February 13, 2016
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How much do first year startups pay in employee benefits per month?

Employee benefits, this is something that startups tend to have problems with. If for no other reason, money is tight but it is something you have to have if you expect to be able to recruit and retain employees. For the purposes of this Q&A, 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 (a few of the higher cost markets) 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)

Employee Contributions

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. It’s not directly paid to employees as the question is written, but if you are doing a group medical plan for the company, direct payment isn’t how it works. If a company is paying or reimbursing employees directly for non-group medical policies that an employee directly owns, that’s a violation of the ACA/Obamacare laws which is a whole different can of worms you don’t want to open.

Consider Employee Demographics

I advise my clients to take these numbers into account as well as the demographics of their hiring. Use a figure the works as an 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 throw extra salary at a potential employee with a family while having a very low contribution level on benefits and expect things to go well. Benefits matter to those with spouses and children.

If you’ve read this far and feel this is something you could use more guidance on, here comes the shameless plug. I work with my clients in the startup space quite often on getting medical plans established. If it is something you could use some help with feel free to reach out. I’d be happy to act as a resource.

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

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