Employee benefits are important, and workers value a good benefits package. 77% of employees cite benefits as a key factor in job satisfaction, and many prefer better benefits over an equivalent amount of direct cash compensation.

How to Design an Effective Employee Benefits Program

How to Design an Effective Employee Benefits Program

An employee benefit program is more than just a perk; it is essential to attracting the best talent, retaining good employees, improving employee engagement, and in some cases, meeting your legal obligations as an employer.

Ultimately, a well-designed employee benefits program improves competitiveness and profitability.

This article is written especially for small employers with fewer than 50 workers. If you’re a business owner, senior manager, or HR professional working for a small employer, and you’re involved in designing employee benefits and compensation, this blog post is for you.

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SECTION 1: Know Your Employee Benefit Demographics

Understanding your workforce demographics is crucial when designing an employee benefits package, as different groups may have varying needs and preferences.

Here are specific considerations and examples for each demographic factor:


Recognize that employees at different life stages have varying needs.

Your younger employees might prioritize career development opportunities and student loan assistance, while older employees may value retirement planning and health care benefits more.

For example, a generous 401(k) match may have little appeal to a young worker just out of college who can’t afford to contribute to retirement because of a massive student loan burden.

Offering a student loan repayment assistance benefit alongside a 401(k) match may be a key differentiator in recruiting and retaining younger employees, and keeping your benefits package relevant and competitive.

Life Stages

Once you know your workforce demographics, you can tailor a benefits package to appeal to workers at various stages in their lives.

Think about what kinds of workers you most need to attract, and whom you most need to retain.

These could be younger employees, mid-career, experienced workers, seasoned senior management, or – in most cases – a combination of all three.

Create a “matrix” or table of what kinds of employees you need to attract and retain, and then brainstorm what sorts of benefits will carry the most appeal for them, and help cement the employer-worker bond between you and inspire employee loyalty and engagement.

Here’s an abbreviated example of what that might look like:

Employee GroupPrioritiesExample
Younger Employees (Gen Z, Younger Millennials)- Student loan repayment assistance
- Career development opportunities
- Flexible work arrangements
The average recent college graduate with student loans has a balance of over $30, 000, and a payment averaging $200-300/month.

They have a hard time participating in 401(k)s or taking advantage of the match, or contributing to a SIMPLE IRA or HSA.

A student loan assistance program may have much more appeal to these workers who are left out of other more traditional employee-funded benefits.
Mid-Career Employees
(Older Millennials, Generation X)
Family-related benefits (parental leave, child care assistance)

Comprehensive health insurance for dependents
Providing a flexible spending account (FSA) for dependent care can help manage childcare or eldercare costs.

Extending health insurance to dependents makes a huge difference.

May value work-at-home arrangements
Older Employees

(Older Gen X, Baby Boomers)
- Retirement planning services

- Wellness programs for older adults

Health savings accounts

- Enhanced medical coverage
Offering access to financial advisors for retirement planning can help older employees prepare for their future.

Senior workers may have higher incomes and be able to afford HSA contributions, max 401(k) plans, and other benefits.

Age is just one factor you should be looking at.

You can create a similar matrix to help design a benefits package across other demographic axes, as well.

For example:

Family Status

  • Single Employees
    • May prioritize benefits that enhance their personal and financial well-being, such as gym memberships, mental health support, and competitive salaries.
    • Example: A wellness program that includes gym membership discounts or onsite fitness classes can be particularly appealing.
  • Employees with Families
    • Likely to appreciate benefits that support their family’s health and well-being, such as family health insurance, life insurance, and educational benefits for children.
    • Example: Offering a health insurance plan that provides comprehensive coverage for dependents can be a significant draw for employees with families.


  • While benefits should be equitable and non-discriminatory, understanding gender-specific health and wellness needs can help tailor your offerings.
  • Example: Including maternity and paternity leave or offering on-site or convenient and affordable day care can address specific needs and promote gender equity in the workplace.

Cultural and Ethical Values

  • Employees from diverse cultural backgrounds might value inclusive policies and benefits that respect their traditions and needs.
  • Example: Offering a diverse range of holiday observances or flexible holidays allows employees to celebrate according to their cultural practices.

Socioeconomic Background

  • Employees from varied socioeconomic backgrounds may have different financial priorities and challenges.
  • Example: Providing access to financial wellness programs, emergency savings funds, or low-cost insurance options can offer support tailored to these needs.

Technological Affinity

  • The level of comfort with technology can influence which benefits are most appreciated and utilized. 
  • Example: For a tech-savvy workforce, digital health tools, telemedicine services, and online learning opportunities can be particularly appealing. But a less technology-oriented workforce may have difficulty taking full advantage of your benefits package.

