Question: We are a small but growing company and are thinking about implementing an employee benefits plan for the first time. How do we go about doing so?
Answer: The first step you will need to take is to determine which benefits you are able to provide employees, and what budget is available to cover the costs of the plan. When offering benefits for the first time, it is important to be as conservative as possible — it is easy to introduce additional benefits to the plan in a year or two, but very difficult to take away benefits if the costs of providing them turns out to be unsustainable.
A good starting point would be to offer basic life insurance (at least enough to cover most of the burial costs for the employee), a drug plan, and possibly some health-care coverage. Dental coverage, paramedical services and disability insurance will likely be out of budget initially. Although long-term disability (LTD) premiums are generally paid fully by the employee due to tax advantages, this is often not an appreciated benefit until the employee needs the coverage.
For that reason, you may choose to offer additional optional benefits where the employee would be fully responsible for the cost, but would then be able to take advantage of lower group rates. Such benefits might include additional optional life insurance and perhaps a group registered retirement savings plan (RRSP).
Also, consider if you will offer different (increased) benefits to company executives and senior leaders. You may need to do so if retention is an issue at higher levels in the organization. However, in a very small company, it may prove to be too costly to have more than one plan.
You should also determine how the costs of the plan will be paid. Will the company fully pay the premiums or will it be a shared cost between the company and the employee? (Note: There are tax implications to the employee for any portion of the premiums that are company-paid.)
Again, it is likely better to have the employee assume part of the cost for the benefits as this will help them to appreciate the plan more, and can aid in keeping the plan cost increases down.
However, increased payroll deductions for employees may end up having a negative impact on employee morale if there is no offset in their pay to cover the additional costs.
The next step is to decide who will be eligible for the plan and when they will be eligible. Will it be mandatory or optional for employees? Will part-time or contract employees be eligible?
Will employees be eligible on their date of hire or will there be a waiting period? If there is a waiting period, how long will it be? Many organizations have a waiting period between one and three months to avoid added administrative costs due to enrolling and removing employees who do not pass their probationary period.
Will the plan only be rolled out to certain levels within the company (such as managers and above) or will all levels be eligible to participate? In a small company, it will be better to roll out the plan to more employees to help reduce the cost.
Will spouses and children be eligible for the plan or will it only be offered to the employees themselves?
Some of these decisions will be based on the organization’s culture while some may depend on the ultimate cost of the plan. Generally, having more participants in the plan will provide the advantage of lower rates.
However, there are also risks and administrative costs involved, so often contract and temporary employees are not included, as well as part-time employees. If eligible, part-time employees may have a longer waiting period such as six months to a year, or even two years.
Finally, it is important to compile data about the workforce, including employee demographics. You should report on the numbers of each type of employee (such as full-time and part-time), as well as employee age, gender, family status (if you intend to extend the benefits to spouses and children), smoker status (if possible, as it may affect life insurance calculations), salary and length of service. The insurance providers will need this information to provide cost estimates for the plan and to advise on what services they are able to offer.
At that point, you will be ready to engage with brokers or insurance providers to find a plan that suits your needs and to help you with building and implementing the benefits plan. However, it is important to shop around in order to find the best coverage, service, flexibility and rates, striving for cost-containment wherever possible.
Janet Russell is an HR practitioner and compensation expert based in Toronto. She can be reached at email@example.com.
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