How to Reduce the Costs of Employee Benefits

The total cost of health benefits in 2021 is expected to rise 5.3 percent, slightly higher than the 5 percent increases that the Business Group on Health have projected each year for the past five years. 2021’s increase leads to an average of $15,500 total cost of healthcare for each employee.

There’s a chance that these numbers will increase, especially as employees make use of mental health services and other preventative procedures they put off in 2020 in favor of staying safe at home.

Maintaining a staff of skilled employees means investing in their health and wellness through employee benefits. But the rising costs of these benefits can eat into an organization’s profits, especially for small and medium enterprises.

Luckily, there are actions you can take to control the costs of benefits while still meeting your employees’ needs.

Hire gig workers

The gig economy has grown 15% among American businesses since 2010 and is expected to expand exponentially post-pandemic. Currently, gig workers make up 35% of the US workforce and contribute $1 trillion to the country’s economy.

This growth can be attributed to the many benefits the gig economy has for both its workers and businesses. For the former, gig work allows them to have more control over their time and what they want to do. For the latter, the main benefit is cost savings.

Benefits make up around 31% of the average employee’s total compensation. You can slash this off the total payment for gig workers if you hire them for your projects.

Outsource HR to PEO

Professional Employer Organizations or PEOs are companies that combine employees of other businesses into one pool, giving business owners better compensation and benefit rates.

PEOs provide support with essential HR functions, including payroll administration and employee benefits management. When it comes to the latter, a PEO gets the best rates on health insurance plans by combining the purchasing power of all its clients.

With PEO, not only can you reduce your HR costs, but you can also offer top-tier benefits for employers without the exorbitant price tag.

boss talking to employees

Create company wellness plans


One of the reasons healthcare benefits costs rise is the large claims that result from employees being more prone to health problems. Corporate health and wellness programs can change this.

Wellness plans are a great way to encourage employees to make healthy life choices. You can even gamify this by providing rewards to those who can meet the health goals you set. For example, you can implement a 10,000 steps a day plan.

Research suggests that on average, inactive people make less than 5,000 steps a day. You can challenge your employees to walk up to 10,000 steps or more and whoever gets the closest to it or the highest number of steps a day gets a prize.

Since walking can combat health problems like obesity, heart disease, and diabetes and can even help prevent depression, it’s a simple challenge that helps your employees stay healthier. And when you implement other challenges like this, you can continue promoting a healthier lifestyle.

As a result, employees develop healthy habits and

Manage benefits with technology

The cost of health benefits isn’t high just because of the premiums themselves. Administering these benefits can also rack up costs. But you can cut these mostly administrative fees down by taking advantage of automation and other technology.

Great examples include using online portals that allow employees to manage their own employee benefits enrollment. Compared to the alternative, which is to have another member of the staff take care of enrollment, the self-service option won’t cost you significant labor hours.

In addition to cutting down administrative costs, automation also reduces the overall cost of employee benefits by helping avoid errors. Incorrect employee deductions, late coverage terminations, and erroneous enrollments cost your organization time and money, but they’re easier to avoid and correct through dedicated online portals.

Help employees to make informed decisions

Different healthcare plans cost differently. And without proper knowledge about these plans, an employee may end up choosing a plan that is not only costly, but also doesn’t suit their specific healthcare needs.

These mistakes often happen since the topic of health insurance is extremely nuanced and complex. You are likely to have many employees who cannot identify which plans and providers offer the most cost-effective solution.

Educating employees on the differences between available plans helps them choose the right one for them. Your organization can potentially lower your spending on benefits with this strategy.

At the end of the day, you’re still running a business, which means you need to look for ways to cut costs down. With the strategies above, you can successfully do it without compromising your employees’ wellness.