Address the Healthcare “Affordability Gap”

Your workers probably won’t tell you this. But many of them are skipping the medical care and medications they need to stay healthy.

The reason? Cost.

Deductibles, co-pays, and co-insurance costs add up fast. Especially for workers with health issues or who have young children who need to see a doctor frequently.

They can’t afford the deductible, and they can’t afford out-of-pocket costs of co-pays, co-insurance costs, medication costs, and other costs that your current health plan leaves out.

And sometimes, they can’t afford the time off work it takes to take a bus to a medical clinic and sit in the waiting room for hours, as is common with many lower-cost networks and Medicaid clinics for young families and other lower-income workers.

Too many employer health plans are designed by senior management and white collar managers, but  fail to address the very real effect that high health insurance deductibles and copays have on rank and file workers, part-timers, and low-wage employees with families.

As a result workers wind up skipping needed preventative care and chronic disease management visits.

And they put off filling prescriptions because they can’t afford to pay for their medications.

How Employee Benefits Design Can Prevent Crippling Absenteeism and Presenteeism Costs

As a result, employees or family members get sicker over time. Small health problems eventually compound into larger ones. This leads to absenteeism, presenteeism, and higher health insurance utilization.

This leads, in turn, to lower productivity, higher insurance premiums, and lower profitability.

Sometimes a fairly common illness or injury can be devastating to a lower-income household, or a young family. For example, recent studies show that most American households would have trouble meeting a $1,000 unexpected expense.

But according to the U.S. Department of Health, a broken leg from a child’s bicycle accident can easily cost over $7,500 out-of-pocket.

An unexpected bill like that could be crippling for some workers.

A good benefits package will include solutions to help all kinds of workers actually get the healthcare they need when they need it.

Even your lower-wage, unskilled, and entry-level workers.

Think Beyond Major Medical

A traditional group medical plan by itself frequently does not serve some workers well.

High deductibles, coinsurance costs, co-pays, and narrow care networks make it tough for some workers to access benefits.

They’re there on paper. But too many workers can’t take advantage of them. And employers pay a significant cost in terms of lower employee engagement, higher stress levels, absenteeism, presenteeism, accidents resulting in employee injuries and workers compensation costs, and employee turnover.

For all these reasons, smart employers often supplement group major medical plans with a variety of benefits designed to help bridge the healthcare affordability gap, and get workers and their families to a doctor when they need to see a doctor.

Here are three great benefits that all help workers afford the health care they need so they can stop skipping needed care: 

  • Direct primary care memberships. Employees and/or employers pay an affordable, set monthly fee, like a health club subscription, to a primary care doctor’s practice. In return, the worker and his or her family members receive as many appointments or primary care services as they need, at no additional cost. Read more about Direct Primary Care here.
  • Hospital/accident insurance.  This benefit pays a set cash amount in the event the worker or a family member is admitted to a hospital or has a qualifying accident or injury. This cash benefit can be used to cover a deductible, compensate for lost wages from time off work, or anything else the worker needs.
  • Critical illness insurance. Pays a one-time lump sum if the employee or covered family member is diagnosed with a qualifying illness. These may include cancer, heart attacks, strokes, amyotrophic lateral sclerosis, multiple sclerosis, loss of limb, or eyesight.

Take Care of Disabled Employees

95% of all disabling illnesses or injuries are not covered under worker’s compensation insurance.

Disability insurance can be critical to keeping a roof over the disabled employees’ head and food on the table while they recover, and to paying health insurance premiums when they need it most.

Disability insurance pays an ongoing cash benefit designed to replace up to 50 to 65% of a worker’s income in case they are sick or injured and can’t work.

However, if you as the employer pay all or part of the disability insurance premiums, benefits are taxable to the employee, in proportion  to the percentage of premiums you pay on their behalf.

Example: You pay 75% of your employee’s disability insurance premium. The employee pays 25%.

If the employee becomes disabled, the employee pays income taxes on 75% of the benefits received. The other 25% are tax free to the employee.

Using Section 125 Cafeteria Plans and Section 105 Plans

You can offer each of these benefits as part of a Section 125 Cafeteria plan. This allows workers to pay for these benefits with tax-free dollars, at little or no cost to you.

Or you can help pay for these benefits, or pay for them entirely in a Section 105 plan.

10 “Must-Have” Employee Benefits You Need to Attract and Retain Talent in 2024

Health Sharing Plans, HSAs, and HRAs

Incorporating Health Sharing Plans, Health Savings Accounts (HSAs), and Health Reimbursement Arrangements (HRAs) can significantly enhance your benefits program, offering flexibility and catering to diverse employee needs.

Health Sharing Plans

These cooperative healthcare arrangements are often more affordable than traditional insurance.

They are not health insurance plans. Instead, they are non-profit associations of health-minded people who share common values, and who pledge to help share the medical expenses of their fellow members.

