HPS Employer Blog

Cutting Benefits Won't Save You Money: How to Reduce Costs Elsewhere

Cutting Benefits Won't Save You Money: How to Reduce Costs Elsewhere

With employers constantly searching for ways to cut costs within their organizations, benefits such as medical, dental and vision are often the first place they turn—particularly as healthcare costs continue to skyrocket.

While this may seem like a good place to save, when employers cut their benefits offerings, employee satisfaction decreases, resulting in lower productivity, loss of top employees and higher total cost of operation (TCO) as a result of increased employee turnover. This blog post will give you a quick rundown of why you should not cut benefits when trying to save money, and where you can save money instead.


Good benefits = happier employees

It’s not just speculation that employees who are happy with their employer-provided benefits are more satisfied with their employer and job (and, as a result, less likely to seek employment elsewhere). The Society for Human Resource Management (SHRM) recently did a study on job satisfaction and engagement; the results showed that for over 90% percent of employees surveyed, benefits are important to overall job satisfaction.

Employees who are happy with their employer, benefits and job overall, are more productive and focused, leading to greater return on investment (ROI) on each employee hired (including the dollars spent on their benefits). Think about a sales rep, for example: if that sales rep is happy and focused, sales are being made and quotas are being met. If not, that focus may be directed toward other things, like finding new employment.

The same SHRM study mentioned earlier found that nearly one-third of employees stated that their benefits package was the top reason they intended to seek alternative employment in the next 12 months. Cutting benefits means losing good employees, and losing productivity and money along the way.


Alternative ways to help the bottom line

Since you shouldn’t cut essential benefits to save, it’s important to find other ways to reduce spending that won’t negatively impact your bottom line. Here are just a few suggestions:

  1. Select multiple plan options for employees to choose from during open enrollment, including lower-cost high deductible health plan (HDHP) options with linked HSAs. Offering these plans allows you to incentivize the selection of the lower-cost plans with, for example, an employer match to employee HSA contributions.

  2. Educate employees on their plan options. HDHP options with HSAs do tend to benefit the employee, however, many employees simply don’t understand these types of plans. To increase interest in lower-cost plans, host a Q&A session or a Lunch and Learn to explain the nuances of each plan, how the plans work and the employer-funded HSA match.

  3. Hire independent contractors when possible for tasks that don’t require a full department or have a constant stream of work, rather than regular employees. This is a good way to retain the talent you need without all the expense. Independent contractors may be more costly per hour, but tend to be more experienced, come in already trained for the task(s) at hand, and are only paid for the number of hours and time(s) of year needed. If you only need them part-time or for a portion of the year, you spend a fraction of what you would on a regular employee in terms of salary and benefits.

  4. Review “extra” benefits offered, such as company cars, phones, etc., determine which employees require those benefits, and explore if there is a cheaper alternative. For example, rather than providing sales reps with company mobile phones and plans, consider contributing a dollar amount monthly toward the employee’s personal phone bill if the employee must utilize a mobile device for work. This may actually increase employee satisfaction while saving on costs.

  5. Offering learning and development opportunities requires some upfront investment but provides a huge payoff for employers. Not only do employees want to grow professionally, but the company benefits from the increasing knowledge and expertise of the workforce.

While cutting benefits may seem like the easiest way to reduce costs, think twice before dropping dental and vision coverage or reducing the portion of the medical coverage provided. Essential benefits are key to employee satisfaction—and your bottom line.

Providing lower-cost plan options, educating employees on those options, and cutting or changing non-essential benefits are a much better way to reduce costs all around and increase employee satisfaction. Your bottom line is at stake—don’t take benefits lightly!