What Is the Average Cost of Benefits Per Employee? The Complete Guide

Budgeting for employee benefits is one of many tasks that HR teams have to grapple with, and it can be quite a head-scratcher. How can you provide an enticing mix of benefits at a reasonable cost? 

Prepare to do some serious number-crunching as our guide digs deep into the latest industry data. We’ll introduce you to some hard figures on the average cost of benefits per employee and explain how to maximize the ROI of your offering so it’s financially tenable. 

What is the average cost of benefits to employers?

First up, a burning question: How much do benefits cost per employee? 

BLS data reveals the average hourly rate business owners paid in employee benefits in June 2024. The results depend on the sector: 

• $14.41 per hour for civilian workers 
• $13.02 per hour for private industry workers
• $23.37 per hour for state and local government workers

Based on a 35-hour work week, the average monthly cost of employee benefits is: 

• $2,185.51 for civilian workers
• $1,974.70 for private industry workers
• $3,544.45 for state and local government workers 

Plan out your annual costs using the average cost of employee benefits per year: 

• $26,226.12 for civilian workers 
• $23,696.40 for private industry workers
• $42,533.40 for state and local government workers

What is the typical ratio of benefits to base salary?

The ratio of benefits to salary is approximately 1:2, or a third. As an example, for every $10 you spend on employee benefits, you’ll spend $20 on salary, for a total of $30. But the averages differ slightly from this example, depending on your sector: 

• The average civilian worker costs an employer $46.14 per hour in total compensation—31% on benefits and 69% on wages. 
• The average private industry worker costs an employer $43.78 per hour in total compensation—30% on benefits and 70% on wages. 
• The average state and local government worker costs an employer $61.27 per hour in total compensation—38% on benefits and 62% on wages. 

How do benefits platforms structure their pricing?

Whether you’re budgeting monthly, quarterly, or annually, your employer costs depend on the pricing structure of your preferred provider organization. Some common options are: 

• Per employee per month (PEPM): This is the most common pricing model and is easy to budget. You multiply your PEPM fee by the number of employees you have. For example, a $10 PEPM fee x $200 employees = $2,000. 
• Tiered pricing: Some benefits providers craft pricing based on the number of employees in a company, with bulk discounts as your workforce increases. 
• Customized pricing: This involves a detailed assessment of the company’s workforce and benefit needs to create a tailored benefits package. 
• Pay-as-you-go pricing: Workers’ compensation commonly falls within PAYG pricing and is based on real-time payroll data. 
• Usage-based pricing: Some benefits platforms may charge based on the usage of specific plan types, such as healthcare or retirement benefits.

Why has the average benefits package increased?

Both the breadth of benefits in the average package and the cost of providing them have risen in recent years. The following factors have impacted this: 

Expanded care 

Whether impacted by the pandemic, the cost of living crisis, or political events, your workers have undergone severe stress in recent years. Many will struggle to afford their bills, are carers for children and seniors, or be suffering from mental health conditions, including depression and anxiety. 

This is all relevant to employers because if your people don’t have access to support, then they can’t work. Some will struggle to be productive, others can’t afford the commute, and many working parents will leave the workforce entirely. 

For these reasons, employers are adding broader benefits encompassing mental health services, childcare support, and well-being programs to bolster their packages. 

Expensive renewals 

If we’re looking purely at the cost of administering benefits packages, then it’s no surprise that they’ll increase each year in line with the rise of third-party benefits administration and service provider costs. 

In some cases, these year-on-year price increases can be astronomical. For example, Excellus BlueCross BlueShield is expected to pass on 19.5% renewal fees to 11% of its members, based on the rising costs of hospital visits and cancer treatments. 

Changing work models 

Statista reports that the share of people working remotely worldwide stands at 28%, although this varies by industry. For example, 67% of tech workers enjoy the flexibility of working from home. This significant shift in working models directly impacts the type of benefits employees need to suit their new work setup. These may include online fitness subscriptions instead of on-site gyms, grocery deliveries instead of office snacks, and essential furniture and tech equipment as a substitute for a fully-kitted office cubicle.  

What employee benefits should you budget for?

Some benefits are mandatory, but voluntary plans, including lifestyle benefits, can support your employee retention and engagement goals. Consider a mix of the following: 

Mandatory benefits

• Social Security and Medicare: Federal Insurance Contributions Act (FICA) contributions are taxes that pay for Social Security and Medicare services. Mandatory employer and employee contributions are 7.65% of the salary, for a total FICA contribution of 15.3%. 
• Unemployment insurance: The Federal Unemployment Tax Act (FUTA) dictates that employers must contribute toward an employee’s unemployment insurance. This pays out if they are laid off or become unemployed through no fault of their own. The cost of FUTA and the criteria will vary depending on the state; typically, this is around 0.1 to 0.4% of an employee’s total compensation. 
• Workers’ compensation insurance: Approximately 1% of an employee’s compensation package covers medical expenses and lost wages associated with an employee becoming injured or falling ill while doing their job. 
• Family and Medical Leave Act: This federal law provides eligible employees with the right to take up to 12 weeks of job-protected unpaid leave for specific medical and family reasons, including pregnancy.

