April 26, 2020
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How much do employee benefits cost per employee for a young startup?

For starters let’s assume that you want to limit this to the basics, medical and dental. Let’s also assume that you want to make a competitive contribution of 75% on a moderate to high level plan for both benefits.

On medical coverage, a good cost yardstick for a plan in CA, NY or MA (tech heavy in Boston, SF, NY) would be $500/month for a single employee, $1,000/month for couple or single parents and $1,800/month for a full family. For dental coverage, yardstick numbers would be $50, $100, $150/month for single/couple or single parents/family plan price points.

If you are a funded startup looking to recruit and retain employees, that 75% employer contribution will make for a good yardstick as far as how much an employer will contribute. If a startup isn’t funded it will be less. If you are not a startup at all and in the tech space, it will likely be more. Industries where perhaps the fight for talent isn’t as bad (manufacturing, retail) this may a lesser percentage for startups.

Getting to the bottom line on a 75% contribution on medical and dental, the employer contribution costs break out a follows:

-Single Participant: medical is $500/mo, dental is $50, $550 total. 75% of this would be $550 x .75 or $412.50/mo ($4,950/annual)

-Couples or Single Parents: medical is $1,000/mo, dental is $100, $1,100 total. 75% is $825/mo ($9,900/annual)

-Family: $1,800/mo, $150 dental, total $1,950/mo. 75% is $1,462.50/mo. (17,550/annual)

Keep in mind, properly set up the 25% employee contribution will be pre-tax payment on the coverage. Both parties would gets the tax break on the contribution so it’s not straight after tax dollar expense. These employer contributions in the mock up example would constitute what a startup would pay in benefits per year in pre-tax dollars on medical and dental coverage.

I advise my startup clients to take these numbers into account as well as the demographics of their hiring. Use a contribution model that works in terms of average total annual outlay for benefits expenses per employee and figure that into a total compensation package when setting up and offer for a potential hire. Don’t just go throwing extra salary at a potential employee with a family. Have a very low contribution level on benefits ? Expect some issues. Benefits matter to those with spouses and children.

Here comes the plug. If this is something you would like to discuss in more detail I would be happy to help. Feel free to reach out if I can provide the resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
nathan@bibsma.com

http://www.bibsma.com

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