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The Hard and Soft Costs of ROI

July 30, 2024

6 minute read

Category: Benefits Strategy

Are you overspending on your benefits program? It’s a question many employers like you ask themselves when evaluating their benefits program. From our experience working with employers across various industries, we’ve learned of several hidden drains to an organization’s budget. Your return on benefits investment isn’t dictated by dollars and cents alone. It’s a balance between your budget and a workplace’s willingness to participate in your program.

Let’s explore these two costs and how they can influence your return.

 

The Hard Costs

The hard costs refer to the direct expenses incurred by your organization for providing various benefits to your employees. These costs can include:

    • Insurance premiums
    • Contributions to retirement plans
    • Administrative fees
    • Benefits Admin system
    • New-hire onboarding

 

Benefits Price Tag

The price tag of a program can fluctuate based on the workplace and the needs of its employees, so it’s important to know the current state of employee benefits. When the average monthly cost for an employee’s benefit is $1,929.60, or $23,000 annually, this can make a significant difference to your organization’s budget.1 This can also influence what type of programs you may be willing to invest in because an underutilized program could mean a sunk cost to your organization.

Another easy way for organizations to lose money is based on who they’re covering as dependents. For instance, say an employee defaults to last year’s benefits plan without considering who they’re claiming as dependents. If left unchecked, an organization may be paying benefits for ineligible individuals. Not only can this cost the organization more, but it also has the capability to push your plan out of compliance. Conducting a DVR, or dependent verification review, could come in handy.

 

New Hire, New Costs

Hiring an employee is an investment and losing one can come at a steep price – half to two times the employee’s annual salary, according to Gallup and Payactiv. And, in referencing Enrich estimates in the same article, it costs a company six to nine months of an employee’s salary to replace an employee.2

As they leave, so too does their experience. Those gaps in organizational information, as well as the hiring process, can be some of the reasons behind an organization incurring a cost that is six to nine months of an employee’s salary. On average, the loss of a single employee can cost an employer

thousands of dollars.3 Monitoring these costs can allow organizations to better understand the importance of employee retention toward their bottom line.

 

Big Spenders

Some of the biggest spenders of a program are often hidden costs. These are the charges that add up over time – like paying for streaming services and forgetting about them until the bill arrives. Instead of Netflix or Hulu, this could mean you’re paying for several services to accomplish a single task, or deploying costly enrollment technology that may not be properly utilized by your workforce.

Costs incurred by investing in retirement plans and other benefits administration platforms, enrollment materials, and supplemental benefits can build quickly. Depending on the spending, this can spell out trouble. As you’re considering ways to save, it’s a smart idea to see what you’re paying for by conducting a quick audit.

 

The Soft Costs

But what about the soft costs? Does employee engagement and awareness play a factor in an organization’s ROI? Absolutely.

A lack of investment can lead to toxic behaviors and employee absenteeism, a corrosive element to any organization’s productivity. Understanding these metrics allows you to tailor your messaging to meet the needs of your organization. Think about your organization – how would you rank the engagement of your employees? And how many are actively engaged?

 

Engage in Engagement

According to a LIMRA survey, 86% of employees find in-person, one-on-one meetings helpful resources to understanding their benefits4; yet only 28% of employers offered these types of services.5

A dedicated employee who always strives to do their best is the ideal candidate for any employer. Unfortunately, this only accounts for an average of 36% of employees in the United States. This leaves the remaining 51% of disengaged employees, while 13% are actively disengaged. In fact, a single disengaged employee can cost an organization about $3,400 in lost productivity for every $10,000 salary. In total, this costs organizations between $450 - $550 billion each year.6

And yet, does the onus of engagement fall only on the employer? Not exactly.

 

Cost of Disengagement

Big picture, what does this mean? For many organizations, this unengaged mentality can become toxic to the workforce. Spreading negativity and employee absenteeism are the hallmarks of a poor workplace culture. And the effects of this can be felt on a small scale – such as avoiding day-to-day activities – and on a large scale – like not participating in employee benefits programs. In time, the probability of job turnover in an organization like this is 48.4%.7

If your engagement feels broken, you’re not alone. As employee turnover reached heights of 50.5 million in 2022, many employers are considering new engagement strategies such as collecting data and creating action plans for career paths.8

 

Invest Wisely

The hard and soft costs of ROI are two sides of the same coin, each contributing to the total return for your organization. Investing wisely in what makes your organization unique can be the first step in maximizing your return.

This blog is up to date as of July 2024 and has not been updated for changes in the law, administration or current events.

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1https://www.care.com/business/employee-benefit-costs/#:~:text=Based%20on%202023%20data%20from,cost%20of%20%2441.03%20per%20hour. December 1, 2023. Accessed March 27, 2024

2https://www.linkedin.com/pulse/what-cost-replacing-employee-jim-stroud/. February 27, 2023. Accessed March 27, 2024

3https://www.peoplekeep.com/blog/employee-retention-the-real-cost-of-losing-an-employee. April 16, 2024. Accessed June 3, 2024

4LIMRA, 2023 BEAT Study, Benefits and Employee Attitude Tracker, used with permission (86% stat). May 4, 2023. Accessed March 28, 2024

5https://www.hrmorning.com/articles/communicate-during-open-enrollment/. May 30, 2024. Accessed July 1, 2024.

6https://www.hrcloud.com/blog/20-employee-engagement-statistics-you-need-to-know#:~:text=A%20Highly%20Engaged%20Workforce%20Increases,companies%20with%20a%20disengaged%20workforce. June 9, 2022. Accessed March 28, 2024

7https://positivepsychology.com/company-culture/#:~:text=A%20Columbia%20University%20study%20found,prioritize%20culture%20like%20never%20before. April 3, 2024. Accessed June 5, 2024

8https://www.cnbc.com/2023/02/01/why-2022-was-the-real-year-of-the-great-resignation.html. February 1, 2023. Accessed June 5, 2024

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