Healthcare benefits 

• Private medical coverage: The following are average health benefits costs per hour—$3.50 per hour for civilian workers (7.6% of total compensation,) $3 per hour for private sector workers (6.9% of total compensation,) and $6.73 per hour for state and local government workers. Health reimbursement arrangements and health savings accounts are two ways to provide flexible coverage. 
• Dental and vision: These are considered supplementary to medical coverage. 
• Disability insurance: This covers an employee’s annual salary if they can’t work due to injury, accident, or a non-work-related illness. Although this policy costs around 0.3% of workers’ total compensation package, only 35% of private industry workers have access to long-term disability coverage, extending to 43% for short-term insurance.

Lifestyle benefits

The benefits listed above are staples your employees can’t do without. But additional fringe benefits can differentiate your offering and win hearts and minds. Some options include: 

• Paid time off: 4 in 10 workers with paid time off take less than their allocation allows, but this is still a sought-after benefit for employees who need the time for vacation, doctor’s appointments, and minor illnesses. 
• Retirement benefits: 401(k)s and other employer-sponsored plans make it easier for workers to save for retirement as they approach the golden years. 
• Life insurance: Financial security is offered as a lump sum payment to an employee’s surviving family members in the event of their death. This costs around 0.1% of their total compensation cost but provides significant reassurance to your people and their families. 
• Caregiving support: Benepass customers offer their employees a median of $5,000 per year for parental support. 
• Employee development benefits: A development stipend can cover the cost of courses, training materials, professional memberships, or attending conferences. Benepass customers offer their employees a median of $1,000 per year.
• Cell phone stipends: This benefit supports employees with the cost of using their personal devices for work purposes. Benepass customers offer their employees a median of $720 annually. 
• Meal allowances: Employees can receive money for groceries, meals, nutritious snacks, or subscription kits. Benepass customers offer their employees a median of $1,020 per year. 
• Wellness stipends: Packages can encompass a wide variety of expenses, including mental health benefits, spa treatments, mindfulness subscriptions, yoga or fitness memberships, and more. Benepass customers offer their employees a median of $600 per year. 
• Work from home stipend: Employees can receive money from their employer to kit out their home offices and support the cost of running broadband. Benepass customers offer their employees a median of $720 per year. 
• Technology stipends: This similar benefit focuses on supporting employees with ongoing monthly costs rather than the initial setup of equipment and furniture. As one example, Benepass customers offer their employees a median of $780 per year to spend on their internet costs or $1,200 per year on combined phone and internet costs.  
• Gas stipends: Employers support their employees with rising fuel costs. This perk may entice some workers to return to the office if they struggle to afford the commute. 
• Fertility benefit: Employers can offer coverage for fertility treatments, egg freezing, and other related expenses to support their employees in starting or expanding their families. 
• Family forming benefits: This inclusive alternative to fertility benefits covers expenses related to adoption, surrogacy, and other methods of family building. 

Check out our resource on the most important benefits to employees for more ideas that are top of mind for employees in 2024.

Curious about the variety of stipends you can offer to employees? We put together a guide to employee stipends to provide an overview of this popular employee benefit and offer inspiration as you design your stipend program. Download the guide to learn about the types of stipends available and how to design a successful program.

What affects the cost of your employee benefits program?

No two employee benefits programs are alike—the amount you’ll pay depends on numerous factors, including: 

1. Company size

The most obvious driver of employee benefits cost is the size of your business. Larger companies may be able to negotiate better per-employee rates. But smaller businesses with fewer employees may access discounted plans through group policies or self-funded plans. 

2. Breadth of your benefits offering 

Trying to offer every possible benefit will come at a premium. However, if you consolidate a wide variety of benefits into a single flexible benefits account, you’ll save money and offer your employees more choices. 

3. Annual increases

Build the potential for price increases into your annual budget as your benefits provider will factor inflation, rising healthcare costs, and other externalities into their fees.  

4.  Administrative mistakes 

The process of setting up and maintaining an employee benefits program can involve some costly errors, including: 

• Accidentally charging employees the wrong amount for coverage options
• Missing open enrollment dates 
• Forgetting to terminate employee coverage within a designated period 

5. Geographical location 

Does your organization’s location matter? It could. Bay Alarm Medical research finds that higher average employee benefits are associated with larger cities like San Francisco and New York. Higher-rate states include Arizona, which is home to eight Fortune 500 companies. 

