It’s getting real expensive to provide benefits to employees.
The U.S. Chamber of Commerce Monday reported that employee benefits comprised more than a third of company payroll costs in 2001, up slightly from the prior year.
Benefit costs averaged 39 percent of total payroll costs among employers surveyed, a 4 percent increase from the previous year (37.5 percent).
“The percentage of benefits employees received in 2001 increased despite a slow economic recovery,” said Bruce Josten, Chamber executive vice president. “The increase in benefits shows that employers have continued to make benefits a priority and recognize the importance of benefits in retaining employees in their companies.”
It also shows that the cost of providing such benefits is on the rise.
The most common benefits offered by the 400 employers surveyed include health insurance, paid vacation, holiday benefits, and retirement and life insurance benefits.
Medical-related payments were the most expensive and the most common benefit offered. Medical benefits accounted for 11 percent of total gross payout, the largest share of employee benefit costs. And bear in mind, the Chamber of Commerce survey was for 2001. According to several different recent studies, premiums for employee healthcare insurance went up by around 13 percent in 2002.
Last month, union workers at General Electric went on strike to protest that company’s plan to shift more of its healthcare costs to workers. Benefits experts believe that unions at other companies may follow suit, as workers are asked to shoulder a greater percentage of medical benefit costs.
The Chamber of Commerce Survey found that besides medical benefits, compensation for time off comprised the largest share of benefits costs to employers. Respondents said vacation time for workers averaged just over 10 percent of payroll costs.
Retirement and savings plan programs, which accounted for an average of eight percent of payroll, came in third on the list.
Still, medical benefit costs remain the biggest worry for employers.
They’re right to worry. According to Towers Perrin’s Health Care Cost Survey released in October, large-sized companies will see double-digit increases in their health-care costs in 2003. That’s the fourth year in a row such companies have seen such increases.
And there’s more good news on the horizon. The average cost of benefit plans for large companies will jump up 15 percent next year. That’s the highest year-over-year increase since Towers Perrin began conducting the survey in 1989 — and that percentage is coming off a high base to begin with.
Medical insurance premiums are rising so quickly, in fact, that employers have little choice but to pass costs on to employees. According to Towers Perrin, workers will pay 19 percent of their health-care benefit costs for employee-only coverage in 2003. In 2002, that figure was closer to 17 percent.
In addition, employees will pick up 22 percent of the costs for family coverage next year, compared to the 21 percent they paid this year. Cost transfers are likely to come in the form of higher monthly contributions, deductibles, and co-payments.
(Editor’s note: To see how some companies are reining in runaway medical benefit costs, read Health Benefit Costs: Up Up and Away, a CFO.com special report.)