For some small employers, they can be a viable solution for protecting employees against unexpected high medical costs – at up to 50% less than the cost of a traditional health insurance plan.

However, health sharing plans generally impose waiting periods before they will share the costs of pre-existing conditions. For this reason, they may not be suitable for all employees and family members.

Health sharing works best for relatively young and healthy workforces. If you have workers with pre-existing conditions, it may make sense to help that employee pay for a traditional health insurance policy (possibly via the individual ACA Marketplace), while offering a health sharing program to others.

This can be a complex decision. For expert assistance in designing a health sharing or a hybrid health sharing/health insurance benefits package, make an appointment for a consultation with an HSA for America Personal Benefits Manager.

Health Savings Accounts (HSAs)

Available to employees enrolled in high-deductible health plans, HSAs offer tremendous tax benefits for employees.

And unlike flexible spending arrangements (FSAs), health savings accounts don’t have a “use-it-or-lose-it” provision. They roll over year to year, and continue to compound tax deferred for as long as the assets remain in the HSA.

If the employee or family member needs medical care, or has a qualifying medical expense, he or she can use the HSA to pay for it, tax-free.

As of 2024, employers and employees can make pre-tax contributions of up to $4,150 for single coverage or $8,300 for family coverage to an HSA. Employees over age 55 have an additional contribution limit of $1,000.

This benefit can be a great way to help rank and file and middle management workers address the healthcare affordability gap, while keeping insurance premiums low, thanks to the HDHP. 

Health Reimbursement Arrangements (HRAs)

These employer-funded accounts reimburse employees for qualified medical expenses, including premiums for health insurance.

HRA contributions are tax-free to the employer, generally tax-free to workers, and give workers the maximum flexibility to choose their own health insurance plan.

Everything You Need to Know About HRAS For Small Businesses (2024 Edition)

Work-Life Balance Considerations

Organizations such as Towers Watson and the Society for Human Resource Management consistently find that workers value benefits that focus on work-life balance issues according to recent studies.

Example: Work that can be done from home on their computers instead of coming into the office, use this feature of the job to attract potential employees, along with PTO policies that can cater to a broad range of work-life balance needs.

Other popular and in-demand work-life balance employee benefits examples include: 

  • Pet-friendly office policies (but be cognizant of employees with allergies, and their rights under the Americans With Disabilities Act
  • Sabbaticals
  • Unlimited vacation days
  • Job sharing
  • Remote working
  • Child-friendly workplaces
  • Fitness and recreational activities
  • Gym memberships
  • Meditation and nap rooms
  • Eldercare support

Emphasize Employee Benefits Communication

Benefits communication shouldn’t be an afterthought.

Once you’ve made the capital investment in providing a competitive employee benefits package, it’s important to communicate the benefits effectively to your workforce.

This helps to build perceived value and appreciation, and fosters loyalty, engagement, and retention. It also encourages employees to refer their friends and family to your company as a great place to work. This gives you a huge leg up in the fight to recruit the best talent who are also a “best fit” for your company culture and values. 

  • Transparent Communication. Clearly and effectively communicate any changes or additions to the benefits package to all employees, highlighting how they address the feedback collected.
  • Communicate in multiple media. Handing out insurance company brochures and calling it a day isn’t enough. Continue to communicate via newsletters, paycheck stuffers, training sessions, lunch-and-learns, posters, emails, your website, and more. 
  • Engage management at all levels. HR shouldn’t be doing this alone. Your middle management team should also be involved in communicating the value of these benefits, and helping workers understand how these programs work. 
  • Communicate year-round. Good employee benefits communication isn’t just something you do during open enrollment and onboarding and then forget about it. It’s something you should be doing all year long. 
  • Feedback Channels. Establish channels for ongoing feedback to ensure the new benefits continue to meet employee needs and expectations.

Read more on Best Practice for Communicating Employee Benefits

Voluntary Employee Benefits

Voluntary benefits, often offered through Section 125 cafeteria plans, allow employees to select from a range of pre-tax benefit options tailored to their individual needs.

These benefits are designed to be affordable for a broad swathe of employees. And they cost little or nothing to you as the employer, unless you choose to pay premiums or other costs on employees’ behalf.

By setting up a cafeteria plan you empower workers to decide what benefits work best for them. And you also reduce your payroll costs, because Section 125 benefits are exempt from payroll taxes.

Voluntary Employee Benefits Examples

Here’s a list of the most popular voluntary/Section 125 benefits in the U.S.:

Health Insurance Premiums. Employees can pay their portion of health insurance premiums on a pre-tax basis, reducing their taxable income.

Flexible Spending Accounts (FSAs).