6. Changing employee needs 

Employee benefits aren’t a set-it-and-forget-it situation. As your organization evolves, so will the needs of your workforce—and you’ll need to adjust their individual policies accordingly. 

Example: John is a 25-year-old single man when he joins your company. Five years later, he’s married with a toddler and another baby on the way. His spouse and children are now included in his health insurance program, so you should budget for the family premium costs associated with John’s new plan.

7. Foreign exchange fees 

Factor in exchange rate fees if you work with a non-domestic benefits provider or a distributed team with employees from many different countries. This can be tricky to budget for with fluctuating currencies—one month, you may pay more than expected, and the next, you could gain a little back. 

8. Implementation fees 

Benefits providers may charge a one-time fee to cover setup and onboarding costs. It’s worth asking your provider whether they offer any discounts or promotions to keep these costs down. 

9. Replacement card fees 

If an employee’s benefits membership card is lost or stolen, some providers charge a replacement fee every time, which can add up quickly. Be aware of any such costs before signing a contract. 

How to maximize your employee benefits budget

Naturally, when pricing everything up, you’ll want to maximize the value of your total benefits spend. Whether you aim to save money on the overall cost of benefits or maximize what your employees receive, follow these eight tips to stretch those dollars further. 

Tip 1: Focus on the ROI of your benefits 

Pinpoint the perks, stipends, and benefits that bring the most value to your employee demographic. Understand what they will bring to your business plan and how quickly you can expect them to move the needle on initiatives like retaining employees or increasing job satisfaction. As Steven Cardwell, VP of Benefits, Well-Being, and Retirement at Premise Health, puts it: 

“Cost is important; we want those dollars in the field, we need them in our growth, we need them to support those that are supporting our clients.” 

Tip 2: Choose a benefits provider with no hidden fees 

Ensure you understand the charges associated with a particular insurance company or benefits provider. A good provider should be transparent about its fees before you commit to any contracts. 

Example: Benepass doesn’t charge any foreign exchange, support, or replacement card fees, making budgeting a cinch. 

Tip 3: Conduct employee benefits benchmarking 

When you measure your program against others in your industry, you’ll determine if you’re wasting money on benefits other companies aren’t providing. For a comprehensive picture, benchmark against local and national averages or even global benefits if you’re a remote-first company.   

Check out the Benepass Benefits Benchmarking Guide for a headstart with your comparisons, then follow these expert-backed tips on conducting benchmarking from HR leaders in the field. 

Tip 4: Save time on benefits admin 

The cost of the benefits themselves doesn’t represent the finish line of employer spending. Consider the time it takes your HR team to deploy the benefits and manage any changes throughout the cycle, for example, when employees join or leave the company. 

Get around this by selecting a benefits provider like Benepass that consolidates all your programs in a single platform, eliminating the administrative burden of dealing with multiple providers. 

Tip 5: Choose benefits programs with built-in forfeiture 

When your employees forget about their benefits, aren’t interested in them, or don’t understand what’s available, dollars will always be left on the table. Some benefits providers will pocket the difference, but others, like Benepass, offer employee forfeiture. With Benepass, you can set expiration dates for benefit funds and recoup any unspent money. 

Example: If you offer your employees a $100 food and beverage allowance but they only spend $75, the money isn’t lost. Instead, your company will receive the $25 back to put toward other benefits. 

Tip 6: Consolidate your point solutions

Many companies use a handful of point solutions to administer their benefits—one provider might help you administer wellness benefits while another administers a food program. The more point solutions you have, the more fees you’ll rack up as well. Consider opting for a vendor like Benepass that allows you to consolidate your programs in one platform, reducing costs and improving the employee experience along the way. 

Tip 7: Understand which benefits are tax-advantaged 

Some of the costs related to your employees’ benefits are tax-deductible. When selecting your provider, understand which products are tax-advantaged and how to capture these deductions. Benepass can support the administration by providing automated spending data from employee card transactions and receipts to validate eligible spending. 

Tip 8: Reevaluate employee benefits packages annually

Here's the stinger: Your benefits packages will need adjusting every year in time for open enrollment. Typically, you can expect an annual premium adjustment which is an excellent opportunity to check in and review whether your current benefits offerings are still relevant and performing in line with your expectations. 

Calculate your average employee benefits costs with Benepass

Benepass supports companies in distributing meaningful employee benefits that support their workforce’s personal and professional well-being. But we’re not about breaking the bank. 

Our flexible benefits accounts enable your HR teams and employees to stay in control of budgeting and allowances with real-time insights into how your workers use their benefits. 

Learn more about our innovative employee benefits approach by booking a demo or contacting sales@getbenepass.com to connect with a benefits specialist.