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3 min read

How much should you be spending on employee benefits?

How much should you be spending on employee benefits?

What’s the point of offering employee benefits?

It’s essential that you’re clear on the purpose of the benefits package before you can put a monetary value on it. For most companies, a competitive benefits package is used as a means to attract top-tier talent and retain existing employees while keeping them motivated in their roles. 

It’s also cheaper to provide benefits than to replace staff. The average cost to replace an employee in the UK is between 6-9 months of salary, which includes recruitment costs, training expenses for the new employee and salary negotiations. The cost per employee for a benefits package is likely to amount to a significantly lower figure than that, so it pays to keep current team members happy.


Which benefits should you be offering?

A benefits package can include a huge range of options from mental health, physical health and financial health benefits to things like cycle-to-work schemes, childcare costs and free lunches. To get a clear view on the things that your team are most interested in having their benefits cover, just ask. Then ask again, as time goes on as you may find once-popular benefits become less relevant.

For example, we know that people want more help managing their money. In Claro Wellbeing’s Workplace Today report, 69% of employees said they felt their company should do more to support their personal finances. Evidently, a proportionate amount of the benefits budget should go towards this area. Similarly, Claro Wellbeing’s Financial Wellbeing report highlighted that the top two employee worries are money (43%) and health (18%). Since both areas affect staff wellbeing and workplace performance, it’s a win-win for employers to cater to these areas with suitable benefits packages.

Outside your organisation, HR publications often share industry-specific and general emerging benefits that are expected to be popular in the coming year, so keep an eye on similar resources to stay abreast of what’s happening in your industry, and allow it to inform your strategy in finding the most cost-effective ways to stay ahead of the curve.


What’s everyone else doing?

It’s important to note that there’s no one-size fits all approach when you’re putting together an employee benefits budget. Even if a competitor has the same credentials as your company, a copy and paste of their approach may not be as effective in your workplace.

As a guide, research by Boundless showed that just over a quarter (26%) of UK businesses have a monthly benefits budget of between £101 - £150 per employee, while a further quarter allocate £151 - £200, and 23% spend more than £201 per employee per month. This may be a good starting point to approach budget negotiations with the purse holder in your organisation.

In comparison, Open Sourced Workplace recommends adding 20-50% to an employee’s salary to fund their benefits package. On average, they estimate that 32% of a company’s salary costs goes towards employee benefits, so do some internal research to check where your strategy is right now, and where you’d like it to go.


How often should you review the benefits budget?

HR Magazine recommends that you carry out a yearly review of your company’s expenditure on benefits. It’s important that your objectives are still being fulfilled each time you reevaluate. Times change, as do people’s areas of stress. Measuring success is important, so look at ways to track employee uptake of certain benefits and adjust the spending accordingly.

Logically, the benefits budget should grow in line with the company. In collaboration with Howden, REBA (Reward & Employee Benefits Association) published Benefits Design Research 2022, which shows that nearly half (46%) of employers plan to increase their benefits spending per employee over the next two years. In terms of the areas they forecast requiring more budget, 76% plan to increase their spending on health and wellbeing benefits, as these areas are likely to remain popular in the coming years.

So long as your benefits package is meeting its objectives of attracting talent, retaining existing employees and keeping them motivated, the spending can be justified and in conjunction with trackable ROI figures. There’s always room for innovation, too, so speak to your staff about what really matters to them and get your most creative thinkers together to find a cost-effective solution for your workplace.