Workplace Benefits
When you start looking for a job, one of the first questions you will have when browsing job listings is “how much does this pay”? Starting salary or hourly pay is, of course, an important factor when considering a position, but is very far from the full story.
This lesson will cover some of the other common workplace benefits to look for when exploring your career – and how to balance “benefits” vs “salary” when considering a new job.
What are Workplace Benefits?
Workplace Benefits are all the “perks” your job offers beyond the paycheck. Employees save money and are more productive when they can access certain benefits or insurance through an employer. Employers who offer strong and diverse benefit packages to meet the needs of all of their employees are able to attract and retain top talent, which in turn, helps their businesses grow. They can be broadly categorized into 4 main types: Insurance Benefits, Retirement Benefits, Savings Benefits, and Quality of Life Benefits.
Insurance Benefits
Insurance Benefits are when a company offers insurance coverage to their employees.
Health Insurance
Most mid- to large- sized companies offer group health insurance to their employees and their families. This means there is one or more health plans that they used the group bargaining power of the organization to negotiate with a health insurance company to (usually) get better terms than what a person can find on their own. Depending on your own health situation, health insurance benefits may be a major deciding factor when comparing two potential jobs. We cover the details of health insurance in more detail in our lesson on Health Insurance.
In addition to offering the plan, most companies also offer to cover some of the health insurance cost as well. As a potential employee, you can ask about the company health insurance policies before you are hired and compare offers directly between jobs (or what you can buy individually), allowing you to put a specific price on how much the health insurance benefits are “worth”.
Life Insurance
Many companies also offer life insurance to their employees at little or no cost. Life insurance may not be at the top of your list in your 20s or 30s, but you may want to consider adding it to your overall financial strategy, especially depending on your own individual circumstances. For example, it can help protect those who rely on you financially and ensure that you do not pass on debt to your loved ones. Many student loan borrowers may have their parents or relatives co-sign their loan; life insurance can be a very affordable way to have peace of mind that in the unlikely event something terrible happens, this debt does not pass on to parents or relatives.
Life insurance offered by an employer provides an important safety net and typically is considerably less expensive than getting coverage on your own.
We cover the details of life insurance in more detail in our lesson on Life Insurance.
Disability Insurance
Disability insurance helps you protect one of your most valuable assets – your ability to earn an income – if you are too sick or injured to work. Think of it as insurance for your paycheck.
We cover the details of disability insurance in more detail in our lesson on Disability Insurance.
Retirement Benefits
“Retirement Benefits” are workplace benefits offered to employees to help support them in retirement. Most retirement benefits fall into two categories: Defined Benefit or Defined Contribution.
Defined Benefit
A defined benefit plan is a retirement plan where employees receive a fixed, pre-set benefit starting at retirement and continuing for life. The company provided retirement benefit payment is determined by your length of service and earnings history. It is not dependent on investment returns or market growth. Defined benefit plans are becoming increasingly rare but are still in place at some companies.
Defined Contribution
Many companies are now offering defined contribution plans instead of defined benefit plans. These might be called a 401(k) plan (in the United States) or RRSP (in Canada). With these retirement plans, employees have the option to make their own contribution to their retirement account (typically withheld from every paycheck), and their employer “matches” their contribution up to some percentage of their total salary.
For example, if you earn $50,000 and your employer has a 10% match, if you contribute $5,000 to your retirement account, your employer will “match” it with another $5,000 (making a $10,000 total contribution). But if you contribute less, your employer contributes less too – so you get the most benefits by making the most contributions.
You can reduce your taxable income by making contributions with income before it is taxed and enjoy tax-deferred growth on your earnings until you make withdrawals in retirement.
We cover Defined Benefit and Defined Contribution plans in more detail in our lesson on Planning for Retirement.
Savings Benefits
Savings Benefits are workplace benefits offered to either save employees cold, hard cash, or take advantage of special types of tax-advantaged savings accounts.
Health Savings Accounts and Flexible Spending Accounts
In the United States, Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA) may be offered alongside insurance benefits. These are special types of savings accounts designed for expenses relating to healthcare – contributions to an HSA or FSA are deducted from your taxable income (so you get a tax break). While their purpose is basically the same, there are some differences between the two.
