The Pros and Cons of Offering Employee Benefits

Last Updated on March 17, 2023

Pros and Cons of Offering Employee Benefits

Employee benefits are a crucial part of any organization’s compensation package. These benefits are provided to employees in addition to their salary and play a significant role in employee satisfaction, retention, and motivation.

They come in various forms, including health insurance, retirement plans, paid time off, and other perks. While offering these benefits has numerous advantages, there are also some disadvantages.

This article will explore the pros and cons of offering employee benefits to help employers make informed decisions.

Pros of Offering Employee Benefits

1. Improved Employee Retention

Employee retention refers to the ability of an organization to retain its employees over time. Retaining employees is vital for any organization’s long-term success as it helps to maintain institutional knowledge and reduces the cost of recruitment and training. Offering employee benefits is one of the most effective ways to improve employee retention rates.

Employee benefits such as health insurance, retirement plans, and paid time off can have a significant impact on employee retention. Employees who receive these benefits are more likely to be satisfied with their jobs and less likely to look for other opportunities.

According to a survey conducted by Glassdoor, 79% of employees prefer benefits over a pay raise. Another survey by MetLife found that 65% of employees are likely to stay with an employer because of their benefits package.

Related: How a Hybrid Work Model Can Enhance Employee Performance and Retention

2. Attracting Talented Employees

Attracting talented employees is crucial for any organization that wants to stay competitive. Employers need to offer attractive compensation packages to attract talented employees. This includes offering employee benefits.

Talented employees are in high demand, and they have a choice of where they work. Employers who offer attractive employee benefits packages are more likely to attract these employees.

Prospective employees consider employee benefits packages when deciding whether to accept a job offer. Employers who offer those packages have a competitive advantage over those who do not.

According to a survey by Glassdoor, 60% of employees report that benefits and perks are significant factors when considering job offers. Another survey by the Society for Human Resource Management (SHRM) found that 92% of employees consider benefits important when choosing a job.

3. Increased Employee Satisfaction and Motivation

Employee satisfaction refers to the level of contentment employees have with their jobs. Motivation refers to the drive and energy employees have to perform their jobs well. Both are essential for employee well-being and organizational success.

Satisfied and motivated employees are more productive, more engaged, and more likely to stay with their employer long-term. Employee benefits play a crucial role in increasing employee satisfaction and motivation.

When employees feel valued and appreciated, they are more likely to be satisfied and motivated. Benefits, such as flexible work schedules, wellness programs, and paid time off, can contribute to employee satisfaction and motivation.

According to a Society for Human Resource Management (SHRM) survey, 92% of employees reported that benefits are essential to their overall job satisfaction. Another study by the Employee Benefit Research Institute (EBRI) found that employees with access to retirement benefits were more satisfied with their jobs and more motivated to perform well.

Related: Money is Redundant but these 6 Incentives Will Motivate Your Employees 

4. Tax Benefits

Employee benefits are tax-deductible, which means that employers can deduct the cost of providing benefits from their taxable income. This can lead to significant savings for employers.

Tax benefits are financial incentives provided by the government to encourage certain behaviors. In the case of employee benefits, the government provides tax incentives to encourage employers to offer benefits to their employees.

According to the IRS, employers can deduct the cost of providing employee benefits, including health insurance, retirement plans, and other benefits, from their taxable income.

5. Improved Employee Health and Well-being

When employees have access to health care and wellness programs, they are more likely to take care of their health and well-being, leading to improved productivity and reduced absenteeism.

Employee health and well-being refer to the physical, mental, and emotional health of employees. When employees are healthy and well, they are more likely to perform optimally on the job.

According to a study by the National Business Group on Health, employers who offer wellness programs see an average of $1.50 in reduced healthcare costs for every dollar spent on the program.

Cons of Offering Employee Benefits

1. Increased Costs

Offering employee benefits can be expensive for employers. Especially for small businesses that may have limited financial resources. The cost of providing benefits can also increase over time, which can lead to financial strain for employers.

Employers must weigh the cost of providing benefits against the benefits’ potential benefits.

According to a study by the Kaiser Family Foundation, the average cost of employer-sponsored health insurance for a family of four was $20,576 in 2019.

2. Administrative Burden

Administrative burden refers to the time and resources required to manage employee benefits administration. Employers must manage benefits administration, including enrollment, billing, and other tasks. This can be time-consuming and require additional staff, which can be expensive for employers.

According to a study by the Society for Human Resource Management (SHRM), the average employer spends 15 hours per employee per year on benefits administration.

3. Compliance Requirements

Compliance requirements refer to the laws and regulations that employers must follow when offering employee benefits. Employers must comply with various laws and regulations related to employee benefits, including the Affordable Care Act (ACA) and the Employee Retirement Income Security Act (ERISA).

Compliance can be complex and time-consuming, requiring employers to invest resources in compliance efforts.

According to the Kansas City Business Journal, small business owners spend an average of $12,000 per year on compliance costs related to employee benefits.

4. Difficulty in Choosing and Managing Benefits

Choosing the right benefits can be challenging, as employers must consider the needs and preferences of their employees. Managing benefits can also be difficult, as employers must track employee participation and make adjustments to benefits offerings as needed.

It can be challenging to choose the right benefits and manage benefits effectively, which can lead to dissatisfaction among employees.

According to a study by the Society for Human Resource Management (SHRM), the top three challenges employers face when managing benefits are choosing the right benefits (cited by 62% of respondents), managing the cost of benefits (cited by 60% of respondents), and keeping up with regulatory changes (cited by 49% of respondents).

5. Impact on Employee Perception

Employee perception refers to how employees view their employer and their job. Benefits offerings can play a role in how employees perceive their employer and their career.

Employees may view benefits offerings as an indicator of how much the employer values them. If employees feel that the benefits offerings are inadequate or unfair, they may be less satisfied with their jobs and more likely to leave.

According to the Society for Human Resource Management (SHRM), employees say that benefits are an important factor in their job satisfaction.


Offering employee benefits can be a significant advantage for employers. However, it also comes with disadvantages.

Employers must weigh the advantages and disadvantages of offering employee benefits carefully, taking into account their business’s financial resources and their employees’ needs and preferences.

By understanding the pros and cons of offering employee benefits, employers can make informed decisions about their benefits offerings, ultimately leading to improved employee satisfaction, productivity, and retention.

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