A new report by Joel Popkin and Company, Cost of Employee Benefits in Small and Large Businesses, has been released by the Office of Advocacy of the U.S. Small Business Administration (SBA). The report specifically looks at the cost of health insurance, retirement plans, paid vacation, and sick leave.
The report finds that the rate of offering various benefits and that their associated costs can vary dramatically with firm size. Here are some highlights from this study:
– Paid vacation: This is the most common benefit offered by businesses of all sizes. The study found similar rates of offering this benefit among small businesses with over 100 employees and large companies. 50% of the smallest companies (fewer than 10 employees) offer paid vacation
– Sick leave: Paid sick leave is offered by 81% of large companies and 65% of small businesses.
– Health care: The cost of offering health care per employee is highest for the smallest businesses (under 10 employees) and the largest companies (over 1000). Very small businesses do not have bargaining power in securing health insurance, while larger businesses are forced to offer richer benefits due in part to worker unionization. Increases in premiums have been much higher for smaller business over the past few years.
– Retirement plans: About 75 percent of larger firms have some type of retirement plan for employees, while about 35% of small business offer such plans.
As businesses grow, they must pay close attention to benefits offered by larger companies, as they often will have to compete with these businesses to attract key staff. When developing financial forecasts, it is important to factor in a higher cost of benefits as the business grows to reflect the challenge of attracting employees. This can create significant cash flow challenges for businesses that rely heavily on human capital for growth.
But, adding benefits should not just be looked at as a net cost. As seen in this classic article from Inc.com, some entrepreneurs believe that they cannot afford not to offer rich benefits.
“If you use benefits to build a cadre of talented people who stay with you for years, you’ll hold on to your power….Your company’s future will just get stronger and stronger.”