Getting more benefit from your employee benefits
From the March 2009 issue of Ceridian Connection
In a volatile market, employee benefits can provide that extra layer of security not only for employees, but also for employers searching for ways to generate cost savings and do more with less.
In times like these, virtually all employers are investigating the best way to implement cost savings, protect their businesses and plan for the future. The good news is that there are some easy wins for those willing to take a closer look at their employee benefits programs -- especially pretax and wellness benefits.
With the increasing pressure to save money and focus on sustainability, today's businesses are realizing that many employee benefits -- once just viewed as a cost of doing business -- can actually help offset rising costs by generating significant savings.
"What we're seeing more clearly now is that a successful benefits strategy can as much support the employer as benefit the employee," said Tony Meredith with Ceridian Benefits Services.
In addition, employers who can envision benefits serving as potential cost savers down the road -- especially wellness benefits -- stand to gain an even greater competitive advantage in challenging times ahead, said Darcy Hurlbert with Ceridian Lifeworks.
Both Meredith and Hurlbert, as a part of Ceridian's ongoing thought leadership forums, recently presented "How to Generate Cost Savings from Your Employee Benefits Programs." The quarterly forums cover a range of topics and are designed to help HR, benefits and payroll professionals manage the dramatic changes occurring in today's workplace. View presentation or listen to recorded March 4 Web forum.
When trying to generate cost savings from benefits, Meredith and Hurlbert agree that employers should consider focusing first on three main areas of a comprehensive employee benefits program:
"It's important to remember that the intrinsic value of these benefits depends largely on the workplace perceptions of them set by the employer," Meredith said. "If employees do not highly value tax-advantaged benefits or a health coaching program, the company is not getting its money's worth."
And as a benefit's value increases, so does employee participation -- one of the keys to employer savings.
The pretax savings solution
According to recent studies, flexible spending accounts (FSAs) are offered by more than 80 percent of all employers. But only about one-fifth of eligible workers take advantage of the accounts.
"That's unfortunate," Meredith said, "because FSAs can save employees about 30 percent on eligible health care and dependent care expenses -- from co-pays, prescriptions and over-the-counter medicines to elder and child day care -- by using before-tax contributions from their paychecks.
"But perhaps more importantly, business have a tremendous opportunity to save as well," he said. That's because employers do not pay payroll taxes on employee contributions to any of these accounts, whether it's a health care FSA, a dependent care FSA, or a limited purpose FSA for dental and vision care only.
Typically, employers save 7.65 percent on FICA contributions for every dollar employees redirect to their FSA programs. And it is often as high as 10 percent depending on state and local tax breaks. FSAs can also lower employer expenses for other benefit plans, such as disability and workers' compensation, because these expenses are based on employees' taxable income.
In fact, these proven pretax benefits are considered to be one of the best cost-containment measures available in the marketplace -- even with the infamous "use-it-or-lose-it" rule -- because the savings can be significant for employee and employer alike.
By simply enrolling in a FSA, for example, an employee incurring $5,000 a year in dependent care or health care expenses ends up actually paying only about $3,500 because of the tax advantage -- a savings of $1,500.
The employer, in turn, can save from $350 to $500 in payroll taxes on that employee. Even small contributions can add up to big savings. In many cases, the company's savings in payroll taxes can cover the cost of administering the FSA program.
Commuter reimbursement programs work the same way to drive up savings. By allowing employees to set aside pretax money to pay for public transportation to and from work, as well as job-related parking, employers can enjoy significant tax savings.
The IRS sets the maximum contribution limits each year. For 2009, the maximum monthly contribution for parking is $230. Beginning March 1, 2009, the maximum monthly contribution for mass-transit pass purchases and public transportation expenses is also $230.
Easy to use, extremely cost-effective and increasingly in step with advancing environmental trends and business mandates, commuter programs are becoming more popular as the cost to commute continues to rise.
"But the secret to generating significant savings when it comes to pretax benefits such as FSAs and commuter benefits, is participation," Meredith said. "And the only way to boost participation is through education and compelling communications."
Savings scenarios, saving calculators, tips on how to use pretax benefits -- all help move employees beyond their skepticism to enroll in these programs. Or, if they're already enrolled, these materials can help to increase their elections, where possible.
For commuter assistance programs, concerted, company-supported, year-round communication campaigns work best because employee enrollment in this benefit can occur monthly. Employees can even try it for a month and skip the next.
Open enrollment for FSAs, on the other hand, is usually held once a year. But keeping the topic of tax savings in front of employees year-round, as well as continuously explaining the ease of the program and ways to avoid any forfeiture of funds, gradually helps employees break down barriers to this valuable benefit.
Offsetting rising health costs
In order to remain profitable and competitive, today's companies must create long-term solutions to rising health care costs. For many employers, this is an annual increase of 8 to 10 percent that already equals or exceeds net profits.