    • Healthcare FSAs. For out-of-pocket medical, dental, and vision expenses.
    • Dependent Care FSAs. To cover child care or eldercare expenses while working.

Note: FSAs have a “use-it-or-lose-it” provision, where HSAs do not.

Health Savings Accounts (HSAs). Paired with high-deductible health plans, HSAs allow employees to save pre-tax dollars for future medical expenses.

Dental Insurance. Coverage for dental care, including preventative services, fillings, crowns, and sometimes orthodontics.

Vision Insurance. Benefits for eye exams, prescription eyewear, and contact lenses.

Life Insurance. Employees can purchase additional life insurance coverage for themselves and their dependents.

Disability Insurance.

    • Short-Term Disability. Provides a portion of income for a brief period during illness or injury.
    • Long-Term Disability. Offers income protection for extended periods of disability.

Accident Insurance. Pays a benefit for accidents that result in injury, hospitalization, or death.

Critical Illness Insurance. Provides a lump sum benefit for diagnoses of specific critical illnesses like cancer, heart attack, or stroke.

Hospital Indemnity Insurance. Offers a fixed benefit for hospital admissions, helping to cover deductibles, copayments, and other non-covered expenses.

Legal Services. Access to legal assistance for personal matters such as estate planning, family law, and identity theft protection.

Pet Insurance. Coverage for pets’ medical treatments, surgeries, and sometimes wellness care.

Identity Theft Protection. Services to monitor and protect personal information and assist in recovery if identity theft occurs.

Employee Assistance Programs (EAPs). Confidential counseling and support services for personal and work-related issues.

Commuter Benefits. Pre-tax contributions towards public transportation and parking expenses related to commuting to work.

Wellness Programs. Incentives and resources to promote healthy lifestyles, including gym memberships, weight loss programs, and smoking cessation support.

Tuition Reimbursement/Assistance. Financial assistance for education-related expenses to encourage professional development.

Retirement Savings Plans (401(k), 403(b)). Employees can allocate a portion of their salary to retirement savings on a pre-tax basis.

Offering a diverse range of voluntary benefits allows employees to customize their benefits package to better fit their personal and family needs, enhancing job satisfaction and loyalty.

LEARN MORE! The Small Business Owner’s Guide to Starting a Section 125 Cafeteria Plan

Leverage Employee Benefits Administration Technology

It used to be that open enrollment required a major HR effort, as employees had to be coached and enrolled in every benefit manually.

Those days are over. In today’s environment, nearly all benefits vendors provide self-enrollment support over the Internet, or via convenient cell-phone apps.

If your vendor or vendors haven’t kept up with the times, it may be time to explore some other options.

The same goes for your current management team. If you’re not already using paperless technology and using the latest technology tools to run your HR operations, it’s time to make some changes.

Technology reduces error rates, lowers compliance risks, improves the employee experience, and lightens the load on your administrative teams.

So they can go back to doing what they do best, support workers and management and recruit and retain great employees.

Foster a Culture of Health and Wellness

Develop a culture that prioritizes fitness and a health-conscious lifestyle.

This can include offering gym memberships, organizing wellness challenges, providing healthy meals and snacks in the workplace, and providing resources for mental health as well as physical health.

Such initiatives demonstrate a commitment to the overall well-being of your employees.

More than that, a successful health and wellness culture can help reduce absenteeism, presenteeism, and healthcare utilization costs over the long term, boosting profitability.

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Capture Feedback and Incorporate It Into Benefits Design

Regularly solicit feedback from employees regarding their satisfaction with the benefits offered.

Use this feedback to make informed adjustments and ensure that your benefits package remains competitive and relevant.

Designing an employee benefits program is a strategic endeavor that requires a deep understanding of your workforce, aligning benefits with organizational goals, effective communication, and regular evaluation.

By offering a comprehensive package, including innovative options like Health Sharing, HSAs, and HRAs, along with additional perks like daycare assistance and pet insurance, you can attract and retain top talent, enhance employee satisfaction, and foster a supportive and engaging workplace environment.

A well-rounded benefits program not only addresses the immediate needs of employees but also anticipates future trends and challenges, ensuring that your organization remains a desirable place to work.

It’s about creating a benefits ecosystem that supports the holistic well-being of each employee, contributing to both their professional and personal growth.

In doing so, your organization not only boosts its competitive edge in the job market but also builds a resilient, motivated, and loyal workforce, poised to drive business success and adapt to the ever-changing corporate landscape.

Remember, the strength of your benefits program is a reflection of your commitment to your employees’ overall well-being and a testament to your company’s values and vision for the future. Our Benefits Managers can help you devise a plan

Further Reading: Best Practice for Communicating Employee Benefits | 10 “Must-Have” Employee Benefits You Need To Attract and Retain Top Talent in 2024 | How to Beat the High Cost of Employee Stress