Human Capital & Careers

Big Company, Big Benefits

Large companies pay more for employee benefits as a percentage of payroll than small companies, a new study shows. And, of course, whatever its siz...
Tim ReasonFebruary 20, 2008

As the Democratic presidential candidates prepare to spar Thursday night over healthcare, the U.S. Chamber of Commerce today released its annual study of employee benefits, showing that once again healthcare is by far the most expensive benefit companies offer.

As a percentage of payroll, payments for medically related benefits accounted for 12.1 percent of employer benefit costs; followed by payments for retirement benefits (10.4 percent); payments for vacation, holidays, and other time not worked (9.8 percent); and legally required payments (9.5 percent).

In all, the cost of benefits averaged 42.7 percent of payroll, although the study’s authors noted that there was significant variation among companies, with some 15 percent of companies paying more than 50 percent and an equal number paying less than 24 percent of payroll.

The Chamber of Commerce’s Employee Benefits Study 2007 looked at employee benefit practices among a cross-section of 453 U.S. employers of all sizes, although about 90 percent of those surveyed were companies with 1,000 or fewer employees, and 64 percent had fewer than 100 employees. On average, the companies participating in the survey paid their employees $21,527 in benefits in addition to wages, compared to $18,489 the previous year.

Over 95 percent of the companies surveyed provide paid vacation, holiday benefits and health insurance benefits to full-time employees. The majority also provide retirement (85 percent), life insurance (79 percent), dental (74 percent), sick leave (65 percent),
long-term disability (55 percent), and short-term disability (54 percent).

One significant variation among companies: Larger firms offered more benefits than smaller companies, and were more likely to offer them to part-time workers as well. This largesse appears to offset any advantage large companies have in managing their benefits more efficiently — as the study notes, “The larger the company, the higher the costs of employee benefits as a percentage of payroll.”

While companies with fewer than 100 employees paid an average of 33.5 percent of payroll in benefits, medium-size companies (500 to 999 employees) averaged 40.5 percent of payroll, and the largest companies (5,000 or more employees) paid an average of 43.2 percent of payroll.

Larger companies also generally offered more paid holidays. While the average number of paid holidays was 8.2 days, companies with fewer than 100 employees offered an average of 7.7 paid holidays, while those with more than 5,000 employees offered 9.7 days. A similar pattern held for vacation, with smaller companies providing fewer days of vacation relative to tenure than larger companies. For example, an employee with five years of service would receive an average of 11.5 vacation days a year at a company with fewer than 100 employees, and 14 days at a company with more than 5,000.