Voluntary Employee Benefits: More Choice Without More Clutter

Your employees want benefits that fit their individual needs and circumstances, but at the same time, you're navigating rising health care costs and pressure to keep your overall benefits packages competitive. Voluntary employee benefits can help bridge that gap by giving your employees more choices without requiring you to fully fund every additional offering.

A benefits package with dozens of options can become expensive for employees, difficult to administer, and overwhelming to understand. Rather than asking, "How many benefits can we offer?" Ask, "Which voluntary benefits fill meaningful gaps, and can our employees actually afford and use them?" Here's what you'll want to consider.

What Are Voluntary Employee Benefits?

Voluntary benefits are optional benefits employers can offer to employees, and they can choose whether to purchase or participate. If they choose these benefits, they'll generally pay some or all of the cost through payroll deductions.

So, what are voluntary benefits for employees designed to do? Generally, they give your workers access to additional insurance coverage, services, or financial resources that complement their core benefits. Voluntary benefits are not a replacement for core health coverage.

For example, you might provide a group health plan as a core benefit while also making accident insurance, supplemental life insurance or pet insurance available voluntarily.

Keep in mind that voluntary doesn't necessarily mean free to you or 100% employee-paid. The term “voluntary” is sometimes used interchangeably with "supplemental" and "fringe." However, they can have different tax and compliance implications.

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Voluntary Benefits Examples: What Can Employers Offer?

 There are many voluntary benefit options, but you don’t need to offer them all. A better approach is to focus on the benefits your employees are most likely to value and use. 

Protecting Against Unexpected Health Care Costs

You can help protect your employees through accident insurance, critical illness insurance, hospital indemnity insurance, and supplemental dental and vision coverage. These can complement an employee's existing health benefits and provide additional protection, but they don't replace major medical coverage.

Protecting Income and Family Financial Security

Employees may also value benefits that help protect their income, such as supplemental life insurance, short- or long-term disability coverage, and accidental death and dismemberment (AD&D) coverage. The value can vary from one employee to another, which is why giving employees choices can be so useful.

Supporting Everyday Financial and Personal Needs

Some voluntary offerings address needs beyond traditional insurance, such as identity theft protection, legal services, financial wellness resources, and student loan or education-related programs. Financial wellness benefits can be especially valuable when employees balance expenses and obligations.

Lifestyle and Family Benefits

Other voluntary benefits examples may focus on everyday life, like pet insurance, child or elder care resources, commuter or transportation assistance, employee discounts, and other lifestyle-oriented offerings. The key is relevance, since a benefit is only valuable if it addresses a need your employees actually have.

Why Employers Offer Voluntary Benefits

Voluntary benefits for employees provide more ability to personalize the overall benefits package. Employees at different life stages may have very different priorities, and one employee may want additional life insurance, while another may place greater value on pet insurance or identity theft protection.

Voluntary benefits can also help fill gaps in an existing package and expand the perceived value of the benefits you offer without requiring you to fully fund every option.

However, a longer benefits menu isn't necessarily a stronger strategy, and voluntary benefits have limited value if employees can't afford them, don't understand them, or never use them.

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How to Choose Voluntary Benefits Employees Will Actually Value

Instead of asking, "What benefits are popular?" you should ask, "What gaps exist in our workforce?"

Consider Employee Needs and Life Stages

Employees may have concerns involving:

• Family financial protection

• Unexpected medical expenses

• Disability and income protection

• Child or elder care

• Pet expenses

• Identity theft

• Mental health resources

Also, avoid assuming that one demographic characteristic tells you what every employee wants, because they're all individuals with different needs.

Look for Gaps in the Existing Benefits Package

Before adding another benefit, find out what current benefits already provide. Then, see whether a new benefit addresses an uncovered need, duplicates something employees already receive, or would be understood or useful. Knowing that can help you avoid paying for unnecessary administrative support or offering choices that don't provide employees with practical value.

Consider Affordability From the Employee's Perspective

This is an important consideration that can get lost when you focus solely on your own costs, because the voluntary benefit still costs your employee money. Employees already dealing with higher health premiums, housing costs, child care, food, and other expenses may have limited room in their budgets for additional payroll deductions.

Ask Employees Instead of Guessing

Employee surveys, open enrollment feedback, benefits utilization, and common HR questions can all provide useful information. Declining enrollment doesn't necessarily mean your employees don't want a particular benefit, but could mean they don't understand it, see its value, or find it affordable.

Are Voluntary Benefits Pre-Tax?

So, are voluntary benefits pre-tax? Yes, sometimes, but not always. There can be certain qualified benefits offered on a pre-tax basis through a properly established Section 125 cafeteria plan, but other voluntary products or services may mean post-tax deductions.

The way premiums are deducted can also affect the tax treatment of benefits received later, depending on the type of coverage. Because these rules can be nuanced, review your specific arrangement plans with qualified benefits and tax professionals before sharing information with employees.

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Before Creating a Voluntary Benefits Plan, Consider More Than the Premium

A voluntary benefits plan can look simple on paper in that you choose the benefits, make them available, and let employees enroll. In practice, though, there's usually quite a bit more to manage.

Administration and Payroll

You should consider enrollment, payroll deductions, changes and terminations, carrier or vendor coordination, and employee questions, because a benefit with no employer premium can still create administrative responsibilities.

Communication and Benefits Literacy

Employees need to understand what a benefit does and doesn't cover, what it costs, whether they already have overlapping coverage and how to use the benefit when they need it.

ERISA and Employer Involvement

Certain employee-paid insurance arrangements may qualify for a federal ERISA safe harbor when specific conditions are satisfied, including voluntary participation, no employer contributions and limited employer involvement.

The important point is that "voluntary" by itself doesn't automatically make an arrangement exempt.

Vendor and Benefit Quality

Cost is only one consideration when evaluating a voluntary benefit, so you should consider asking yourself:

• Is the benefit easy to understand?

• Is enrollment straightforward?

• How useful is the benefit after enrollment?

• Is the claims process reasonable?

• What support is available to employees?

• Does the vendor provide effective enrollment and ongoing communication?

A low-cost benefit that employees struggle to understand or use may not provide them with much value.

Voluntary Benefits Should Add Choice — Not Benefits Clutter

The goal of a voluntary benefits strategy isn't to create the longest possible list of options, but to create a benefits package around actual employee needs, gaps in existing coverage, affordability, ease of administration and employee understanding.

Voluntary employee benefits can give your workers more control over the protections and services that fit their individual circumstances while helping you strengthen the overall value of your benefits package, so everyone benefits.

At Axcet HR Solutions, we can help you evaluate your employee benefits, manage benefits administration and develop an overall HR strategy that supports both your employees and your organization. 

Contact Axcet HR Solutions today to learn more about our employee benefits and comprehensive PEO services, and see how professional HR support can simplify benefits management and help your business build a benefits package that works.