Health Savings Accounts require you to be enrolled in a high-deductible health plan. They are member-owned accounts so you can typically take your HSA “with you” when you leave your employer. Your HSA does not expire – contributions can “pile up” over time, and it can be invested to grow (not just held as “cash” like a savings account). While you can normally only use your HSA for qualified medical expenses, once you turn 65 this restriction is removed and it acts more like a regular retirement account and will be taxed as income at your then current tax rate.
Flexible Spending Accounts are offered directly by your employer as a benefit in and of itself. Your employer also typically contributes directly to the FSA themselves, and their contribution is tax-free (so it is like getting extra free money). FSAs can also be used for a wider range of expenses than an HSA, including over-the-counter medications, dental care, and vision care.
FSAs do have two important disadvantages compared to HSAs: depending on your plan, Funds may expire at the end of each year (no carry-over to next year), and the FSA is owned by your employer – if you quit or change jobs, you lose your FSA (and any un-spent funds in it).
Childcare
Many employers also offer certain childcare benefits. Very large companies may offer on-site daycare for employees, but smaller companies may offer stipends or cost-sharing perks for other daycare or school for kids.
Offering childcare benefits is often seen as a very enticing workplace benefit for parents with young children, as daycare or after-school childcare can be very expensive, making this a major savings benefit.
Tuition Reimbursement
Many employers also invest in continually improving the job skills of their employees. While this may take the form of workshops or conferences, many employers offer direct tuition reimbursement if an employee is taking classes at an accredited college or university.
There are two typical “types” of tuition reimbursement benefits, depending on the type of employer. For many professional fields, tuition reimbursement is offered to encourage employees to obtain professional degrees to potentially prepare them for higher positions in the company later in their career (particularly management positions). However, some companies offer tuition reimbursement as a benefit in and of itself, knowing that the employee is likely to quit after finishing school. This is common with many fast-food or hospitality jobs that specifically recruit younger workers with very little job experience and high employee turnover (like Subway or McDonalds) – tuition reimbursement is offered to attract more motivated workers with the hope that they will continue working all the way through school.
Quality of Life Benefits
Last, but not least, are the Quality of Life workplace benefits offered by employers. These benefits might be the hardest to place a “dollar amount” on, but can make or break your experience working for a company – and so should not be ignored.
Paid Time Off
Paid Time Off, or PTO, is the most common “Quality of Life” benefit offered. This is typically in the form of paid vacations and Personal Days (or Sick Days). Each employee has a set number of paid days off each year that they can take off without losing income.
For Paid Vacations, most companies typically need vacation approved some time in advance (so arrangements can be made in the worker’s absence). For Personal/Sick Days, these can usually be taken one or two days at a time with little or no notice. Some companies require employees to provide a Doctor’s Note verifying an illness if an employee takes off more than a few sick days in a row.
Many employers also offer Maternity/Paternity leave, some amount of time off (paid either at full or partial salary) after having a baby.
Wellness Programs
Many companies, especially larger organizations, have specific employee “Wellness Programs”. This includes access to mental health counseling (free of charge), on-site gyms (or paid/discounted gym memberships), and access to nutritionist resources to help with meal planning. The potential impact of general “wellness” in preventing illness and employee burnout is becoming more recognized over time, with many “Wellness” programs now included in most employer-provided health insurance offerings.
Flexible Work
Flexible working conditions have transitioned from fairly niche offerings to the norm over the last 10 years. “Flexible” can mean many things, but the most common flexible arrangement is full (or partial) remote work, where employees can work from home (and skip the commute) for at least part of the work-week, with full-remote work becoming more common after the COVID-19 outbreak.
Flexible work can also refer to flexible hours, where certain employees may start and end their work day earlier or later than the “normal business hours” of the company as a whole. Flexible hours are more commonly offered in creative roles, or largely independent roles (where real-time collaboration with colleagues is not as essential to day-to-day responsibilities).
Why Companies Offer Workplace Benefits
There are a lot of workplace benefits out there – and when you add them all up, they can be very expensive for employers to maintain (benefits at some companies can add up to more than 50% of the total compensation they pay their employees).
But employers offer workplace benefits primarily to attract and retain talent – especially for mid- and high-level positions that are very time-consuming and expensive to recruit and train. Offering comprehensive benefits packages to employees makes them less likely to “jump ship” and look for another job if there is more than just a paycheck they need to replace, helping to improve workplace stability and morale with a more long-term, happy, and healthy team.