Business owners and managers invest in many things to make money. A group benefits plan is no different. If your plan is not adding to your profitability, it’s a “cost” plan, not a “benefit” plan.
There are three ways to add profitability to a company: increase revenue, contain costs and cut taxes. A benefits program can help with all three.
Want your business to grow? One way is by hiring more staff. In good economic times and bad, good talent is hard to attract. A quality benefits plan can be the deciding factor.
These days, many businesses – even three-person operations – can have plan designs competitive with the largest companies out there. When you show prospective employees that benefit plan, they realize you’re a stable, solid and competitive.
The offer of a benefits plan is also a good screen for right fit in the hiring process. If prospective employees see value in benefits, they are likely stable, family-oriented and responsible. Invest in a plan for the kind of people who see value in it.
Want to grow through greater productivity? Motivate and reward the staff you have. Adding benefits for key producers in your business is more cost-effective than paying them more.
For every dollar of extra compensation you pay, it costs $0.03 for employment insurance, $0.04 for Canada Pension, $0.04 for vacation pay and $.05 for WorksafeBC premiums. That dollar of wages just cost $1.16.
And what do the employees get from that? After deducting $0.02 for EI, $0.04 for CPP, $0.17 for federal taxes and $0.07 for provincial, they’re left with $0.70. It cost you $1.16. That hurts.
Now, adding $1 of benefits costs only $1 – pre-tax. And the employee gets the full $1 of value – tax-free. In fact, I think the perceived value is even higher than one dollar, when you factor in the goodwill created in looking after their health and general well-being.
Premium dollars spent are pre-tax. Benefits derived are after-tax. Simple as that. Think of travel coverage – standard in most plans. The company pays the premium, you take your family out of the country and enjoy the benefit of the coverage – an after-tax benefit.
And most good plan designs will have some form of “cost-plus” benefit. That allows you to pay corporate dollars to the insurer for non-insured items, write it off as a business expense, and have the insurer pay the practitioner. Pre-tax dollars in, after-tax benefit out.
Consider the value of keeping your staff with you and away from the competition. Benefits can be a strong factor. One of the first questions a dependant spouse with children will ask about a prospective opportunity is, “How’s the benefit plan?”
Next, think of the high cost of replacing a good worker who got lured away: time and expense advertising the position and conducting interviews, hiring bonus, training costs, lost productivity of the trainer and on it goes.
The benefits package can keep your staff on the job a greater percentage of the time too. Encourage them to use the plan. Get potential ailments looked after as soon as possible. Keep them healthy and on the job.
It’s very natural for employers to shop for the best price on coverage. That’s great, but be careful. Insurance carriers may submit a low bid to get your business, and then after staff actually use the plan, you’re hit with a substantial price jump next renewal.
Claims-rated plans have a certain margin of profitability that has to be maintained to keep the insurer in business, and if claims cut into that, they raise the price next year. Why spend any money at all if you want to hide the plan from employees so they don’t use it? That’s a “cost” plan, not a “benefit” plan.
Smaller companies are well advised to get into a good-quality pooled insurance plan and lock in a premium that fits the budget. No amount of usage can cause a premium increase. You have great peace of mind promoting the plan to staff so they use it…So much more cost-effective! •
