• Employee benefits are the non-monetary compensation you provide your workers.
  • Popular employee benefits include health insurance, retirement savings, and paid leave, while uncommon benefits include child care, pet insurance, and mental health support.
  • Thorough cost analysis, industry standards research, and staff surveys are important to determine the best benefits to offer your employees.
  • Jul. 17, 2024: Jessica Dennis reviewed and rewrote the article for freshness and accuracy. She also rearranged elements on the page and updated the formatting to improve the flow of information.
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What are employee benefits?

Employee benefits are non-monetary compensation that employers offer workers. In the U.S., employers usually share the cost of most benefits with their employees.

Benefits are different from employee perks. Although similar, employee benefits are must-have offerings that employees would otherwise pay for out of their income. If you use a house as an analogy, you can think of benefits as your utilities, like water, electricity, and gas.

Perks are nice-to-have offerings that your employees may or may not pay for themselves. They usually reflect your company values since most employees, regardless of classification, can access them. Perks include things like free meals, professional development courses, and discount programs. Using the house analogy, perks are like your fenced-in backyard, attached garage, and garbage disposal.

Outside of benefits required by law, employers in the U.S. have the freedom to customize their employee benefits packages to fit their company’s circumstances and industry expectations.

For example, you may offer benefits that align with employee tenure, like increasing the number of paid time off (PTO) days employees receive in a benefit year with each year of service. Or, you may offer insurance packages based on the employee’s full- or part-time status. However you organize your benefits, make sure all employees in the same or similar circumstances have equal access.

Advantages of offering employee benefits

Employee benefits are a net good for your organization despite the increased labor costs. This is because employee benefits help you:

Global benefits

Compared to other countries, benefits in the U.S. are much more employer-centric. While this allows you to curate employee benefits that fit your industry or company’s unique circumstances, it also means acknowledging that employees rely on you for benefits that other countries mandate by law.

For example, countries like Japan and the United Kingdom have universal healthcare coverage, meaning residents do not have to depend on their jobs for access. Many more countries have robust PTO laws that require employers to pay for parental leave and medical procedures. In 2023, Spain even passed a menstrual leave bill that requires employers to pay for three days of leave for women who experience painful, disabling periods.

Being mindful of benefits worldwide is vital for developing culturally appropriate and relevant benefits offerings for your distributed workforce. It also ensures your benefits align with your company’s values and culture by supporting the range of human needs and experiences.

For instance, if you have employees in both the U.S. and the U.K., you may offer health insurance free of cost to your employees in the U.S. to mirror the benefits coverage of their U.K. counterparts. Such offerings demonstrate your commitment to equity by providing equal access to opportunities and benefits company-wide, regardless of your employees’ locations and backgrounds.

Learn more about how to create an equitable global benefits strategy: An Employer Guide to Global Employee Benefits

Examples of employee benefits

The table below breaks down the most common employee benefits in the U.S., including those mandated by law and popular fringe (voluntary) benefits:

Legally-mandated benefits

Benefit

Type

Description

Workers’ compensation

Health and wellness

Provides employees with medical care and partial wage replacement following a work-related injury or illness.

Affordable Care Act (ACA)-qualifying health insurance

Health and wellness

Requires employers with 50 or more full-time employees to offer affordable health insurance to employees.

Medicare

Health and wellness

Provides health insurance to employees 65 or older; employees and employers fund this through Federal Insurance Contributions Act (FICA) payroll tax.

Social Security

Financial security

Provides a percentage of income to employees after reaching age 65 or older; employees and employers fund this through FICA payroll tax.

Unemployment insurance (UI)

Financial security

Issues partial wages to employees following a qualifying termination, such as a layoff; employers fund this through Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA) payroll taxes.

Work and life balance

Mandates qualifying employers to provide up to 12 weeks of unpaid, job-protected leave to eligible employees for specific medical and family reasons.

Fringe benefits

Benefit

Type

Description

Medical or health insurance

Health and wellness

Pays for some or all of employees’ medical care; employees and employers usually pay for this through pre-tax payroll deductions; plans include Preferred Provider Organization (PPO), Health Maintenance Organization (HMO), or High Deductible Health Plan (HDHP).

