How Have Employer Costs for Employee Compensation Changed?

Jan 02, 2019
| Michael Altiero
Employer costs for compensation

With unemployment rates dropping to near all-time lows and job creation growing from month to month, the labor market is as healthy as it has been since before the Great Recession.

But this market growth has had a somewhat unexpected impact on employers big and small – attracting and retaining talent is harder than ever.

This has caused employers to alter recruiting strategies, improve their employer branding, and continuously asses their compensation packages to remain competitive.

But has this meant compensation growth for employees? New data that was released in mid-September, when compared to the same data from one year ago, show that there is an increase.
 

Employer Costs for Employee Compensation – 2017 vs. 2018

On September 18th, the Bureau of Labor Statistics released their June 2018 Employer Costs for Employee Compensation data. The report revealed a few interesting statistics around compensation.

In June 2018, employer costs for employee compensation averaged $36.22 per hour worked. Wages and salaries made up 68.3% of this number at $24.72 per hour, and benefit costs averaged $11.50 per hour, which made up the remaining 31.7%.

How do these numbers compare to June 2017? Let’s take a look at the data from last year’s report.

One year ago, the Bureau of Labor Statistics showed that employer costs for employee compensation averaged $35.28 per hour worked. Wages and salaries averaged $24.10 per hour (68.3%) and benefits averaged $11.18 per hour (31.7%).

The data shows that all three numbers grew over the last year:
 
  • Employer costs for employee compensation – around 2.6% increase
  • Wages and salaries – around 2.6% increase
  • Employee benefits – around 2.9% increase

These numbers are interesting, as they show that while all numbers have increased, employer costs increased more for employee benefits than they did for wages.

While we know that healthcare costs continue to rise year after year, these results are notable as they show how important benefits are with recruiting and retention today. As a matter of fact, a recent MetLife survey found that 83% of employees would be willing to take a small pay cut in order to have better benefit choices.
 

How Much Do Employers Contribute to Different Employee Benefits?

Now that we know employers are contributing more to both wages and benefits in 2018 compared to 2017, we can also explore where employers are investing their resources for various benefits.

The same study broke out employer contributions to compensation by different benefits. Since the study focuses on private industry employees, we will look at those statistics.

Employer costs for employee benefits made up 30.4% of total employer costs (the remaining 69.6% went to wages and salary). Here is the percentage breakdown of employer contribution to various benefits:
 
  • Paid leave – 7.0%
  • Supplemental pay – 3.8%
  • Insurance – 7.9%
    • Health – 7.5%
  • Retirement and savings – 3.9%
    • Defined benefit – 1.7%
    • Defined contribution – 2.3%
  • Legally required – 7.7%

The 2017 report also breaks down employer contribution to various benefits, and from them we can see some changes in how employers approach benefit costs (total percentage was 30.4% in the private industry, the same as this year):
 
  • Paid leave – 6.9%
  • Supplemental pay – 3.5%
  • Insurance – 8%
    • Health – 7.5%
  • Retirement and savings – 4.1%
    • Defined benefit – 1.9%
    • Defined contribution – 2.2%
  • Legally required – 7.8%

Comparing this data from 2017 and 2018 shows how employer contributions have shifted. It’ll be interesting to see how these trends further change in the future.
 

Employers Continue to Make Changes to Overcome Recruiting and Retention Challenges

Since job seekers (and those who are currently employed) have more options and control over their job searches today than ever before, it’s become significantly more challenging for employers to attract top talent.

To make things even more difficult, the strong labor market is also making it easier for current employees to seek new opportunities, making retention just as critical as talent acquisition.

As the job market gets even more competitive over the next several years, employers will have to continually explore ways to stand out to job seekers while simultaneously improving employee happiness and engagement to ensure high retention rates.

And one way to do that is to add to and enhance employee benefit offerings as well as other perks that can help attract and retain talent.

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