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5 Ways to Calculate the ROI of Employee Benefits

5 Ways to Calculate the ROI of Employee Benefits

Employee benefits affect every facet of your business, from employee retention to consistent business productivity. A 2021 WorkHuman survey found that "66% of respondents are waiting to review their company's new benefits before deciding between staying at or leaving their job."  

That makes employee benefits one of the most significant factors in retention. Businesses can prioritize engaging employees and reducing turnover with employee benefits. A more consistent workforce makes business performance far more predictable.  

But are better benefits worth the cost?  

Calculating the value those costs bring to your company is the only way to know. You can start calculating the ROI of employee benefits with these five formulas to gain clearer insight. But first, let's examine why that ROI is hard to calculate. 

Challenges With ROI Calculations 

Navigating the world of employee benefits is tricky enough, even when the matter is purely financial. But when it comes to the messy task of measuring the benefits of benefits, most HR professionals struggle.  

Many of the positive effects—happiness, engagement, better health, a more positive view of the company—are qualitative, while the costs of robust benefits packages are starkly quantitative. When you try to assign the positive effects of employee benefits with a numeric value, there are only indirect values to use in your equations: higher Net Promoter Score (NPS) numbers, lower employee turnover, increased per-employee productivity, fewer health-related expenses or interruptions, etc. Even if your company collects all of this data, identifying and attributing the right factors properly is a lot of work.  

As you get started, keep these helpful tips in mind to guide the process and keep executives on board: 

  • The measurable effects of good employee benefits are long-term; it truly is an investment. 
  • You will likely need a mix of forecasted, company-specific data and generalized industry benchmarks to start weighing your ROI. 

It helps to look at multiple different ROI calculations. Because the ROI of benefits is such a complex topic, no one number tells a complete story. 

5 Methods to Determine the ROI of Employee Benefits 

To get started, we recommend using more than one of these five methods to measure employee benefits' ROI. Each method offers unique insights into how your investment measurably aids your organization.

1. Cost Savings Method

In the cost savings methods, you're focusing solely on how employee benefits are reducing business expenses. Some of the areas that can see the biggest reductions are: 

  • Reduced employee turnover costs because of longer retention 
  • Lower absenteeism: Wellness programs can cause a reduction of absenteeism by 14-19% due to higher engagement and increased health benefits utilization. This, in turn, leads to more productivity in the business. 
  • Decreased direct healthcare costs to the organization, as easy access to preventative care and health interventions can reduce severe medical incidents and associated costs.  

This method is relatively straightforward and can demonstrate clear savings benefits and overhead reduction for financially-minded executives.  

5 Ways to Calculate the ROI of Employee Benefits

2. Productivity Improvement Method

Businesses rely on a high level of productivity to stay competitive. But what does productivity look like, and how can you accurately map it to employee benefits? Try these methods: 

  • Measure the output per employee over time. Are they winning more sales or completing more tasks? Be sure to correctly attribute all the potential sources of increased productivity (such as increased expertise or new tech tools) so you can isolate and accurately identify the wins due to better benefits. 
  • Greater profits: Increased revenue and better cost savings both play a role here. If you've already identified the gains in productivity and the lower business costs associated with your benefits packages, you can calculate its profitability. 
  • Survey your customers: See if your customers are experiencing a notable increase in service and product quality.  

3. Employee Satisfaction and Engagement Method

Better benefits play a prominent role in employee engagement and satisfaction. Some of the ways to can gauge the effects of your employee benefits include:  

  • More employee retention  
  • Higher employee engagement 
  • Increased employee satisfaction scores (you can also ask for feedback related to your benefits options or ask employees if they’re satisfied. 

4. Human Capital Value Addition Method

More complex calculations can also give you insight into the effects of offering better health and other benefits. The Human Capital Value Added (HCVA) equation measures how much employees provide value for your business. The formula is

HCVA = Revenue – (Total Costs – Employment Cost) / Full-Time Employees 

Through this equation, you can determine if the increased revenue of happier and longer-lasting employees outweighs any added costs of the benefits.

5. Intangible Benefits Valuation Method

Remember: much of the value of employee benefits is qualitative, intangible, or hard to attribute correctly. In this method, you can use industry benchmarks and information from reputable sources (or your internal data) to estimate the gains from better employee morale and a more robust work-life balance. You can even assign a dollar value to having a corporate reputation for caring for your employees. 

Aggregating Methods for Enhanced Accuracy 

Each of these methods is a valuable tool for measuring the impact of improved employee benefits. But using a combination of equations or, even better, all of these methods can give you even more insights and clearly illustrate the ROI to executives. The more you can delineate the connection between employee benefits and higher productivity levels, corporate reputation, and profit, the better for every level of your organization. 

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Benefit Administration, Employee Retention