Dental insurance

Health and wellness

Pays for some or all of employees’ dental care; employees and employers usually pay for this through pre-tax payroll deductions.

Vision insurance

Health and wellness

Pays for some or all of employees’ vision care; employees and employers usually pay for this through pre-tax payroll deductions.

Prescription or pharmacy insurance

Health and wellness

Pays for some or all of employees’ drug prescriptions; employees and employers usually pay for this through pre-tax payroll deductions.

Wellness programs

Health and wellness

Promotes health, well-being, and exercise through workplace offerings, like gym memberships, health screenings, and fitness and mental health stipends.

Short-term (STD) and long-term (LTD) disability insurance

Financial security

Replaces a portion of an employee’s income following a serious injury or illness; employees and employers usually pay for this through payroll deductions.

Financial wellness

Financial security

Provides financial literacy tools, such as money managing courses and earned wage access (EWA), to decrease employees’ financial stress.

Retirement and pension plans

Financial security

Ensures employees receive a portion of income replacement following retirement; employees and employers pay for these through pre-tax payroll contributions.

Annuities

Financial security

Provides employees with a set income regularly at a later date; qualified employee annuities allow workers to fund it through pre-tax contributions.

Life insurance and death benefits

Financial security

Issues employee beneficiaries a sum of money following an employee’s death; either employees, employers, or both may fund it.

Financial security

Pays for qualified medical expenses from an account that employees contribute pre-tax gross pay; HSAs roll over year after year and FSAs are use-it-or-lose-it accounts.

Relocation assistance

Financial security

Pays wholly or partially for expenses around work relocation, like travel, moving, food, and temporary lodging.

Tuition assistance

Financial security

Assists employees in paying for their education, usually in exchange for taking specific courses or maintaining a certain GPA.

Equity

Financial security

Allows employees to buy in and own stock shares of their company in exchange for a portion of its profits.

Paid time off (PTO)

Work and life balance

Provides pay to employees even if they did not work; companies can offer different kinds like paid sick, vacation, personal, bereavement, and jury duty leave.

Work and life balance

Provides pay time off to employees during holidays recognized by the company, such as Independence Day in the U.S.

Premium pay

Work and life balance

Provides income over an employee’s straight-time pay rate to incentivize working undesirable shifts or hours; overtime pay and shift differentials are examples.

Employee assistance programs (EAPs)

Work and life balance

Assists employees in finding solutions to personal problems affecting their work, such as financial, legal, health, and relationship issues.

Commuter benefits

Work and life balance

Lowers the gas, parking, and public transport costs employees pay to get to and from work; employees and employers pay for this through pre-tax payroll deductions.

Flexible work

Work and life balance

Allows employees to vary their work location or start and stop times but maintain the number of hours they work each week to accommodate personal needs, like child care and doctor visits.

Types of employee benefits

The benefits you can offer employees fall into two categories: legally mandated or fringe.

Legally-mandated benefits

Legally-mandated benefits are benefits you must offer your employees by law. In the U.S., federal law requires employers to provide and pay in whole or in part the following employee benefits:

  • Workers’ compensation.
  • ACA-qualifying health insurance.
  • Social Security.
  • Medicare.
  • Family and Medical Leave (FMLA).
  • Unemployment insurance.

Federally-mandated vs. state-mandated benefits

Workers’ compensation (WC) is insurance that pays 100% of the medical costs associated with an employee’s work-related injury or illness. It also replaces some of the employee’s wages once they have missed work for a specified period.

All states, except Texas, require employers to purchase and maintain WC insurance through a state fund or a private insurance carrier. Some states also allow you to self-insure, allowing you to pay for WC claims directly without going through an insurance carrier.

WC is essential for employees, especially those in high-risk industries like logging, fishing, construction, and roofing. Besides providing a financial safety net for them following a workplace accident, it also incentivizes employers to develop comprehensive safety programs to protect their employees and reduce the chance of expensive claims that raise their insurance premiums.

The Affordable Care Act requires applicable large employers (ALEs) — or those with 50 or more full-time employees — to offer affordable health insurance to employees or risk a federal penalty. If you are an ALE, generally you will work alongside your insurance broker or carrier to find a plan that aligns with your benefits strategy and does not exceed a certain percentage of employees’ household income.