But what if employers could look to their employee benefits to keep their employees healthy to begin with, as a way of reducing future cost hikes?
With health coaching they can. Health coaching programs can generate cost savings by helping employees change those personal behaviors that compromise their health and productivity.
Employees can work with a personal health coach over the telephone or via secure online messages. This empowers employees to live healthier lifestyles and make the positive changes they want -- from quitting smoking and managing their weight, to keeping their heart healthy and handling stress in their lives.
Free to employees and confidential, these programs are gaining acceptance as part of an overall workplace strategy. Employees can improve their mental, physical and, in some cases, fiscal health through education, encouragement, health resources and continual support.
"For employees, health coaching fosters the awareness that life is better when you're healthy and empowers the employee to create a plan to achieve that health," Hurlbert said. "For employers, it's a way to help increase on-the-job performance, reduce turnover, lessen costs associated with worker stress and illness, and align the company's benefits strategy with its business and financial goals."
In fact, recent studies show that employers with effective wellness programs "can expect to see 500 percent lower absenteeism, 400 percent fewer disability claims and 350 percent lower health care costs."1
"But the key, again, is participation," Hurlbert said.
Employee Assistance Program experts say wellness programs that reflect and communicate the culture of the company tend to have the greatest participation and appreciation by employees.
Benefits that mean business
A third way companies can save money is by streamlining business processes -- including the use of direct deposit for payroll administration. Direct deposit is a cost-effective way to provide a valuable benefit to your employees while saving your company time and money by avoiding the hassle of reconciling individual payroll checks.
Companies that switch to direct deposit can experience significant savings from eliminating bank fees, check delivery, and administrative and account management time. What's more, direct deposit is faster and easier to implement than businesses think, with no special software required.
Companies who promote direct deposit all year long have extremely high participation rates. For these businesses, 80 to 95 percent employee participation is not uncommon.
In today's challenging business environment, it makes sense for employers to reexamine streamlining all business operations and consolidating functions -- including benefits administration. Because as we know, a well-managed benefits program can help generate the cost savings that just might help your company weather today's severe economic climate.
As a public service to help employers and the public, Ceridian's LifeWorks Employee Assistance Program is making several resources available to help Americans cope with economic issues in 2009.
Resources for employees
In a volatile market, employee benefits can provide that extra layer of security not only for employees, but also for employers searching for ways to generate cost savings and do more with less.
In times like these, virtually all employers are investigating the best way to implement cost savings, protect their businesses and plan for the future. The good news is that there are some easy wins for those willing to take a closer look at their employee benefits programs -- especially pretax and wellness benefits.
With the increasing pressure to save money and focus on sustainability, today's businesses are realizing that many employee benefits -- once just viewed as a cost of doing business -- can actually help offset rising costs by generating significant savings.
"What we're seeing more clearly now is that a successful benefits strategy can as much support the employer as benefit the employee," said Tony Meredith with Ceridian Benefits Services.
In addition, employers who can envision benefits serving as potential cost savers down the road -- especially wellness benefits -- stand to gain an even greater competitive advantage in challenging times ahead, said Darcy Hurlbert with Ceridian Lifeworks.
Both Meredith and Hurlbert, as a part of Ceridian's ongoing thought leadership forums, recently presented "How to Generate Cost Savings from Your Employee Benefits Programs." The quarterly forums cover a range of topics and are designed to help HR, benefits and payroll professionals manage the dramatic changes occurring in today's workplace. View presentation or listen to recorded March 4 Web forum.
When trying to generate cost savings from benefits, Meredith and Hurlbert agree that employers should consider focusing first on three main areas of a comprehensive employee benefits program:
- Tax-advantaged or pretaxed benefits, such as flexible spending accounts and commuter reimbursement programs
- Health and lifestyle behavior change benefits, such as telephonic health coaching
- Benefits that can streamline business processes while introducing convenience to the employee and savings to the employer, such as direct deposit for payroll administration
"It's important to remember that the intrinsic value of these benefits depends largely on the workplace perceptions of them set by the employer," Meredith said. "If employees do not highly value tax-advantaged benefits or a health coaching program, the company is not getting its money's worth."
And as a benefit's value increases, so does employee participation -- one of the keys to employer savings.
The pretax savings solution
According to recent studies, flexible spending accounts (FSAs) are offered by more than 80 percent of all employers. But only about one-fifth of eligible workers take advantage of the accounts.
"That's unfortunate," Meredith said, "because FSAs can save employees about 30 percent on eligible health care and dependent care expenses -- from co-pays, prescriptions and over-the-counter medicines to elder and child day care -- by using before-tax contributions from their paychecks.
