How Employee Benefits Provide Better ROI Than Cash

By Greg Go on 14 January 2010 (Updated 26 April 2010) 1 comment
Photo: kutaytanir

A dollar on a paycheck is worth a dollar to the employee. And it costs you a dollar. But benefits aren't like that. Employee benefits can be worth 10x their cash equivalent. It's like getting a huge discount on employee pay.

Here are three tips for maximizing that "discount." (By the way, everything discussed here is 100% tax deductible as business expenses, but double check specific benefits with your accountant to make sure.)

1. Give lots of paid time off.

Sure, you're paying for time the employee is not actively working, but the benefits are worth much more than the cost to you.

Finish projects. Employees are much more productive in the weeks leading up to and following a vacation. Before the vacation, they (or their colleagues) want to tie up loose ends and finish projects that are 90% finished. It's a lot harder to push back a deadline when plane tickets have been paid for.

More effective following a vacation. Employees will be much more effective in the weeks following a vacation. It's a fresh start. Plus they will have time to think — when not actively thinking about the job, the important problems will stick but the trivial will melt away. The first day back from a vacation is when someone sees the big picture the clearest.

Generally higher productivity throughout the year. More vacation time means breaks are spread throughout the year. Employees will be more productive on average, and there will be spillover to the rest of the company as projects move forward. Ideally, you might always be running with 5-10% of your staff on vacation, but everyone is always happy and productive.

Recruit top talent. Just a week or two more than your competition, and you lock up the top shelf talent. To a job seeker, 2 weeks of vacation is standard and expected. But 4 weeks is a rare benefit — that must be the primo gig. Or offer a 1-2 month sabbatical after 5 years. That'll really attract the cream of the crop.

2. Feed them.

If the employee goes to a restaurant and you reimburse them for the meal, it is only 50% tax deductible. But if you furnish the meal at your office for more than half your employees (i.e., majority of staff), then it's 100% tax deductible. And probably a lot cheaper per meal too.

The kitchen and drinks fridge is all 100% tax deductible too and comparatively cheap. So stock up on those sodas, coffee, fruit and granola bars.

Keep them energized. Think of the productivity boosts if an employee can grab a granola bar or apple whenever they're peckish. Or if caffeine and/or their favorite drink is always available.

The benefits far outweigh the cost. An apple costs a quarter. A hungry and irritable employee costs hundreds. A cup of coffee costs a dime. The caffeine boost is what actually gets some work done today. You get the idea.

Keep them at work. Get an extra 90 minutes of productive time a day. Compare 30 minutes in the cafeteria versus 2 hours at a restaurant (including travel time).

Perceived value much higher than actual value. Buy good food. It increases the value boost of the benefit. To the employee, that $8 fancy burrito is worth $8 and something they'd never buy themselves, but it only cost you $4 and generated a lot of goodwill.

3. Give them stuff.

Property transfer — say, giving them stock or buying them an iPhone or car — is treated like regular cash income and is 100% tax deductible. The tricky bit is that you can only deduct up to $25 per employee per year if you give them a gift. But if you give them something as wages for services (i.e., include it in their W-2), then it's treated as if it was cash and so it's 100% deductible.

Stock may be the "cheapest" benefit in this article. By giving your employee an ownership stake in the company, it transforms them from being an employee into being an owner. That changes the whole ballgame. And yes, even small businesses can have stock options and stock grants like big public companies.

You can also buy them stuff that they want. Even better if the thing helps them do their job better. Here are some ideas for stuff to buy your employee.

Buy them a nice computer. Buying your employee a nice computer with a huge monitor is a very cheap benefit. It'll set you back a couple thousand but your employee will feel 10 times the value compared to the same amount of cash in their paycheck. (Note that this is different from lending the employee a company owned computer. Giving them the computer is a better deal for you — it's worthless in 3 years anyway but they feel a lot better knowing they own the computer.)

Buy them nice clothes. If their appearance is important (e.g., attorney, salesperson), then buy them a nice wardrobe. That $1,000 suit will be worth much than that in employee productivity and additional sales over the years.

Buy your salesperson a car. Make it an award if you want to incentivize it and increase its perceived value.

... about a million other possibilities here. What's something your employees would love to own and helps them do their job better? Share in the comments!

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wildgift

I thought this was going to advocate for reducing nominal wages and increasing contributions toward a 401k or even a traditional pension.

In my experience as a worker, the things that people need the most are a health plan that works (whatever cheeseball scheme the insurance companies happen to have), a retirement plan that they are encouraged to save into, and reasonable working hours so people don't feel abused.

Sodas - cheap but not good for the health; water is better. Same with snacks. Fruit is good. Making your workers fatter isn't good.

I agree about providing food at work, but, it's pretty difficult to operate a cafeteria. I think a good compromise is to provide a fridge, and a full kitchen with a dishwasher and plates. People can bring leftovers for lunch. It's nice to change up from restaurant food.