You should also consider your employee population when deciding on healthcare plans. A plan may be affordable by ACA standards, but your employees may still spend a significant proportion of their income on healthcare relative to their location and socioeconomic class.

For instance, employees may spend most of their income on transportation to and from work and groceries, especially if they live in food deserts. As a result, you may want to absorb more of the premium costs so employees retain most of their take-home pay.

Even if you are not an ALE, you may offer ACA-qualifying insurance as a part of your overall employee attraction and retention strategy. After all, according to SHRM’s 2023 Employee Benefits Survey, health insurance ranks as the most important benefit to employees. Plus, if you’re a small business and offer ACA-qualifying insurance, you may be eligible for a small business tax credit from the Internal Revenue Service (IRS).

Under the Federal Insurance Contribution Act (FICA), employers and employees are responsible for funding the federal Social Security and Medicare programs. 7.65% of your employees’ taxable wages each paycheck goes to these programs, which you match.

Social Security is a type of wage replacement available to people with disabilities or those 65 or older. Similarly, Medicare is a federal health insurance that covers the same demographic. Both ensure income and affordable healthcare once people reach retirement age.

Despite these federal social programs, most employers offer retirement and health insurance plans to fill in the gaps of these programs, especially for employees who want to maintain a certain standard of living.

The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees within a 75-mile radius to provide at least 12 weeks of unpaid, job-protected leave for a qualifying family or medical reason. Typical reasons include childbirth, a serious health condition, caregiving responsibilities, or reasons involving a family member’s military service.

Because FMLA is a job-protected leave, you are responsible for maintaining benefits, like health insurance, during an eligible employee’s leave. You also must place them in the same or similar position upon their return to work.

While FMLA is unpaid, remember that some states mandate paid family leave. Even if your employees reside in states without these laws, offering paid family and medical leave is a great way to attract employees and showcase your dedication to their personal well-being.

Unemployment insurance (UI) provides partial income replacement to employees following termination for an eligible reason, usually a layoff. In most states, you pay for 100% of this benefit through the Federal Unemployment Tax Act (FUTA) and state equivalent acts (SUTA).

Although the FUTA rate is a flat 6% for most employers, some states impose experience ratings, meaning employers with more frequent unemployment claims pay higher UI taxes. As a result, businesses in seasonal or high-turnover industries usually have higher UI costs.

If this is you, remember to be upfront with your employees about their unemployment benefits. Many states require posters with instructions on filing for UI benefits upon termination; you may even have to provide them with your unemployment account numbers.

These benefits are important for employees who have just lost their income, and employers who are forthright about the process are more likely to develop loyal employees.

Fringe benefits

Fringe benefits are benefits you offer employees outside of those required by law. Because of this, you can also think of fringe benefits as voluntary or discretionary benefits.

There are several types of fringe benefits, but you can sort most into the following categories:

  • Health and wellness.
  • Financial security.
  • Work and life balance.

Fringe benefits and the IRS

Health and wellness fringe benefits comprise any non-compensation benefit related to an employee’s physical, mental, and emotional well-being. The most common include the following:

  • Medical insurance.
  • Dental insurance.
  • Vision insurance.
  • Prescription and pharmacy insurance.
  • Wellness programs.

Most of these benefits aim to cover the costs of various health-related services, from doctor and hospital visits to dental cleanings and gym classes. Usually you’ll partner with an insurance carrier that manages, pays for, or reimburses employees on eligible health claims.

Considering health insurance benefits account for about 6.9% of an employee’s total compensation package, according to September 2023 Bureau of Labor Statistics data, many employers are finding low-cost health benefit alternatives. This may include access to onsite nurses, therapists, and wellness classes.

Financial security fringe benefits are any benefits that help employees manage their finances for future expenditures and retirement.

Most financial security benefits revolve around wage replacement following an injury, illness, retirement, or death. Others help to pay for life expenses, including education and moving. Below are some of the most common:

  • Short-term and long-term disability insurance.
  • Retirement plans, like 401(k) or Roth 401(k).
  • Pension plans.
  • Annuities.
  • Life insurance or death benefits.
  • Employee savings plans, like health savings accounts (HSAs) and flexible savings accounts (FSAs).
  • Relocation assistance.
  • Tuition assistance.
  • Equity.
What is financial wellness?

