Every business owner knows they must invest their limited resources carefully. And preventing turnover by retaining employees is a critical part of your business’s success. Losing an employee is expensive, and may end up costing anywhere from 6 to 9 months of the lost employee’s salary.
Advertising a position, interviewing and paying HR staff all make seeking a replacement employee expensive. A new employee requires training and onboarding before they begin generating their greatest potential value. And if the lost employee is a high-earner or from the executive level, the costs may be even higher.
Simple improvements, like making your company culture stress-free and friendly, make a big difference. Recognizing and rewarding employees are other influential ways to give people the emotional incentives they need to feel good about their jobs. To do this, you’re going to need to establish an incentive program. It can save you a lot of money by preventing turnover in the long run. But first, you must consider the average cost of benefits per employee before budgeting for a rewards program.
Reduce Your Average Cost of Benefits Per Employee With an Incentive Program
To retain employees you must invest in improving the employee experience. This means answering questions like, what’s it like to work at your organization? Or, what do your employees encounter, observe and feel throughout their career at your business? Consider these questions to understand how people really feel about working at your organization. Because in addition to benefits, the employee experience is a deciding factor for those pondering whether to stay at your organization or pursue opportunities with your competitors.
A rewards program can improve the employee experience as its a cost-effective way to keep people happy, motivated and ready to work. It may even lower the cost of the benefits your company pays out. How is this possible? Because a quality reward program repays its investment cost—and then some.
Reward programs give employees recognition, offer a reward they truly value, and incentivize them to keep up the great work. This shows employees they are valued, causing them to take less sick time, have fewer safety issues, exhibit greater loyalty and put more effort into their work. All of these factors increase your business’ profitability. So, when you’re considering the value of an employee rewards program, remember to weigh the program’s cost against the profit line it enhances.
Calculating the Average Cost of Benefits per Employee
To begin budgeting for an employee rewards program, calculate your current average cost of benefits per employee. This means totaling all of the fringe benefits employees receive in addition to their paychecks. Depending on your company and industry, the kind of benefits may differ. And the benefit amount paid will vary from employee to employee. Here’s a list of some of the benefits your organization may provide:
- Sick leave
- Paid holidays
- Retirement or 401K contribution
- Insurance contribution
- Health savings account contribution
- Profit sharing
- Maternity/paternity leave
- Reimbursed expenses (i.e. travel, cell phone service)
What’s a reasonable benefit amount that you should be paying per employee? Again, this varies by factors such as industry, investor demands, company size and company history. Health insurance is the most common benefit employees offer, and one employees value highly.
According to MIT Sloan School of Management Senior Lecturer Joseph G. Hadzima Jr., the typical benefits a salaried employee earning $50,000 per year collect include:
- Health insurance: $2,000-$3,000 for individuals, and $6,000-$7,2000 for families
- Life insurance: $150
- Long-term disability insurance: $250
- Dental plans: $240-$650
- Other common benefits: dependent care assistance, tuition reimbursement, retirement plans
For example, you could expect to pay an employee 1.25 to 1.4 times their base salary in benefits. In the case of our salaried $50,000 per year employee, that would amount to $62,500 to $70,000 in benefits.
These figures are not intended to shock employers into cutting costs; rather, they are presented as baseline expectations that employees have in most industries. Based on the tremendous resources required per employee, it is important to consider employee rewards and incentives as a long-term strategy to engage and retain employees, thereby minimizing employee turnover and maximizing the value of your investment.
It is also crucial to understand the differences between monetary and non-monetary incentives. Although monetary incentives may seem simple to hand in the present moment, they are often forgotten as soon as the checks are cashed. Non-monetary incentives, on the other hand, keep employees engaged and motivated in the long run.
Reward Programs Pay For Themselves
In light of how much you’re spending on benefit expenses, how much should an employee rewards program save you by retaining employees? For one, employee rewards programs vary in price. All programs are different, and none are created equal. Your cost-of-engagement will depend on which incentive program provider you choose, and so will the program’s quality.
Some programs are milestone-based, meaning they offer rewards on service anniversaries, such as every 5, 10, or 15 years. Other programs do not wait for specified units of time to pass, and enable you to offer rewards whenever they are earned. These involve peer recognition and “living the values” types of programs. But even if you spend a few hundred dollars or less per employee, that small investment will be repaid in turnover reductions and increased productivity.
Employee turnover is expensive. According to Forbes, turnover for an entry-level position may cost 50% of an employee’s salary, while mid-level positions turn over at 125% of salary, and executive positions turn over at 200% of an employee’s salary. If you have multiple employees turning over, you can see how the costs add up fast. Also, when people leave company knowledge is lost, customer service is disrupted, and unhappy employees may inspire additional turnovers as they make their exit.
So why not prevent valued employees from leaving in the first place? Yes, it’s true that your company is already paying out benefits on top of salaries. But sometimes that isn’t enough to make employees happy, especially if they’re having a poor employee experience at your workplace. Engaging the right employee reward program can help stop an epidemic of turnovers and raise your profit line. So make room for one in your budget and avoid paying out yet another type of benefit—unemployment.
Invest in your employees and they’ll make your product and company outstanding. Because talented employees are the most precious resource you can have, and your organization can only ever be as good as its people.
When you compare the high cost of turnover versus the affordability of an employee reward program that prevents it, the choice is clear. Not only is retaining an employee far more valuable than replacing them, but showing your appreciation can lead to better-quality work and more productivity. Select an employee rewards program based on the benefits employees value most, and customize it to meet your particular budget, retention goals, and company culture. You’ll find that the average cost of benefits per employee pale in comparison to the value you’ll gain from having motivated employees.
Inproma develops employee incentive programs that help retain your best talent and reduce turnover. If you’re looking to invest in an incentive program that delivers a strong ROI by leading to greater profits, let’s talk.