Total rewards refers to the entire compensation package offered to an employee. For example, you may pay one of your workers a $45,000 salary; however, if you also provide them with an additional $6,000 in benefits their total rewards package is actually $51,000 per year.
If you’re in a position to offer benefits to your employees, ensure that potential recruits are aware of the overall compensation package, not just the salary. Often, employees will only focus on the dollar amount of their salary without thinking of how benefits may factor in to their total rewards. Depending on what’s offered, benefits can significantly add to the overall value.
Let’s look at an example where awareness of benefit $’s could make a difference. An employee may make $50,000 per year (with no benefits) in their current job at organization X. They may be interested in a job with your organization; however, the job that you offer may pay $48,000. On the surface, they may not take the job because the salary that you offer is lower than their current salary. However, with benefits, the total rewards package for the position at your company may be $55,000. In other words, it’s important to use the benefits component as a selling feature to this candidate. As well, ensure that your current staff are aware of the total dollar value of their compensation, which could prove beneficial from a retention perspective.
Typical benefits include health and dental, life insurance, disability, pension, flexible spending accounts, and extra vacation. For small business owners, there is the ability to purchase benefits for employees through a benefits provider. This approach doesn’t have to cost you a lot of money, yet can pay big dividends in return. Most employees will look for an employer that offers benefits when they are job hunting, so it makes for a great recruitment (and retention) tool. While a traditional pension plan may not be feasible for your organization, one possibility for retirement savings can be through offering pooled RRSPs. Matching employee RRSP contributions up to a specified dollar value is an option for business owners.
A side note about pension plans: a defined benefit plan provides for a pre-determined monthly income at retirement. There is a lot of risk for the employer with this type of plan, as the employee may end up receiving more from the plan than what they contribute. Defined contribution plans (also known as money purchase plans), on the other hand, don’t provide for a guaranteed income upon retirement. Contributions are invested and the employee is entitled to the lump sum amount upon retirement. Defined contribution plans make up the majority of plans offered by employers today.
As a wrap up, offering benefits will assist in employee recruitment and retention. Ensure that you communicate the overall rewards that you offer to not only potential employees, but also to your current employees. The majority of individuals only focus on their salary when they think of compensation; however, the overall total can be significantly higher when including benefits.