Fringe benefits that balance work and life make it easier for employees to be successful in both their professional and personal lives. The most popular work and life balance benefit is job-protected paid leave that allows employees to miss work for various personal reasons without fear of termination.

Other standard work and life balance benefits include:

  • Paid time off (PTO).
  • Holiday pay.
  • Premium pay.
  • Employee assistance programs.
  • Commuter benefits.
  • Flexible work.

Since the COVID-19 pandemic, employees have placed greater importance on these benefits. Flexible work options, for example, are attractive to groups like single parents, caregivers, and people with disabilities, where traditional nine-to-five work is incompatible with their day-to-day realities.

SHRM’s 2023 Benefits Survey notices this shift, with 62% of employers now offering hybrid work opportunities and 59% subsidizing at-home office equipment. These benefits significantly open up your candidate pool, allowing you to source talent from a wider array of backgrounds.

Uncommon employee benefits

If you already offer most of the above benefits in your total compensation package, many lesser-known benefits are growing in popularity. Adding these unique benefits can modernize your employee benefits and make your workplace stand out.

A tree diagram connects a list of uncommon employee benefits, including 100% employer-paid health plans, paid family and caregiver leave, and pet insurance, to the title “uncommon employee benefits.”

100% employer-paid health plans

Because of the ACA, most employers with over 50 employees offer health insurance benefits. However, health insurance costs and plan coverage vary wildly. Many employees also don’t have a choice in the doctors or care they receive, especially if they choose low-cost, high-deductible plans.

However, completely covering the cost of healthcare plans for employees and dependents can ease employees’ financial stress. This is especially important for employees with ongoing or upcoming medical care needs, such as pre-existing conditions, disabilities, or surgeries.

As a result, 100% employer-paid plans are often more equitable since there are no barriers to enrollment, and employees don’t have to pay more for comprehensive coverage options.

Did you know?

The federal FMLA program only guarantees unpaid leave to eligible employees who work for FMLA-qualifying employers. Offering a paid leave program is extremely attractive to employees, especially those with a medical condition or looking to start a family but concerned about wage loss.

Plus, according to Cheri Wheeler, Vice President and Senior Consultant at Kelly Benefits Strategies, paid caregiver benefits can be a net positive for your company culture and bottom line.

“Caregiving benefits can help improve employee productivity, as employees who are able to manage their caregiving responsibilities effectively are more likely to be focused and engaged at work,” explains Wheeler. In other words, these benefits can reduce employees’ feelings of financial insecurity, stress, and burnout since they have more support and flexibility to manage their personal and professional lives.

The U.S. is only one of six countries without a national paid parental leave policy. Even if you don’t have employees working internationally, offering paid family leave on par with the world can make global expansion easier when the time comes. More importantly, it can keep your employees invested long-term, knowing they are financially protected when they decide to grow their families.

Build your family and caregiver leave policy

Child care

Childcare benefits can take on a variety of forms, such as:

  • Stipends to lower costs for child care services.
  • Dependent Care Flexible Spending Accounts (DCFSA).
  • Discounts at local child care facilities.
  • In-office child care centers.

The goal is to help working parents reduce child care costs while continuing to work. If you’re a small business with a limited budget, assisting employees with finding or paying for child care can be more affordable than an employee missing work due to unreliable or unaffordable child care.

Family-building and reproductive assistance

Family-building and reproductive assistance benefits help employees who want to start a family but face obstacles. It includes employer-sponsored offerings like:

While some health care plans and EAPs cover these, carving out family-building benefits can be especially attractive to employees who are:

  • Single by choice.
  • LGBTQ+.
  • Struggling with fertility.

One advantage of offering family-building and reproductive assistance is that it can be unique to your company’s culture and budget.

For example, Cyndi Wenninghoff, the Director of Employee Success at Quantum Workplace, explains that they reimburse employees up to $10,000 per family per year for fertility and adoption services. Such reimbursement programs allow employees to choose the services they want without the limitations of insurance plans.

Mental health support

Mental health support includes benefits that cover the costs of services that improve employees’ psychological and emotional well-being. Most modern health insurance plans include in-network support for mental health, such as counseling, medication, and substance abuse and psychiatric treatment.

