The Cost of Fringe Benefits

The Cost of Fringe Benefits

Frank Blau
Owner, Blau Plumbing
Contributing Writer

Fringe benefits represent a huge investment that employers make in their employees. As a PHC union employing contractor, my present day fringe benefit package amounts to 43 percent of gross hourly wages. Our service technician fringe benefit package includes the cost of contributions made into the Blau Profits Sharing Plan as well a the union pension plan, while non-signatory employees participate in both the Blau Profit Sharing Plan and Money Purchase Plan. This is a considerable amount of money. According to the U.S. Chamber of Commerce, fringe benefit costs throughout the economy average around 40 percent payroll. Because of our aging population, it’s been estimated that by the time the year 2000 rolls around, many of us could be looking at fringe costs approaching 50 percent of payroll.

Yet surveys reveal that the vast majority of employees are not well informed about the cost of fringe benefits. The majority of them believe it amounts to around 20 percent of gross income. Likewise, many employers do not completely understand their total fringe benefits costs themselves.

All of us are plagued by service personnel who leave to go into business for themselves. This is the American way and something we must learn to live with. At the same time, I wonder how many of those people might have stayed if they understood exactly how much they have to earn on their own to cover not only wages, but additionally all the benefits they received as employees. Understanding that, even if they left, they would at least be better competitors having a good grasp of what it really costs to do business.

Employers and employees have a huge communication gap when it comes to talking about pay. The employee thinks, “I make $20 an hour.” The employer knows that’s just the wage rate. He thinks, “I pay $28 an hour.” When that employee contemplates going into business for himself, he thinks all he needs to do is charge $40 an hour for his labor and he’ll make almost twice as much as he currently earns working for his “greedy” employer. They almost never understand how much to factor in for overhead and fringe benefits.

Simple statements: Those of you who offer benefits usually have them spelled out in employee manuals or booklets put together by your insurance providers or third-party administrative firms such as ADP, Paycheck, etc. However, the benefit information they do receive is usually too wordy and uninteresting.

The publication Employee Benefit Plan Review publishes a survey of employers nationally finding that many of them used a variety of internal media to communicate with their employees about their benefits. These include in-house bulletin boards, employee handbooks and company magazines or newsletters.

However, unless you personalize an employee benefit statement, it is unlikely they will take the time to read and digest it. Ever try to plow your way through an insurance document? The bureaucratic jargon would confuse a college English professor, much less a service tech with a high school education. Moreover, these standard documents seldom break down the numbers into easily understood cost-per-employee terms.

I prefer to communicate our company benefits via a personalized statement. Many important details about your wage and benefit package can be presented on a single page without overwhelming your employees.

Using Third Parties: It costs very little to prepare such a statement, whether you do it in-house or via a third party. If you do choose to out-source, the company should be able to assist you with necessary data gathering. A good third party firm should be able to provide you with the following—

  • Effective statements provided accurately and in a timely fashion.
  • Customized software for your benefit plans instead of asking you to confirm your operations to their service
  • Guaranteed confidentiality!
  • If asked, help communicate benefit information one-on-one with your employees.

Because they are an objective third party, they can obtain honest feedback from employees about the benefits package and your company.

For the record, my company develops its employee-personalized statements in-house. That’s only because confidentiality is guaranteed thanks to my son, Bob, who is the company’s main numbers cruncher (controller), computer wizard and member of the management team.