"But perhaps more importantly, business have a tremendous opportunity to save as well," he said. That's because employers do not pay payroll taxes on employee contributions to any of these accounts, whether it's a health care FSA, a dependent care FSA, or a limited purpose FSA for dental and vision care only.
Typically, employers save 7.65 percent on FICA contributions for every dollar employees redirect to their FSA programs. And it is often as high as 10 percent depending on state and local tax breaks. FSAs can also lower employer expenses for other benefit plans, such as disability and workers' compensation, because these expenses are based on employees' taxable income.
In fact, these proven pretax benefits are considered to be one of the best cost-containment measures available in the marketplace -- even with the infamous "use-it-or-lose-it" rule -- because the savings can be significant for employee and employer alike.
By simply enrolling in a FSA, for example, an employee incurring $5,000 a year in dependent care or health care expenses ends up actually paying only about $3,500 because of the tax advantage -- a savings of $1,500.
The employer, in turn, can save from $350 to $500 in payroll taxes on that employee. Even small contributions can add up to big savings. In many cases, the company's savings in payroll taxes can cover the cost of administering the FSA program.
Commuter reimbursement programs work the same way to drive up savings. By allowing employees to set aside pretax money to pay for public transportation to and from work, as well as job-related parking, employers can enjoy significant tax savings.
The IRS sets the maximum contribution limits each year. For 2009, the maximum monthly contribution for parking is $230. Beginning March 1, 2009, the maximum monthly contribution for mass-transit pass purchases and public transportation expenses is also $230.
Easy to use, extremely cost-effective and increasingly in step with advancing environmental trends and business mandates, commuter programs are becoming more popular as the cost to commute continues to rise.
"But the secret to generating significant savings when it comes to pretax benefits such as FSAs and commuter benefits, is participation," Meredith said. "And the only way to boost participation is through education and compelling communications."
Savings scenarios, saving calculators, tips on how to use pretax benefits -- all help move employees beyond their skepticism to enroll in these programs. Or, if they're already enrolled, these materials can help to increase their elections, where possible.
For commuter assistance programs, concerted, company-supported, year-round communication campaigns work best because employee enrollment in this benefit can occur monthly. Employees can even try it for a month and skip the next.
Open enrollment for FSAs, on the other hand, is usually held once a year. But keeping the topic of tax savings in front of employees year-round, as well as continuously explaining the ease of the program and ways to avoid any forfeiture of funds, gradually helps employees break down barriers to this valuable benefit.
Offsetting rising health costs
In order to remain profitable and competitive, today's companies must create long-term solutions to rising health care costs. For many employers, this is an annual increase of 8 to 10 percent that already equals or exceeds net profits.
But what if employers could look to their employee benefits to keep their employees healthy to begin with, as a way of reducing future cost hikes?
With health coaching they can. Health coaching programs can generate cost savings by helping employees change those personal behaviors that compromise their health and productivity.
Employees can work with a personal health coach over the telephone or via secure online messages. This empowers employees to live healthier lifestyles and make the positive changes they want -- from quitting smoking and managing their weight, to keeping their heart healthy and handling stress in their lives.
Free to employees and confidential, these programs are gaining acceptance as part of an overall workplace strategy. Employees can improve their mental, physical and, in some cases, fiscal health through education, encouragement, health resources and continual support.
"For employees, health coaching fosters the awareness that life is better when you're healthy and empowers the employee to create a plan to achieve that health," Hurlbert said. "For employers, it's a way to help increase on-the-job performance, reduce turnover, lessen costs associated with worker stress and illness, and align the company's benefits strategy with its business and financial goals."
In fact, recent studies show that employers with effective wellness programs "can expect to see 500 percent lower absenteeism, 400 percent fewer disability claims and 350 percent lower health care costs."1
"But the key, again, is participation," Hurlbert said.
Employee Assistance Program experts say wellness programs that reflect and communicate the culture of the company tend to have the greatest participation and appreciation by employees.
Benefits that mean business
A third way companies can save money is by streamlining business processes -- including the use of direct deposit for payroll administration. Direct deposit is a cost-effective way to provide a valuable benefit to your employees while saving your company time and money by avoiding the hassle of reconciling individual payroll checks.
Companies that switch to direct deposit can experience significant savings from eliminating bank fees, check delivery, and administrative and account management time. What's more, direct deposit is faster and easier to implement than businesses think, with no special software required.
Companies who promote direct deposit all year long have extremely high participation rates. For these businesses, 80 to 95 percent employee participation is not uncommon.
In today's challenging business environment, it makes sense for employers to reexamine streamlining all business operations and consolidating functions -- including benefits administration. Because as we know, a well-managed benefits program can help generate the cost savings that just might help your company weather today's severe economic climate.
As a public service to help employers and the public, Ceridian's LifeWorks Employee Assistance Program is making several resources available to help Americans cope with economic issues in 2009.
Resources for employees
