only on being competitive with wages and benefits, you will miss an important nuance

Finding and retaining good employees has long been a critical success factor for companies of all sizes. Today, employees have more choices than ever and the battle to entice and keep talent is even more difficult. In fact, according to data from Gartner, 37.4 million employees will quit in 2022; pre-pandemic the annual average was 31.9 million.
 

Benefits are a key factor in employee decisions to quit or take a job. Health and retirement benefits as a tool to attract and retain employees have reached a 10-year high. Forty-eight percent of employees indicate that a healthcare plan is an important reason to join a company and sixty percent consider it an important reason to stay.
 
Fast-growing small businesses are no strangers to ensuring that the employee benefits packages they offer are attractive while being sustainable for their businesses, particularly health insurance. A MetLife survey reveals that it’s not just the offering, employees want benefits that address their main stressors, particularly around personal finances, retirement, and their family’s health — which overlap considerably.
 
With benefits being so important to the health of a company, surprisingly, many companies make the mistake of overlooking the amount of disposable income your employees will have after paying for their contribution to health insurance and how it compares to other markets.
 
For example, the Council for Community & Economic Research (C2ER) survey shows that in the first quarter of 2022, Hawaii is one of the most expensive states to live in, with a cost of living index of 192.7. Mississippi is the least expensive state to live in with a cost of living index of 83.1. The average income in Hawaii is $103,780 and is #7 of the top 10 with the highest average incomes. When we look at the states with the lowest average income, Mississippi is #1 with an average income of $41,776.
 
We would expect health insurance premiums to be higher in Hawaii and lower in Mississippi, but that is not the case. In Hawaii, the average employee contribution to employer-sponsored healthcare is $5,240, and in Mississippi, it is $7,241.
 
As you evaluate your benefits, particularly health insurance, it is important to understand how the costs will impact your employees. According to the Kaiser Family Foundation, in 2021, group health insurance participation cost employees $5,969 annually, or roughly 27% of the premium, for family coverage and $1,299, about 17%, for an individual. In a market like Mississippi, employees will be more impacted because they have lower wages but a higher contribution to health insurance.
 
Contributions can vary greatly by market. You must account for the nuances of cost to understand how your benefits impact your staff. Even considering state data and comparing it to household income, will give you a more realistic view of how your benefits financially affect your employees.
 
Another hidden cost is the cost of utilizing benefits. In situations that are not emergencies, employees are using personal time for medical visits. Depending on location, this may require driving a distance for appointments. Time has value and it is a cost that is added to co-payment, co-insurance, or employee responsibilities. The direct primary care (DPC) movement is one approach that holds promise. This alternative model provides access to primary care for a flat fee. With a DPC program, you can potentially lower your employees' out-of-pocket costs immediately. It can also immediately reduce health insurance premiums if employers and their consultants are able to jointly pressure insurance carriers to recognize the positive impact of this meaningful, alternative model.
 
Salary and benefits are pillars of recruitment and retention strategies. However, if you focus only on being competitive with wages and benefits you will miss an important nuance. This becomes even more important as we search for talent beyond our local geography.
 
As we all look for ways to support our employees' overall well-being, optimizing their disposable income is one way that can achieve that goal. Being cognizant of the true costs to your employees can be a win for your bottom line and theirs.
 

Author Bio

Thompson Aderinkomi is CEO and Co-founder of Nice Healthcare, a company that is solving systemic pain points by bringing primary care directly to the patient with in-home visits, lab tests, and x-rays. Connect Thompson Aderinkomi