Employee benefits are more than a desirable perk. The top candidates expect an extensive benefits package when considering a job. Excellent offers can also help companies retain high performers and reduce employee churn. While business leaders may offer various programs, considering the return on investment (ROI) is wise for ensuring profitability. Knowing which benefits drive value helps align hiring strategies with organizational goals. 

The only way to calculate the effectiveness of benefits is to look at the ROI across different programs. Once leadership knows value versus cost, they can manage their company accordingly.

A Simple ROI Formula for Benefits Programs

Managers must understand the basics of calculating the results before digging into the ROI of specific employee packages. The U.S. Chamber of Commerce defines ROI as the cost of investment compared to the revenue generated from it. The basic formula is:

Net profit - investment cost/investment cost = ROI %

If the company spends $100 on a training workshop for each member of the sales staff, and each person increases company profits by $1,000, leadership would work the formula like this:

$1,000 - $100 / $100 = 9%

However, the ROI becomes much greater if the same people increase profits by $1,000 for four years. 

Calculating the ROI of Specific Benefits Packages

Not all positive outcomes are as measurable as outright profit. For example, a happy and healthy employee may be more productive, which results in fewer sick days or churn. Someone who feels fulfilled in their role may tell others and bring in word-of-mouth referrals that are more difficult to capture and measure. The best way to consider whether each perk is viable long-term is to look at some of the top offers companies provide.

1. Healthcare

One of the costliest benefits most companies offer is healthcare packages. Although monetarily expensive for businesses, the results impact everything from wellness to job satisfaction. The desire for various perks may vary by age. However, most employees want comprehensive healthcare, paid time off (PTO), remote work, flexible schedules and retirement savings plans.

Key performance indicators businesses can measure with healthcare include absenteeism, productivity and lower premiums due to wellness program discounts. For example, if a new wellness program results in two fewer sick days per employee annually, one can calculate the productivity loss per day and multiply it by the number of employees to see how much the program saves the company versus the cost. 

For example, if a program costs $5,000 a year to run, the company might save $200 per day in productivity losses. For 100 employees, the result is $20,000 yearly or a net profit of $15,000. The wellness program is well worth the investment.

Break down each point, including if staff members are less likely to leave due to improved healthcare and how much it costs to replace employees. To get started, offer tiered incentives, such as paying for gym memberships or providing weekly health coaching sessions after work. 

2. PTO and Flexibility

Companies like Netflix have experimented with unlimited PTO for maximum flexibility. The result is higher employee satisfaction and reduced turnover. Measuring the cost of a day off is relatively straightforward and requires looking at output each day. However, factoring in increased productivity and lower stress levels may be harder to quantify.

When deciding whether PTO is worth the investment, leadership has to look at the likelihood that an experienced employee will leave without it. Corporate knowledge impacts everyone in the organization and may have long-reaching effects. For example, the seasoned department head trains new employees in best practices and offers tips to speed up work. Without their input, new people would have to figure out how to complete tasks independently, taking more time and lowering output and profit.

The ability to take leave when needed and work outside standard hours can help retain employees, especially if they are caregivers to elderly parents, new moms or dads, or overwhelmed with daily tasks. Remote work can fall into the same category, offering additional flexibility if someone has to move because of a spouse’s job transfer or other factors. 

Factor in additional remote or hybrid work costs, such as shoring up security. Experts predict a ransomware attack will happen every two seconds by 2031. Remote teams must have top antivirus software and training. At the same time, company leaders should factor in the savings of not maintaining office space and lower energy usage. 

The key to a successful PTO program is training leaders to manage hybrid teams without micromanaging every small task. Track the performance metrics available and understand much of the ROI or PTO goes unseen. 

3. Retirement Plans

Another popular benefit with employees is a retirement plan. Many companies with robust retirement plans retain top performers. 401(k) matches paired with financial advisor workshops help educate workers and build financial health. To figure out the ROI of retirement plans, leaders may have to survey employees. 

Ask staff questions about whether they would leave if the company stopped matching retirement funds. If the business doesn’t yet match, leaders can ask employees what effect a matching program would have on their decision to stay with the company. 

If offering a particular plan reduces turnover by 10% yearly, leaders would figure out the replacement cost for an employee and then determine how much monetary savings reduced turnover equals. This helps determine the perfect match amount to keep top employees on board.

4. Ongoing Learning

The cost of offering workshops, college course reimbursement and other funds is clear. The return is muddier. Because learning drives innovation within the company, knowing the annual value is next to impossible. 

One thing organizations can do is compare how many new products and programs started after learning and development began. If an individual increased productivity, that could conceivably be counted as a gain, but it could be due to other factors. 

Investing in employees makes them more loyal to the company and more likely to stay. Build a personalized plan to develop each employee’s skills and address any noticeable gaps. The amount each employee contributes can be measured, but the exact ROI may be more obscure. 

Prioritize the Workforce

When companies invest in their workers, they’ll develop loyal employees who stick with the organization through ups and downs. Over time, the money saved in replacing staff members and the knowledge kept will drive growth and, eventually, higher ROI. Leaders should take the time to talk to employees about what they most want in a benefits package and meet their needs so they have no reason to look elsewhere for a job. The company will benefit, management will have highly trained workers and employees will be happier.