You also have options if you don’t offer health insurance or want to fill the gaps in your plan’s mental health coverage. For example, you may wish to add designated mental health days to your PTO plans to provide a reprieve for employees experiencing a crisis. Onsite counselors or applications like Calm and Headspace are other ways to support employees’ mental well-being.

Pet insurance

Pet insurance is an increasingly popular benefit for employees. 2023 PEW research indicates 62% of Americans own a pet, with 97% saying they are part of the family. Considering the costs of veterinary checkups and routine and preventative care like vaccinations, dental cleanings, and medications, the price of owning a pet can make a severe dent in an employee’s income.

Many businesses are noticing the value of pet insurance for their employees. SHRM’s 2023 Benefits Survey notes that about one in five employers (19%) now offer the benefit compared to 14% in 2022.

Most pet insurance plans reimburse employees for qualified vet expenses for their eligible household pets. Plans can be “illness” or “wellness.” Illness plans cover pets for any unexpected illness or injury, such as cancer, while wellness plans cover routine vet care like exams, vaccinations, and bloodwork. Survey your employees to see which option is the most valuable to them, especially if you want to start offering this benefit.

Sensory- and disability-friendly workplaces

The Americans with Disabilities Act (ADA) requires you to provide reasonable accommodations to employees with disabilities. It also provides public and commercial facility accessibility guidelines. However, sensory- and disability-friendly workplace benefits add a layer of intentionality beyond what the law mandates.

For example, you could create quiet or low-sound rooms with dim lighting to accommodate neurodivergent employees. You may also offer adjustable tables, desks, and chairs in your employee break rooms and office areas to accommodate employees of different heights. Wide walkways also make it easier for employees in wheelchairs to navigate.

PwC, for example, redesigned its office spaces in 2021 with these exact features, along with pink noise and soundproof areas. Such inclusive workspace design allows employees to work in an environment that helps them succeed.

Employee benefits FAQs

Health insurance is the most popular employee benefit since the U.S. does not provide universal healthcare.

The benefits employees value the most depend on several factors, including geographic location, industry, and culture. U.S. employees usually value health insurance and PTO as benefits, but this may differ for employees in countries with universal healthcare or nationally mandated paid leave requirements.

Australians, for example, have universal health care and access to four weeks of paid leave per year. As a result, more worthwhile benefits may be life and disability insurance, EAPs, or paid leave benefits on top of those required by law.

According to September 2023 BLS data, legally mandated benefits, including Social Security, Medicare, FUTA, SUTA, and WC, are the most expensive benefits, costing around $3.11 per hour per employee for private employers. Following this, paid leave and insurance are the second and third most costly benefits at $3.09 and $3.04 per hour per employee, respectively.

Overall, the cost of benefits is an additional $12.19 per hour to an employee’s compensation.

Employee benefits are the non-monetary compensation portion of an employee’s total compensation package. Businesses provide them to all employees in the same or similar roles to improve the quality of their personal and professional lives.

In contrast, rewards function as a way for employers to recognize and congratulate employees. Most companies tie rewards to performance, but you may also give rewards for other reasons, such as demonstrating a company’s core value. Unlike benefits, companies do not guarantee rewards; instead, employees must earn them.

Rewards can vary from non-monetary items, like lunch for the team, to monetary items, like performance bonuses and gift cards.

How to choose the right employee benefits for your company

To choose the right employee benefits for your company, ask yourself the following:

  • What resources, like time and money, do I have for my employee benefits packages?
  • What benefits do employees expect in my industry?
  • What is the culture and demographics of my staff?
  • Where are my employees located?
  • What tools do I have to manage my benefits package?

But most importantly, ask your employees: “What benefits do you want?”

Employee engagement software can facilitate surveying employees on your benefits offerings. Culture Amp, for example, offers a U.S.-specific benefits survey to gather insight into the effectiveness of your current benefits and interest in new ones.

Once your benefits packages are in place, most HR software lets employees self-enroll in the benefits they want during onboarding while keeping track of employee and employer contributions. Paycor even provides a benefits advisor feature that improves the employee experience by helping new hires select the benefits that best suit their circumstances.

If you want to learn more, peruse our HR Software and Benefits Administration Software guides for a complete list of software options.