There is a simple reminder from Stephen R. Covey's statement in his phenomenal book The 7 Habits of Highly Effective People about how to treat employees to achieve business goals: "Always treat your employees exactly as you want them to treat your best customers."
Companies have many choices of ways to prosper their employees. Providing employee benefits is one of the mainstays. For some countries, the government even requires companies to provide certain benefits. In Indonesia, employee benefit is regulated in Presidential Regulation No. 64 of 2020, which requires companies to offer BPJS Health membership and employment. However, practically, some companies are still hesitant in implementing Employee Benefits, considering the costly expenditure.
This article will cover:
- Understanding Employee Benefits
- The importance of Employee Benefits
- How to Calculate the Proportional Employee benefits?
- How to Design Competitive and Attractive Employee Benefits?
What are Employee Benefits?
Employee benefits are the perks, facilities, and conveniences that an employee earns for working in a company. Employee Benefit is not only a matter of monthly salary, annual bonus, and holiday allowance; many beneficial components are tailored to the company's business objectives and the needs of its employees. Employee benefits required by law (depending on the risks associated with the job or industry and the laws of the country / region where the work is performed) or provided voluntarily by the employer.
The Significance of Employee Benefits
Exciting results from a survey conducted by the US Chamber of Commerce Foundation on millennial workers in the United States stated that more than 50% thought employee benefits affected their interest in working in a company. And still, from the same survey, 60% of the respondents stated that employee benefits are an important reason that keeps them staying at the same wheels.
There are several benefits of providing employee benefits for companies that can be considered, including:
An Allure for Talented EmployeesIf you want to recruit the best and most talented employees, preparing an attractive employee benefits offer can be the gateway. A study conducted by the Denver Post found that 50% of businesses with fewer than 50 employees offered health care benefits, and 96% of companies with 100 employees did the same. In other words, to compete in the recruitment world, you must prepare attractive lipsticks for prospective employees. Because for many workers, employee benefits are one of the determining factors in choosing a workplace.
Increase Employee LoyaltyFor employees, benefits from the company can ease the burden that must be removed from their income. Providing these benefits will help your employees feel that you care about their personal needs. In the end, employees will tend to be more loyal to the job and the company.
Increase retention and minimize employee turnoverThe more satisfied the employee retention rate is, and vice versa, the lower the turnover rate is. Employee benefits can make the best employees think twice if they want to resign and move to another company because they will lose several good benefits in their existing company.
Reducing the Hiring BudgetThe recruitment process due to resigning employees interferes with the performance and productivity and makes the business run inefficiently. Imagine if the employee turnover rate is high, the company must arrange a hiring budget. Providing benefits that are proven to increase employee loyalty, of course, can reduce the recruitment expenditure.
Establish a Positive Work CultureIn research on creating a positive work culture, Harvard Business found two main principles: maintaining close emotional relationships between co-workers and providing employee comfort through health insurance and certain benefits.
How to Calculate the Proportional Employee benefits?
Nowadays, offering employee benefits is an increasingly expensive proposition for businesses. It reached 368% over the last 14 years in several big countries such as the United States of America. Run-on, the company needs to calculate the employee benefits budget extra. The cost of benefits can vary from each company and even between employees, depending on their classification. The following is how to calculate the Employee Benefits cost per employee by referring to the annual salary amount.
1. List the specific costs of the benefits paid for each employee
2. Calculate all benefit components
Calculate the total annual cost per employee based on the detailed components of the benefits package applied to the company.
3. Divide the cost of benefits by the employee's annual salary
Employee Benefits Fee / Annual Salary = % Cost of Benefits Per Employee
For example, if an employee earns an annual salary of IDR 50,000,000 and the total cost of the benefit component is IDR 10,000,000 per year, then the calculation is as follows:
10,000,000 / 50,000,000 = 0.2 (20%)
So, in this case, the employee benefit obtained is 20% of the annual salary.
How to Design Competitive and Attractive Employee Benefits?
The various characteristics and needs of employees are a challenge in designing employee benefits that are attractive and able to compete with competing companies. The most common needs are usually insurance, employee loans, and lifestyle needs.
The selection and design of benefits is an essential component in the total cost of this employee benefit. In some cases, the provision of these benefits amounts to 40% or more of the total cost of compensation. Because the number is not small, the company must prepare proportional benefits and follow the company's business goals. Here are some Step-by-Step recommendations in designing effective and attractive employee benefits:
Identify Company Goals and BudgetClear objectives will provide comprehensive guidance in determining the selection and design of benefit programs. This first step provides an overview of the company's goals in offering benefits that follow the company's needs and its employees. Equally important is determining the employee benefits budget because most employers have a cost constraint in providing this benefit package to employees.
Pay attention to the Policy and Law regarding employee benefitsCompanies also need to consider the legal requirements related to the offer of benefits. Some companies may have an obligation to provide special benefits. For example, in the United States, the Affordable Care Act requires companies with more than 50 employees to provide employees with affordable health insurance or pay a fine.
Conducting a Need AssessmentNeed Assessment or needs analysis must be carried out to determine the selection and design of the best benefits based on the needs and desires of employees. This assessment may include the company's perception of employee needs, competitors' employee benefits practices, and tax laws and regulations. The company can analyze the results of the Need Assessment and compare it with the previous employee benefits (if any). Afterward, make modifications and adjustments to the conditions and needs of current employees.
Formulate PreciselyBy using Need Assessment data, companies begin to formulate benefits in order of priority.
- Identify and study existing positions within the company. Each company has several levels of positions with respective authorities and duties. It must be identified whether it is following the desired results or not.
- Conducting Internal Equity through Job Assessment
Internal equity is an effort to equalize benefits between positions or jobs within an organization. This effort is carried out by providing the different benefits on an objective and scientific basis based on performance.
- Determine external equity utilizing a survey.
If internal equity is viewed from the company's position, then external equity is the equality of benefits given to employees who work together with other companies. To determine this external equity, it is necessary to survey the market or other similar companies.
Socialize The Policy to EmployeesNo matter how good the Employee Benefit design is, it will only be in vain if it is not communicated openly. If possible, share the results of the need assessment in general with them, in the form of a diagram of the percent of respondents responding to survey questions. Also, provide criticism and suggestion services to feel that the employee benefits policy accommodates their needs.
The relationship between the company and employees is mutual. Employees are an important asset for the company in achieving business goals. On the other hand, the company is a place to work for employees to achieve a prosperous life for themselves and their families. For this reason, this employee benefit not only talks about the company's costs or burdens but also as a long-term business investment that the company must consider and merely eliminates obligations from government policies.
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