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14 Feb 2023
by Stacey Lowman

Employee benefits: how much should you spend and why?

You need to clear on why you are providing perks in the first place – and what it is that employees actually want

Benefits: how much should you spend and why?.jpg 1


A company’s budget for employee benefits will depend on many things such as the industry it’s in, the number of employees it has, the money available and the value that it puts on perks. But there are key things to consider when deciding a budget.

Be clear on your objective

It’s essential to be clear on the purpose of a benefits package before you can put a monetary value on it. For most companies, a competitive benefits package is a means to attract top-tier talent and retain current employees while keeping them motivated.

It’s also cheaper to provide benefits than to replace staff. The average cost to replace an employee in the UK is between six to nine months of salary, which includes recruitment costs, training for the new employee and salary negotiations. But the cost per employee of a benefits package is likely to total significantly less than that, so it pays to keep current team members happy.

Which benefits should you offer?

A benefits package can include a huge range of options from mental health, physical health and financial health benefits including things such as cycle-to-work schemes, childcare costs and free lunches. To get a clear view of what your team is most interested in having their benefits cover, just ask. Then ask again later to make sure your benefits stay relevant.

For example, in Claro Wellbeing’s Workplace Today report, 69% of employees said their company should do more to support their personal finances. Similarly, Claro Wellbeing’s Financial Wellbeing report highlighted that the top two employee worries are money (43%) and health (18%). Since both areas affect staff wellbeing and workplace performance, it’s a win-win for employers to cater to these areas with suitable benefits.

Don’t just copy competitors

It’s important to note that there’s no one-size-fits-all-approach when you’re putting together an employee benefits budget. Even if a competitor has the same credentials as your company, a copy and paste of their approach may not be as effective in your workplace.

Research by Boundless showed that just over a quarter (26%) of UK businesses have a monthly benefits budget of between £101 and £150 per employee, while a further quarter allocate £151 to £200 and 23% spend more than £201 per employee per month. This may be a good starting point to approach budget negotiations with your organisation’s purse holder.

In comparison, Open Sourced Workplace recommends adding 20% to 50% to an employee’s salary to fund their benefits package. On average, it estimates that 32% of a company’s salary costs goes towards employee benefits.

Review benefits budgets regularly

Benefits spending should be reviewed annually. It’s important that company objectives are still being fulfilled. Times change, as do people’s areas of stress. Measuring success is important, so look at ways to track employee uptake of certain benefits and adjust the spending accordingly.

The benefits budget should grow in line with the company. In collaboration with Howden, the Reward & Employee Benefits Association published Benefits Design Research 2022, which shows that nearly half (46%) of employers plan to increase their benefits spending per employee over the next two years. More than three-quarters (76%) plan to increase their spending on health and wellbeing benefits, as these areas are likely to remain popular.

So long as a benefits package is meeting its objectives of attracting talent, retaining employees and keeping them motivated, the spending can be justified in conjunction with trackable ROI figures. There’s always room for innovation, so speak to staff about what really matters to them and get your most creative thinkers together to find a cost-effective solution for your workplace.

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