How to change your company’s employee contribution strategy without risking a mutiny from loyal employees

changing employee benefits plan strategy

In our last article we talked about 3 Employee Benefits Contribution Strategies you can use to stabilize the cost of Health Insurance to your business.

However there’s a big difference between understanding these strategies, and effectively implementing them. For some organizations the existing benefits environment and infrastructure – which could have been in place for many years – prevents making the necessary changes. It’s like you can’t get to where you want to go from where you are.

For example, you may really like the idea of paying 100% of single coverage with a buy-out but currently pay 75% of the entire cost for families. However you’ll likely have people who value that strategy and will not like the idea of you only paying for them.

Even if the cost to your employees is minimal – say $20 more per paycheck – they are likely to feel cheated. The more vocal among them may complain (behind your back, of course) that you are only doing this to save money, or that you are putting more in your own pocket by taking it from them. They might also say that you used to care about them, but now it’s all about the money as far as you’re concerned.

Harsh words. But this is exactly how an employee benefits plan can begin to work against you. If you have ever thought or said the following, you are headed for this type of employer-employee interaction:

“My employees are lucky we have been so generous in the past.
But the costs are so high that something has to change.”

or

“We are paying more than our competitors.
Our employees need to get in line or find another company to work for.”

or

“We just can’t afford these increases any more.
Our employees need to know that.”

What is wrong with these statements? Actually, not much. They are probably true, if you are thinking them. But when it comes to employee benefits, the way you make a change is often as important as the change itself.

Here are two ways to change your contribution strategy with minimal impact to employee morale.

#1: The Date of Hire Classification

A simple and fast way to make any change is to announce that, effective immediately, the contribution strategy will change for new hires after a certain date. Every employee hired after that date will have the new contribution structure.

This allows you to negotiate salaries with the new contribution in mind. It allows to figure out the difference you will pay between new and current employees, and offer the ones you want a higher salary*– will then be used to cover their families via a pre-tax deduction.

The beauty here is that you may hire an employee who is already used to paying more for their health coverage, so a salary negotiation may not even be necessary. You will also attract employees who don’t need health coverage as much and ones that need perhaps only coverage for themselves. In other words, you will change the profile of your employees immediately.

It’s a fallacy that all valuable employees insist on full coverage for their families. Sure, some do. But plenty of really good employees have a spouse with a good job with a company that provides benefits just as good (if not better) than you do. Attract them to your business – instead of to the competition.

The opposite side of the coin here is that you may have very valuable employees already that would leave if you did this without the date of hire classification. Sure, you will pay more for those folks for a while. But as your business grows and evolves you will have some turnover and opportunities to restructure those folks.

It may also start conversations with some of them that reveal they have an opportunity to put their spouse on his/her coverage but haven’t as yet, because you require them to contribute very little. Resist the urge to make a uniform change. Remember that while a Date of Hire classification change may not get you as much immediate result as a “cold turkey” change; it will get you on the path with almost no disruption to your current team. It is certainly better than doing nothing for six months while you consider the impacts.

#2: The “COLD TURKEY” Change With A Modifier

The other way is to make the change cold turkey, but carefully review the real world compensation implications of the key folks in your organization affected by this change. Don’t negotiate salary directly with an employee with regard to benefits.* If you believe a particular employee is overdue for some recognition, you could give that employee a raise that happens to coincide with the change in benefits. In other words, take care of your good employees with raises and bonuses, and let the cold turkey change affect the rest.

One downside of the Cold Turkey option is that it doesn’t scale well. While it may be worth consideration for smaller businesses, larger organizations bring with them additional complications. Staff raises and bonuses are often limited and controlled with job titles or pay grades, for example. Also, The Cold Turkey method obviously won’t be readily accepted if many employees would be hurt by this strategy. Clearly, in such cases you would better off with the first solution.

The bottom line is that you can change your contribution strategy without upsetting loyal and hardworking employees using one of these two strategies.

*An important note: Don’t make salary negotiations a direct connection to benefits – it is a bad idea because circumstances can change.
For example an employee who previously didn’t need benefits suddenly needs them due to a spouse’s layoff. This comments about salary and contributions are only meant to show that in that rare instance where you really want keep a new hire or existing employee whole but the benefits are the only sticking point, you have the ability to offer them a higher salary to push them over the edge. They will pay the same as others out of their pay for benefits, so you are not discriminating or making a “side deal.”
Don’t connect benefits and salary as a negotiation on a regular basis and make sure you follow all Federal and State laws regarding discrimination and fairness. It is also important to test your plan for discrimination if you have a pre-tax contribution. Please do not consider the above article legal advice.

For a no-obligation consultation on the benefits strategy options for your organization, get in touch with us at info@blueoceannj.com
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