"Do employees know how much you really pay them?"HR Briefing

Of course your company's employees know how much you're paying them. Or do they? With the cost of benefits skyrocketing, it makes sense to let employees know exactly how much it costs the company to keep them on the payroll. Informing employees about the expenses associated with their employment can foster loyalty and make them more careful about wasting company resources.

Snowden McFall, founder and president of Brightwork Advertising, Inc. (Nashua, NH), decided about five years ago to make her employees more aware of the company's expenditures on their behalf. "Employees often don't understand all the expenses involved in employing people - expenses that go above and beyond their salaries," McFall says. "Our offices look very nice, so it's easy for people to assume that we're making money. They don't understand that there are a lot of invisible expenses involved in running a business."

Two communication keys
What does Brightwork do to keep its employees informed about their total compensation package? According to McFall, the company's communication effort has two main components:

Itemizing benefits
A benefits sheet is attached to each employee's annual performance review. It includes a breakdown of the annual cost of the individual's health insurance, paid vacation, sick days, workers' compensation, FICA contributions, and what McFall calls "nonspecific perks," such as gifts and bonuses.

A benefits package can total as much as 25 percent of an employee's salary, and the fastest-rising cost is for health insurance. Health insurance premiums for just one employee with one dependent, for example, are $4,000 annually. recent changes in New Hampshire law have also triggered an increase in workers' compensation insurance premiums - even for a business like Brightwork, where the risk of injury is minimal.

Discussing cost increases
At the end of each employee's performance review, McFall discusses costs that have increased over the past year. "I review all the different benefits," she says. "I tell the employee, "This is what you earned last year and this is your salary increase. This is the amount we paid for your health insurance benefits. Here are the nonspecific perks and how many days you had off.'"

It takes the company bookkeeper about three or four hours yearly to compute these costs for the company's 6 employees. Most employees are surprised - and pleased - to find out how much the company is paying to employ them.

Pitching in
Knowing how much the company is spending for benefits has made Brightwork's employees more conscious of the bottom line, which means they're less likely to spend the company's money unnecessarily.

When the economy first took a nosedive, employees learned to function as a team, working smarter and more efficiently to save the company money. For example, they voluntarily took on the duties involved in caring for the plants that are part of the company's decor. This saved the company the cost of hiring an outside plant care service.

"There are many extras we used to pay for that we now all pitch in and do," McFall says, "like caring for the plants and keeping track of supplies. There's a much greater awareness among employees of what things cost. They're grateful to have a good place to work, an opportunity for advancement, and a comprehensive benefits package."

Recommendations
The larger the company, the more important it is to inform employees of the costs associated with their employment, according to McFall. Why? because more employees mean more opportunities for waste - and larger total benefits costs.

But the size of the workforce shouldn't make it any more difficult to keep track of benefits information. McFall advises adding benefits to other monthly computations or asking your outside payroll service to track this data for you. "If you can handle it on a month-by-month basis, it's easy to track," McFall says, "because the information is readily available every time you make out a paycheck."

In addition, McFall recommends that employers do the following:
Start communicating early. When you're interviewing job candidates, make them aware of the fact that it will cost the company another 10 to 35 percent above and beyond their salary to employ them.
Update employees on the cost of their benefits. The annual performance review is an ideal time to do this.
Use benefits as a bargaining chip. If cutbacks are necessary, you can let employees choose what benefits they would like to sacrifice - or pay for themselves. For example, you might give them the choice of either picking up the full cost of health insurance premiums or having their hours cut back. Paid personal days might be sacrificed for another benefit. "There are many things you can negotiate - provided they're within the law," McFall says.