Beyond the basic benefits any US company would provide, there are many and varied ways to attract and maintain the best employees. The diplomacy of reward-giving is an art in itself and the benefits on offer can be imaginative as well as practical.
After salary and bonus, a critical component of any offer to a candidate will be the type and level of health insurance offered (often referred to as just “Healthcare”). Data suggests that this often ranks in the top five considerations for employees looking at a job offer and often higher for a candidate with a family.
Minimum benefits packages
Benchmark benefits categories in the US (based on number of employees)
For an overview of benchmark benefits categories in the US based on number of employees, download the Question the Questions report below and check out page 110.
How does a company get a healthcare plan in the US?
There are two main ways to arrange healthcare in the US. The Company can instruct an insurance broker who will tailor the appropriate package through a specific healthcare provider (i.e. Blue Shield) or the Company can use a Professional Employer Organization (a PEO) to offer a range of policies to the employees, often delivered on an online platform.
When first setting your company up in the US, you can opt for a temporary alternative to providing new health coverage to your first employees by paying for their COBRA coverage (continued healthcare coverage from their last employer, paid for by the employee), if they were eligible for it.
What are the key components of US healthcare?
When you are creating a healthcare scheme for your US full-time employees, your company will have to decide on several key components, and your starting point should be understanding the basic terminology.
- An individual enrolled in a health insurance plan or policy is known as a beneficiary or member. The person who purchases the insurance is the subscriber and any other people on the policy (spouse or children) are dependents. The insurance company charges the subscriber a monthly fee called the premium. When a beneficiary receives health care services, the insurance company will pay the healthcare provider, clinic or hospital on behalf of the beneficiary. However, the beneficiary is still required to pay for some of the cost he or she incurs—this is known as cost sharing. Common terminology related to cost sharing includes:
- The deductible is a fixed-dollar annual amount of healthcare costs that the beneficiary must pay entirely out of pocket. For example, if the deductible is $500, the first $500 in medical costs incurred each year is paid by the beneficiary; for costs beyond $500 the insurance company may pay completely or require a co-payment or co-insurance;
- A co-payment (or “co-pay”) is a fixed dollar amount that the beneficiary must pay for certain services. For example, the policy might say that the beneficiary pays $15 out of pocket for each primary care visit and $25 for each specialist visit, while the insurance company pays the rest of the bill;
- Co-insurance is similar to co-payment but it’s a percentage of the bill rather than a fixed amount. For example, the beneficiary might pay 20 percent of the cost of a primary care visit and 25 percent of the cost of a specialist visit, and the insurance company will pay the remainder;
- The out-of-pocket max is the total amount that the beneficiary must pay in a given year. This includes what the beneficiary pays towards to the deductible, any co-pays, or co-insurance. After this amount has been reached, the insurer pays 100 percent of the costs for all covered services.
How best to create a budget for US healthcare costs?
When it comes to forecasting healthcare costs, the simplest way to start is to budget a monthly contribution of $600-$800 per employee for Healthcare, $50 per employee per month for Dental, and $15 per employee per month for Vision. Sequoia’s research shows that over 95 percent of companies offer Vision and Dental care to employees if they offer a healthcare plan. The table below sets out the range of employer contributions for employee health insurance by size of company and also distinguishing between employees and dependents.
For a table summarizing employer contributions for employee health insurance by size of company (distinguishing between employees and dependents), download the Question the Questions report below and check out page 112.
Key questions about healthcare
• What is the right level of coverage to offer to your team and their dependents?
• Do you want to include dental and vision plans as part of the package?
• What are the total employer contributions likely to be, given the forecasted team size?
• How much control should the company have on policy selection as an employer or are the policies provided by the PEOs sufficient?
• When assigning European employees to the US for a secondment, what level of healthcare insurance will enable you to replicate the same experience they have in Europe?
The value of PEOs
Professional Employment Organizations, known in the US as “PEOs”, enable businesses to purchase healthcare for their employees quickly and easily. They also offer a Company a range of other useful services such as payroll and payroll tax administration, compliance with Federal and State employee filings, Workers’ Compensation, and the provision of various other additional benefits such as Employee Handbooks, pension plans, and supplementary healthcare, including dental and vision insurance. The process of setting a healthcare scheme can take up to four weeks, from the point of the first call.
Key questions about PEOs
• How do the PEO’s fees scale as your US team grows?
• What other fees may you incur?
• Can your employees update their information on their own, electronically?
• Is the PEO licensed in the State(s) where your employees will be? If you plan to have remote employees, make sure these locations are covered.
• What is the minimum number of employees in your team the PEO will service?
• What happens if you wish to change vendor or wish to change vendor for a subset of the service (e.g. pension plans / 401(k))?
• Where does the liability lie for non-compliance? Understand how liability is split between the PEO and your company.
Holidays / Paid Time Off (PTO)
In the US, the standard for young companies is two to three weeks of vacation, not including about 10 public holidays per year. Some companies opt to provide flexible holiday policies and some provide suggested total holiday days (typically ~20 days).
Key Questions about Paid Time Off (PTO)
• What state regulations and requirements apply to your business?
• How do you plan to monitor PTO being recorded?
• Are you aware of the legal implications of Holiday Debt?
• What plans have you made for maternity/paternity cover?
A 401k is a program that allows employees to contribute pre-tax dollars into a retirement savings fund that also grows tax-free. It is not typically provided for small and relatively young companies with limited funding. Once the company is established and well-funded, employees begin to expect the employer to provide a 401K plan, as such a program can be set up at minimal cost to the company.
However, even if a young company has set up a 401K, it usually does not provide the option of matching contributions to the fund made by the employees until it is secure in its funding.
Other optional benefits and perks
It’s important for your employees to draw a clear distinction between benefits and perks.
Phone and internet costs covered; meals; transportation costs; gym membership and remote or flexible working arrangement are commonly perceived as perks – “nice to-have” but not essential or mandated by regulation.
That said, pay attention to perks that are standard in a particular local context: for example, free meals provided by companies in Silicon Valley. Providing these might be important to your competitiveness in the eyes of candidates in these contexts.
Key questions about perks
• How well does your standalone benefits package communicate your company culture?
• Are there additional benefits which can deal with specific challenges your business may have?
Should you standardize benefits for employees across your offices?
It’s best to provide one standard set of benefits for employees across all global and local offices. Exceptions can be made for special positions (e.g. sales people getting car allowances or transportation reimbursements).
That said, benefits packages will necessarily differ in situations where social services provided in one country differ significantly from those in another. This is especially the case with medical/dental/vision coverage (e.g. public health insurance in the UK vs. the US) and retirement savings.
In the US, the level of benefits, HR compliance rules, taxes, and payroll requirements can vary depending on the state. Therefore, before determining the package for employees in your US office, evaluate what would make for a competitive package in the specific market.
How do you determine what level of benefits to provide in each category?
• Consult an HR consultant with knowledge of benefits in the local context. A part-time HR consultant in the US can recommend location-specific benefits packages.
Getting help from relevant consultants
• Word-of-mouth recommendations on a relevant consultant work well. Get these from your locally-based country manager, HR groups/Listserv, and others.
• Consult an accountant (in-house or external) for relevant tax and regulatory considerations
• Seek out up-to-date salary and benefits information from local recruiters and search firms.